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This is filed pursuant to Rule 497(c).
File Nos. 333-30409 and 811-05993.
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[LOGO]
ALLIANCE GLOBAL
ENVIRONMENT FUND, INC.
_________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
(as amended November 1, 1999)
_________________________________________________________________
This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
current Prospectus for Alliance Global Environment Fund, Inc.
(the "Fund") that offers the Class A, Class B and Class C shares
of the Fund and the current Prospectus for the Fund that offers
the Advisor Class shares of the Fund (the "Advisor Class
Prospectus" and, together with the Prospectus for the Fund that
offers the Class A, Class B and Class C shares of the Fund, the
"Prospectus"). Copies of either Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund...............................
Management of the Fund................................
Expenses of the Fund..................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Dividends, Distributions and Taxes....................
Portfolio Transactions................................
General Information...................................
Financial Statements and Report of
Independent Auditors................................
Appendix A: Certain Employee Benefit Plans........... A-1
__________________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
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________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Alliance Global Environment Fund, Inc. (the "Fund") is a
diversified, open-end investment company. Except as otherwise
indicated, the investment policies of the Fund are not
"fundamental policies" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and may,
therefore, be changed by the Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. There can be, of course, no assurance that the
Fund will achieve its investment objective.
Additional Information with Respect to Global Environmental
Matters
Existing laws in the United States and Europe already
mandate remedial efforts to deal with pollution. In addition,
Alliance Capital Management L.P. (the "Adviser") believes that
there is an emerging political consensus in the United States and
Western Europe that additional governmental action to control and
prevent future pollution is vital to the environment and the
global economy. In the United States, the Environmental
Protection Agency (the "EPA") has the duty of imposing and
enforcing environmental standards on American industry. The EPA
has identified over 1,000 toxic waste sites that require
immediate attention. To date, Congress has enacted at least 20
major pieces of environmental protection legislation covering,
among other things, solid waste, water pollution, air pollution,
and nuclear waste. A Congressional study recently estimated that
the cost of cleanup of chemically contaminated sites may be near
$500 billion over the next 50 years. In addition, many state
legislatures are implementing rigorous environmental statutes
that, for instance, require state approval before closing,
terminating or transferring ownership of industrial facilities.
In the private sector, a growing number of companies have elected
representatives of environmental interests to their boards of
directors. In the opinion of the Adviser, as federal, state and
local legislation becomes more stringent, many Environmental
Companies, as well as Beneficiary Companies involved in the
development and manufacture of environmentally safe products will
be afforded additional opportunities for growth.
Existing European environmental laws are generally less
rigorous than those in the United States. Moreover, in many
industrial zones in Eastern Europe, air and water pollution have
reached unprecedented levels and, more generally, there has been
little application of the services and technologies marketed by
Environmental Companies. While there can be no assurance that
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Eastern European governments will sustain environmentally
protective policies or that their weakened economies will prove
able to afford the cost of effective policies of this nature, the
Adviser believes that it is likely that over the long term many
Eligible Companies, especially those based in Western Europe,
will benefit from substantial additional demand for their goods
and services from Eastern Europe.
Environmental awareness is growing in Japan as well,
leading to new demands on the Japanese government to take steps
to protect the environment, both in Japan and abroad, through the
funding of environmental programs and the promotion of
environmentally sensitive technologies. Japanese industry, which
developed innovate anti-pollution technologies to effectively
purify contaminated gas and wastes emitted from automobiles and
factories, is now being provided with governmental incentives
(including research grants) to develop new technologies in other
areas. As a result of its participation in the United Nations
Environment Program, Japan has recently agreed to monitor the
transboundary movement of hazardous industrial wastes in Asia.
In addition, Japan has announced plans to establish regulations
under which industrial wastes produced in Japan can be properly
processed. The Japanese government also has pledged to increase
overseas development assistance for pollution control and other
environmental projects in developing countries. In the opinion
of the Adviser, the active role of the Japanese government in the
development of environmentally sensitive technologies and its
participation in global environmental projects will provide
significant additional growth opportunities for many
Environmental Companies and Beneficiary Companies.
In other areas of the world, environmental protection
issues are also moving to the forefront. In the Pacific Rim,
countries are now experiencing the side effects of their
industrialization. For example, Australia's rain forest has been
substantially destroyed (there are tentative plans to replant one
billion trees by the year 2000) and forest damage is also
extensive in Thailand, Indonesia and the Philippines. To date,
however, government regulation in this area has been slow to
develop as a result of enforcement problems, legislative delays
and the expenses associated with compliance. In Australia,
growing political awareness of environmental issues has begun to
affect the regulatory framework. Recent measures aimed at
addressing these concerns have included, among other things, a
national review of state pollution laws aimed at achieving
uniform penalty and enforcement standards, tighter controls on
emissions affecting the ozone layer and investigations regarding
the greenhouse effect.
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Additional Investment Policies and Practices
The Fund may engage in the following investment policies
and practices to the extent described in the Prospectus.
Illiquid Securities. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest in restricted securities issued
under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
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institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System sponsored by
the National Association of Securities Dealers, Inc., an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers.
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, among other factors, the following:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of security.
Currency Swaps. Currency swaps involve the individually
negotiated exchange by the 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 the Fund's obligations over
its entitlements with respect to each currency swap will be
accrued on a daily basis and an amount of liquid assets having an
aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by the Fund's
custodian. The 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, the
Fund will have contractual remedies pursuant to the agreements
related to the transactions.
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General. The successful use of the Fund's investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Investment Adviser's ability to forecast price movements
correctly. Should prices move unexpectedly, the 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. In addition, the correlation
between movements in the prices of such instruments and movements
in the prices of the securities hedged will not be perfect and
could produce unanticipated losses.
The Fund's ability to dispose of its position in options
depends on the availability of liquid markets in such
instruments. If a secondary market does not exist with respect
to an 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 an option purchased
by the Fund would have to be exercised in order for the Fund to
realize any profit. Therefore, no assurance can be given that
the Fund will be able to utilize these instruments effectively
for the purposes set forth above.
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices that are not currently contemplated for use by the Fund
or are not available but may yet be developed, to the extent such
investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment
practices, if they arise, may involve risks that exceed those
involved in the activities described above.
Defensive Position. For temporary defensive purposes,
the Fund may vary from its investment objective during periods in
which conditions in securities markets or other economic or
political conditions warrant. During such periods, the Fund may
reduce its position in equity securities and increase without
limit its position in short-term, liquid, high-grade debt
securities, which may include securities issued by the U.S.
government, its agencies and, instrumentalities ("U.S. Government
Securities"), bank deposits, money market instruments, short-term
(for this purpose, securities with a remaining maturity of one
year or less) debt securities, including notes and bonds, rated A
or higher by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), Duff & Phelps Credit
Rating Co. ("Duff & Phelps") or Fitch IBCA, Inc. ("Fitch") or, if
not so rated, of equivalent investment quality as determined by
the Adviser.
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Certain Fundamental Investment Policies
The following restrictions may not be changed without a
vote of a majority of the Fund's outstanding voting securities.
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, except that the Fund will
invest more than 25% of its total assets in
Environmental Companies, provided that this
restriction does not apply to U.S. Government
securities, but will apply to foreign government
obligations unless the Commission permits their
exclusion;
(iii) 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;
(iv) borrow money or issue senior securities, except
that the Fund may borrow (a) from a bank if
immediately after such borrowing there is asset
coverage of at least 300% as defined in the 1940
Act and (b) for temporary purposes in an amount
not exceeding 5% of the value of the total
assets of the Fund;
(v) pledge, hypothecate, mortgage or otherwise
encumber its assets, except (a) to secure
permitted borrowings and (b) in connection with
initial and variation margin deposits relating
to futures contracts;
(vi) 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 the aggregate;
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(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 5% of the Fund's net assets
(taken at market value) is held as collateral
for such sales at any onetime;
(ix) buy or write (i.e., sell) put or call options,
except (a) the Fund may buy foreign currency
options or write covered foreign currency
options and options on foreign currency futures
and (b) the Fund may purchase warrants; or
(x) (a) purchase or sell real estate, except that it
may purchase and sell securities of companies
which deal in real estate or interests therein,
(b) 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), (c) 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,
(d) purchase securities on margin, except for
such short-term credits as may be necessary for
the clearance of transactions or (e) 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 Securities
Act.
Whenever any investment restriction states a maximum
percentage of the Fund's assets which may be invested in any
security or other asset, it is intended that such maximum
percentage limitation be determined immediately after, and as a
result of the Fund's acquisition of, such securities or other
assets. Accordingly, any later increase or decrease in
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percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a violation
of any such maximum.
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Directors and Officers
The business and affairs of the Fund are managed under
the direction of the Board of Directors. The Directors and
principal officers of the Fund, their ages and their principal
occupations during the past five years are set forth below. Each
such Director and officer is also a director, trustee or officer
of other registered investment companies sponsored by the
Adviser. Unless otherwise specified, the address of each of the
following persons is 1345 Avenue of the Americas, New York, New
York 10105.
Directors
JOHN D. CARIFA,* 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1994.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
W.H. HENDERSON, 72, joined the Royal Dutch/Shell Group
in 1948 and served in Singapore, Japan, South Africa, Hong Kong
and London. The greater part of his service was in Japan and
between 1969 and 1972 he was Managing Director and Chief
Executive Officer of the Shell Company of Hong Kong Limited.
Mr. Henderson retired from the Royal Dutch/Shell Group in 1974 in
order to establish his own oil and gas consultancy business.
Mr. Henderson is currently a Director of a number of investment
companies. His address is Quarrey House, Charlton Horethorne,
Sherborne, Dorset DT9 4NY, England.
____________________
* An "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended (the "1940
Act").
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STIG HOST, 73, is the Chairman and Chief Executive
Officer of International Energy Corp. (oil and gas exploration),
with which he has been associated since prior to 1994. He is
also Chairman and Director of Kriti Exploration, Inc. (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
also a Trustee of the Winthrop Focus Funds. His address is 103
Oneida Drive, Greenwich, Connecticut 06530.
ALAN STOGA, 48, has been President of Zemi Investments,
L.P., since 1995, President of Zemi Communications, L.L.C. and
its predecessor company since 1996, and a Managing Director of
Kissinger Associates, Inc. until 1995. He has continued as a
member of the Board of Directors of Kissinger Associates. His
address is Kissinger Associates, Inc., 350 Park Avenue, New York,
New York 10022.
Officers
JOHN D. CARIFA, Chairman and President, see biography
above.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
LINDA BOLTON WEISER, Vice President, 34, is a Vice
President of ACMC, with which she has been associated since prior
to 1994.
RUSSELL BRODY, Vice President, 32, is a Vice President
and Head Trader of the London desk of ACL, with which he has been
associated since July 1997. Prior thereto, he was Head of
European Equity Dealing with Lombard Odier et Cie, London office,
since prior to 1994.
THOMAS BARDONG, Vice President, 54, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
EDMUND P. BERGAN, JR., Secretary, 49, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 38, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was a Vice
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President and Counsel of Concord Holding Corporation since prior
to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 45, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was a
Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1994.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
49, is a Senior Vice President of AFS and a Vice President of
AFD, with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
AFS, with which he has been associated since prior to 1994.
The aggregate compensation to be paid by the Fund to
each of the Directors during its fiscal year ended October 31,
1998, the aggregate compensation paid to each of the Directors
during the calendar year 1998 by all of the registered investment
companies to which the Adviser provides investment advisory
services (collectively, the "Alliance Fund Complex"), and the
total number of registered investment companies (and separate
investment portfolios within those 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 registered investment company 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.
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Total Number
Total Number of Investment
of Investment Portfolios
Companies in Within the
the Alliance Alliance Fund
Total Fund Complex, Complex
Compensation Including the Including
From the Fund, as to the Fund, as
Aggregate Alliance Fund which the to which the
Compensation Complex, Director is a Director is a
Name of Director From the Including the Director or Director or
of the Fund Fund Fund Trustee Trustee
John D. Carifa $ -0- $ -0- 50 114
David H. Dievler $7,050 $216,288 43 80
John H. Dobkin $6,925 $185,363 41 91
W.H. Henderson $8,450 $ 26,950 4 4
Stig Host $8,450 $ 26,950 4 4
Alan Stoga $8,325 $ 26,450 4 4
As of October 8, 1999 the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund. As
of October 8, 1999, Mr. Alan Stoga owned 85.82% of the Advisor
Class shares of the Fund.
Adviser
Alliance Capital Management L.P., a 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 the Fund, subject to the supervision and
control of the Board of Directors of the Fund (see "Management of
Fund" in the Prospectus).
The Adviser is a leading international adviser managing
client accounts with assets as of September 30, 1999 totaling
more than $317 billion (of which more than $143 billion
represented assets of investment companies). As of September 30,
1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 28
of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide.
The 52 registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
approximately 4.8 million shareholder accounts.
<PAGE>
Alliance Capital Management Corporation ("ACMC")
is the general partner of the Adviser and a wholly owned
subsidiary of The Equitable Life Assurance Society of
the United States ("Equitable"). Equitable, one of the
largest life insurance companies in the United States,
is the beneficial owner of an approximately 55.4%
partnership interest in the Adviser. Alliance Capital
Management Holding L.P. ("Alliance Holding") owns an
approximately 41.9% partnership interest in the Adviser.*
Equity interests in Alliance Holding are traded on the
New York Stock Exchange in the form of units.
Approximately 98% of such interests are owned by the
public and management or employees of the Adviser and
approximately 2% are owned by Equitable. Equitable is a
wholly owned subsidiary of AXA Financial, Inc.
("AXA Financial"), a Delaware corporation whose shares
are traded on the New York Stock Exchange. AXA Financial
serves as the holding company for the Adviser, Equitable
and Donaldson, Lufkin & Jenrette, Inc., an integrated
investment and merchant bank. As of June 30, 1999, AXA,
a French insurance holding company, owned approximately
58.2% of the issued and outstanding shares of common
stock of AXA Financial.
________________________
* Until October 29, 1999, Alliance Holding served as
the investment adviser to the Fund. On that date,
Alliance Holding reorganized by transferring its business
to the Adviser. Prior thereto, the Adviser had no
material business operations. One result of the
reorganization was that the Advisory Agreement, then
between the Fund and Alliance Holding, was transferred
to the Adviser by means of a technical assignment, and
ownership of Alliance Fund Distributors, Inc. and Alliance
Fund Services, Inc., the Fund's principal underwriter and
transfer agent, respectively, also was transferred to
the Adviser.
<PAGE>
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. Under the Advisory Agreement, the
Fund pays the Adviser a fee at the annual 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 is accrued daily and paid monthly.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities,
or by a vote of a majority of the Fund's Directors on 60 days'
written notice or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement became effective on October 6,
1997 in connection with the conversion of the Fund to an open-end
investment company. The Advisory Agreement replaced an
Investment Management and Administration Agreement ("Management
Agreement") between the Fund and the Adviser. At a meeting
called for such purpose and held on April 23, 1997, the Advisory
Agreement was approved by a majority of the members of the Board
of Directors, including a majority of the Directors who are not
parties thereto nor interested persons of any such party as
defined in the 1940 Act. At a meeting held on July 17, 1997, a
majority of the outstanding voting securities of the Fund
approved the Advisory Agreement.
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The Advisory Agreement will remain in force for
successive twelve-month periods (computed from each January 1),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities or
by the Fund's Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act. Most recently, the continuance of the
Advisory Agreement until December 31, 1999 was approved by a
vote, cast in person, of the Directors, including a majority of
the Directors who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for
that purpose and held on December 10, 1998.
The rate of the advisory fee payable under the Advisory
Agreement is the same as the rate of management fee under the
Management Agreement, except that under the Management Agreement
the Adviser was paid a monthly fee at an annual rate computed
upon the Fund's average weekly net assets. For the fiscal years
of the Fund ended in 1998, 1997 and 1996, the Adviser received
from the Fund $314,210, $1,093,547 and $1,073,769, respectively,
in management fees.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: AFD Exchange Reserves, Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Global Dollar
Government Fund, Inc., Alliance Global Small Cap Fund, Inc.,
Alliance Global Strategic Income Trust, Inc., Alliance Government
Reserves, Alliance Greater China '97 Fund, Inc., Alliance Growth
and Income Fund, Inc., Alliance Health Care Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Institutional Funds, Inc.,
Alliance Institutional Reserves, Inc., Alliance International
Fund, Alliance International Premier Growth Fund, Inc., Alliance
14
<PAGE>
Limited Maturity Government Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Fund, Inc., The Alliance
Portfolios, 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 Income Fund, Inc., ACM
Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage 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.
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with distribution of
its Class A, Class B and Class C shares in accordance with a plan
of distribution which is included in the Agreement and has been
duly adopted and approved in accordance with Rule 12b-1 under the
1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class A shares, in amounts
aggregating $85,334 which constituted .30%, annualized, of the
Fund's aggregate average daily net assets attributable to Class A
shares during the period, and the Adviser made payments from its
own resources as described above, aggregating $331,852. Of the
$417,186 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class A shares, $52,412 was spent on
advertising, $4,792 on the printing and mailing of prospectuses
for persons other than current shareholders, $202,525 for
15
<PAGE>
compensation to broker-dealers and other financial intermediaries
(including, $110,560 to the Fund's Principal Underwriters), $782
for compensation to sales personnel, $156,675 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class B shares, in amounts
aggregating $854, which constituted 1.0%, annualized, of the
Fund's aggregate 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 $135,931. Of the
$136,785 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class B shares, $15,010 was spent on
advertising, $1,983 on the printing and mailing of prospectuses
for persons other than current shareholders, $63,428 for
compensation to broker-dealers and other financial intermediaries
(including, $40,210 to the Fund's Principal Underwriters), $97
for compensation to sales personnel, $56,167 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $100 was spent on
interest on Class B shares financing.
During the Fund's fiscal year ended October 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class C shares, in amounts
aggregating $287, which constituted 1.0%, annualized, of the
Fund's aggregate 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 $101,842. Of the
$102,129 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class C shares, $15,000 was spent on
advertising, $2,041 on the printing and mailing of prospectuses
for persons other than current shareholders, $43,702 for
compensation to broker-dealers and other financial intermediaries
(including, $31,052 to the Fund's Principal Underwriters), $140
for compensation to sales personnel, $41,223 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $23 was spent on
the financing interest on Class C shares financing.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge and at the same time to permit the Principal
Underwriter to compensate broker-dealers in connection with the
sale of such shares. In this regard the purpose and function of
the combined contingent deferred sales charge and distribution
services fee on the Class B shares and Class C shares are the
16
<PAGE>
same as those of the initial sales charge and distribution
services fee with respect to the Class A shares in that in each
case the sales charge and/or distribution services fee provides
for the financing of the distribution of the relevant class of
the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares for any given year, however, will probably exceed
the distribution services fee payable under the Rule 12b-1 Plan
with respect to the class involved and, in the case of Class B
and Class C shares, payments received from contingent deferred
sales charges ("CDSCs"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan with respect to the class involved and, in
the case of Class B and Class C shares, payments subsequently
received through CDSCs, so long as the Rule 12b-1 Plan is in
effect.
Unreimbursed distribution expenses incurred as of the
end of the 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 the Fund were, respectively,
$151,011 (99.10% of the net assets of Class B) and $101,842 (333%
of the net assets of Class C).
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which
effectively limit the annual asset-based sales charges and
service fees that a 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.
In approving the 12b-1 Plan, the Directors of the Fund
determined that there was a reasonable likelihood that the Rule
12b-1 Plan would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
The 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
17
<PAGE>
such compensation to brokers or other persons for their
distribution assistance.
The Agreement will continue in effect for successive
twelve-month periods with respect to a class (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 12b-1 Plan or any
agreement related thereto. Most recently, the continuance of the
Agreement until December 31, 1999 was approved by a vote, cast in
person, of the Directors, including a majority of the Directors
who are not parties to the Advisory Agreement or interested
persons of any such party, at a meeting called for that purpose
and held on December 10, 1998.
In the event that the Rule 12b-1 Plan 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.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
services arrangements would be made and that shareholders would
not be adversely affected.
Transfer Agency Agreement
Pursuant to a Transfer Agency Agreement that became
effective on October 6, 1997, Alliance Fund Distributors, Inc.,
an indirect wholly-owned subsidiary of the Adviser located at 500
Plaza Drive, Secaucus, New Jersey 07094, receives a transfer
agency fee per account holder of each of the Class A shares,
Class B shares, Class C shares and Advisor Class shares of the
18
<PAGE>
Fund, plus reimbursement for out-of-pocket expenses. The
transfer agency fee with respect to the Class B and Class C
shares is higher than the transfer agency fee with respect to the
Class A shares and Advisor Class shares, reflecting the
additional costs associated with the Class B and Class C
contingent deferred sales charges. Prior thereto, State Street
Bank and Trust Company, which is not affiliated with the Fund or
the Adviser, provided transfer agency services to the Fund. For
the fiscal year ended October 31, 1998, the Fund paid AFS $27,577
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 ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
19
<PAGE>
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Richard Ellis, Inc. Generally, a fee-based program must
charge an asset-based or other similar fee and must invest at
least $250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"Class A Shares." On each Fund business day on which a purchase
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
20
<PAGE>
of the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative, receives the order prior to
the close of regular trading on the Exchange and transmits it to
the Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. Eastern time. (Certain selected dealers, agents or
financial representatives may enter into operating agreements
permitting them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value.) If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
21
<PAGE>
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred contingent sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
shares do not bear such a fee, (iii) Class B shares and Class C
shares bear higher transfer agency costs than those borne by
Class A shares and Advisor Class shares, (iv) each of Class A,
Class B and Class C shares has exclusive voting rights with
respect to provisions of the Rule 12b-1 Plan pursuant to which
its distribution services fee is paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders, an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
22
<PAGE>
to the Class A shares, then such amendment will also be submitted
to the Class B and the Advisor Class shareholders, and the
Class A, Class B shareholders and Advisor Class shareholders will
vote separately by class, and (v) Class B shares and Advisor
Class shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charge on Class B shares prior to
conversion, or the accumulated distribution services fee and
contingent deferred sales charge on Class C shares, would be less
than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans and certain
employee benefit plans) for more than $250,000 for Class B
shares. (See Appendix A for information concerning the
eligibility of certain employee benefit plans to purchase Class B
shares at net asset value without being subject to a contingent
deferred sales charge and the ineligibility of certain such plans
to purchase Class A shares.) Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
23
<PAGE>
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value of
money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal period October 6, 1997
(commencement of operations) through October 31, 1997 and the
fiscal year ended October 31, 1998, the aggregate amount of
underwriting commissions payable with respect to shares of the
Fund was $-0- and $13,648, respectively. Of that amount, the
Principal Underwriter received the amount of $-0- and $1,830,
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 periods
ended in 1997 and 1998, the Principal Underwriter received
contingent deferred sales charges of $-0- and -0-, respectively,
24
<PAGE>
on Class A shares, $-0- and $180, respectively, on Class B
shares, and $-0- and $-0-, respectively, on Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ __________
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of
$1,000,000 or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
25
<PAGE>
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares---Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The 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.
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
26
<PAGE>
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund" Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
27
<PAGE>
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting AFS at the address or the
"For Literature" telephone number shown on the front cover of
this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
28
<PAGE>
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of 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% sales charge on the total amount being invested (the sales
charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher 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
29
<PAGE>
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting AFS at the address or
telephone numbers shown on the cover of this Statement of
Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period, and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
30
<PAGE>
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including:
(i) investment management clients of the Adviser or its
affiliates;
(ii) officers and present or former Directors of the
Fund; present or former directors and trustees of other
investment companies managed by the Adviser; present or retired
full-time employees of the Adviser, the Principal Underwriter,
AFS and their affiliates; officers and directors of ACMC, the
Principal Underwriter, AFS and their affiliates; officers,
directors and present full-time employees of selected dealers or
agents; or the spouse, or a sibling, direct ancestor or direct
descendant (collectively "relatives") of any such person; or any
trust, individual retirement account or retirement plan account
for the benefit of any such person or relative; or the estate of
any such person or relative, if such shares are purchased for
investment purposes (such shares may not be resold except to the
Fund);
(iii) the Adviser, the Principal Underwriter, AFS and
their affiliates; and certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, AFS and
their affiliates;
(iv) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee
for their services and who purchase shares through a broker or
agent approved by the Principal Underwriter and clients of such
registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent;
(v) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
pursuant to which such persons pay an asset-based fee to such
broker-dealer or financial intermediary, or its affiliates or
agents, for services in the nature of investment advisory or
administrative services;
(vi) persons who establish to the Principal
Underwriter's satisfaction that they are investing within such
time period as may be designated by the Principal Underwriter,
proceeds of redemption of shares of such other registered
31
<PAGE>
investment companies as may be designated from time to time by
the Principal Underwriter;
(vii) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k) plans), custodial
accounts maintained pursuant to Section 403(b)(7), retirement
plans and individual retirement accounts (including individual
retirement accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter; and
(viii) persons who both (a) held shares of the Fund at
the effective time of the conversation of the Fund from a closed-
end to an open-end investment company, and (b) thereafter have
continuously held Class A shares of the Fund.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
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.
32
<PAGE>
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
Year Since Purchase of Dollar Amount Subject to Charge
____________________ _______________________________________
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986 as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative or by the estate of any such person or relative, or
33
<PAGE>
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services-Systematic Withdrawal Plan" below).
Conversion Feature. 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 occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
34
<PAGE>
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A and Advisor
Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
35
<PAGE>
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically to
Class A shares of the Fund during the calendar month following
the month in which the Fund is informed of the occurrence of the
Conversion Event. The Fund will provide the shareholder with at
least 30 days' notice of the conversion. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee.
Advisor Class shares do not have any distribution services fee.
As a result, Class A shares have a higher expense ratio and may
pay correspondingly lower dividends and have a lower net asset
value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
36
<PAGE>
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no 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 "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
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<PAGE>
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
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.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application found in the Prospectus or, in the case of an
existing shareholder, an "Autosell" application obtained from
AFS. A telephone redemption request by electronic funds transfer
may not exceed $100,000 (except for certain omnibus accounts),
and must be made by 4:00 p.m. Eastern time on a Fund business day
as defined above. Proceeds of telephone redemptions will be sent
by electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions--General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
38
<PAGE>
redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund nor
the Adviser, the Principal Underwriter 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.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
39
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service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectuses under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program, your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact AFS at the address or telephone numbers shown on the
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cover of this Statement of Additional Information to establish an
automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may on a tax-free basis,
exchange Class A shares of the Fund for Advisor Class shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges
may be made by telephone or written request. Telephone exchange
requests must be received by AFS by 4:00 p.m. Eastern time on a
Fund business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call AFS at (800) 221-5672 to exchange uncertificated shares.
Except with respect to exchanges of Class A shares of the Fund
for Advisor Class shares of the Fund, exchanges of shares as
described above in this section are taxable transactions for
federal income tax purposes. The exchange service may be
changed, suspended, or terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
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shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless AFS,
receives written instruction to the contrary from the
shareholder, or the shareholder declines the privilege by
checking the appropriate box on the Subscription Application
found in the Prospectus. Such telephone requests cannot be
accepted with respect to shares then represented by 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.
Eligible shareholders desiring to make an exchange
should telephone AFS with their account number and other details
of the exchange, at (800) 221-5672 before 4:00 p.m. Eastern time
on a Fund business day as defined above. Telephone requests for
exchanges received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching AFS
by telephone (although no such difficulty was apparent at any
time in connection with the 1987 market break). If a shareholder
were to experience such difficulty, the shareholder should issue
written instructions to AFS at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AFS will be responsible for the
authenticity of telephone requests for exchanges that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers, agents or financial
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<PAGE>
representatives, as applicable, may charge a commission for
handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact AFS at the "For Literature"
telephone number on the cover of this Statement of Additional
Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
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plan's request, without any sales charge, for Class A shares of
the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to AFS as compensation for its services to the retirement plan
accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains distributions paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information. Investors wishing to establish a
dividend direction plan in connection with their initial
investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact AFS to establish a dividend direction
plan.
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Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the 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 AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B
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or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder 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 confirmation of each purchase and redemption. By
contacting his or her broker or AFS, a shareholder can arrange
for copies of his or her account statements to be sent to another
person.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
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the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
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(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
48
<PAGE>
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
Dividends paid by the Fund, if any, with respect to
Class A, Class B, Class C and Advisor Class shares will be
calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher
distribution services applicable to Class B and C shares, and any
incremental transfer agency costs relating to Class B and Class C
shares, will be borne exclusively by the class to which they
relate.
United States Federal Income Taxation of Dividends and
Distributions
General. The Fund intends for each taxable year to
qualify to be taxed as a "regulated investment company" under
sections 851 through 855 of the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, the Fund must, among other
things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock or securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; and (ii) diversify
its holdings so that, at the end of each quarter of its taxable
year, the following two conditions are met: (a) at least 50% of
the value of the Fund's assets is represented by cash, U.S.
Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
49
<PAGE>
Securities or securities of other regulated investment
companies).
If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net short-
term capital loss), it will not be subject to federal income tax
on the portion of its taxable income for the year (including any
net capital gain) that it distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to at least the sum of (i) 98% of its ordinary
income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. Dividends of the Fund's
net ordinary income and distributions of any net realized short-
term capital gain are taxable to shareholders as ordinary income.
Dividends paid by the Fund and received by a corporate
shareholder are eligible for the dividends received deduction to
the extent that the Fund's income is derived from certain
dividends received from domestic corporations, provided the
corporate shareholder holds shares in the Fund for at least 46
days during the 90-day period beginning 45 days before the date
on which the shareholder becomes entitled to receive the
dividend. In determining the holding period of such shares for
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<PAGE>
this purpose, any period during which a shareholder's risk of
loss is offset by means of options, short sales or similar
transactions is not counted. In addition, the dividends received
deduction will be disallowed to the extent the investment in
shares of the Fund is financed with indebtedness.
Distributions of net capital gain are taxable as long-
term capital gain, regardless of how long a shareholder has held
shares in the Fund. Any dividend or distribution received by a
shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a
shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the
qualified plan.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if the
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. If a shareholder has held shares in the
Fund for six months or less and during that period has received a
distribution of net capital gain, any loss recognized by the
shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent
of the distribution. In determining the holding period of such
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<PAGE>
shares for this purpose, any period during which a shareholder's
risk of loss is offset by means of options, short sales or
similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Foreign Taxes. Income received by the Fund may also be
subject to foreign income taxes, including withholding taxes. The
United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of such taxes
or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a shareholder will be required to (i) include in gross
income (in addition to taxable dividends actually received) his
pro rata share of foreign taxes paid by the Fund, (ii) treat his
pro rata share of such foreign taxes as having been paid by him,
and (iii) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a
credit against United States federal income taxes. Shareholders
who are not liable for federal income taxes, such as retirement
plans qualified under section 401 of the Code, will not be
affected by any such pass through of taxes by the Fund. No
deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition,
certain shareholders may be subject to rules which limit or
reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes paid by the Fund. A
shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund at least 16 days during the 30-day
period beginning 15 days before the date on which the shareholder
becomes entitled to receive the dividend. In determining the
holding period of such shares for this purpose, any period during
which a shareholder's risk of loss is offset by means of options,
short sales or similar transactions is not counted. Each
shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the
52
<PAGE>
Fund will pass through for that year, and if so, such
notification will designate (i) the shareholder's portion of the
foreign taxes paid to each such country and (ii) the portion of
dividends that represents income derived from sources within each
such country.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other
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.
Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
the Code, the Fund may be subject to United States federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its shareholders. The Fund may also be subject to
additional interest charges in respect of deferred taxes arising
from such distributions or gains. Any tax paid by the Fund as a
result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A
PFIC means any foreign corporation if, for the taxable year
involved, either (i) it derives at least 75% of its gross income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average,
at least 50% of the value (or adjusted tax basis, if elected) of
the assets held by the corporation produce "passive income." The
Fund could elect to "mark-to-market" stock in a PFIC. Under such
an election, the Fund would include in income each year an amount
equal to the excess, if any, of the fair market value of the PFIC
stock as of the close of the taxable year over the Fund's
adjusted basis in the PFIC stock. The Fund would be allowed a
53
<PAGE>
deduction for the excess, if any, of the adjusted basis of the
PFIC stock over the fair market value of the PFIC stock as of the
close of the taxable year, but only to the extent of any net
mark-to-market gains included by the Fund for prior taxable
years. The Fund's adjusted basis in the PFIC stock would be
adjusted to reflect the amounts included in, or deducted from,
income under this election. Amounts included in income pursuant
to this election, as well as gain realized on the sale or other
disposition of the PFIC stock, would be treated as ordinary
income. The deductible portion of any mark-to-market loss, as
well as loss realized on the sale or other disposition of the
PFIC stock to the extent that such loss does not exceed the net
mark-to-market gains previously included by the Fund, would be
treated as ordinary loss. The Fund generally would not be
subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a mark-to-
market election has been made. If the Fund purchases shares in a
PFIC and the Fund does elect to treat the foreign corporation as
a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the
ordinary income and net capital gains of the foreign corporation,
even if this income is not distributed to the Fund. Any such
income would be subject to the 90% and calendar year distribution
requirements described above.
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
dividends 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 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 income 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. If such
distributions exceed such shareholder's basis, such excess will
be treated as a gain from the sale of shares.
54
<PAGE>
Options and Futures Contracts. Certain listed options
and regulated futures 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 will be considered 60% long-term and 40% short-
term capital gain or loss. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
With respect to equity options or options traded over-
the-counter, gain or loss realized by the Fund upon the lapse or
sale of such options held by the Fund will be either long-term or
short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss
realized upon the lapse or closing out of such options that are
written by the Fund will be treated as short-term capital gain or
loss. In general, if the Fund exercises an option, or an option
that the Fund has written is exercised, gain or loss on the
option will not be separately recognized but the premium received
or paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.
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 will 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 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.
55
<PAGE>
Tax Straddles. Any option or futures 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 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 is ordinary and at
least one position is capital. 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 Shareholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
Other Taxation
The Fund may be subject to state and local taxes.
56
<PAGE>
________________________________________________________________
PORTFOLIO TRANSACTIONS
________________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of broker-
dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
57
<PAGE>
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc. and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
During the fiscal years ended in 1998, 1997 and 1996,
the Fund incurred brokerage commissions amounting in the
aggregate to $195,494, $493,332 and $875,673, respectively.
During the fiscal years ended October 31, 1998, 1997 and 1996,
brokerage commissions amounting in the aggregate to $0, $0 and
$0, respectively, were paid to DLJ, and brokerage commissions
amounting in the aggregate to $0, $0 and $0, respectively, were
paid to brokers utilizing the Pershing Division of DLJ. During
the fiscal year ended October 31, 1998, the brokerage commissions
paid to DLJ constituted 0% of the Fund's aggregate brokerage
commissions and the brokerage commissions paid to brokers
utilizing the Pershing Division of DLJ constituted 0% of the
Fund's aggregate brokerage commissions. During the fiscal year
ended October 31, 1998, of the Fund's aggregate dollar amount of
brokerage transactions involving the payment of commissions of 0%
were effected through DLJ and 0% were effected through brokers
utilizing the Pershing Division of DLJ. During the fiscal year
ended October 31, 1998, transactions in the portfolio securities
of the Fund aggregating $590,773,762 with associated brokerage
commissions of approximately $91,714 were allocated to persons or
firms supplying research services to the Fund or the Adviser.
58
<PAGE>
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The Fund is a Maryland corporation organized in 1990.
The authorized capital stock of the Fund currently consists of
3,000,000,000 shares of Class A Common Stock, 3,000,000,000
shares of Class B Common Stock, 3,000,000,000 shares of Class C
Common Stock and 3,000,000,000 shares of Advisor Class Common
Stock, each having a par value of $.001 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 series and classes 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 or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a second portfolio, each share of either
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of both portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Advisory Contract and changes in investment policy, shares of
each portfolio would vote as a separate series.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
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, C and Advisor Class shares have identical
59
<PAGE>
voting, dividend, liquidation and other rights, except that each
class bears its own transfer agency expenses, each of Class A,
Class B and Class C shares of the Fund bears its own distribution
expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares
of the Fund votes separately with respect to the 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 the Fund, are entitled to
receive the net assets of the Fund.
The outstanding voting shares of the Fund as of
October 8, 1999 consisted of 1,539,161 Class A, 47,461 Class B,
6,244 Class C and 959 Advisor Class shares. To the knowledge of
the Fund, the following persons owned of record or beneficially
5% or more of the outstanding shares of the Fund as of October 8,
1999:
No. of
Shares % of
Name and Address of Class Class
Class A
Nomura International Trust Co. 199,300 12.95%
Att Agent Department
10 Exchange Place STE 1606
Jersey City, NJ 07302-3910
Canal Insurance Company 163,336 10.61%
Register Ship Account
Attn Rick Timmons
Box 7
Greenville, SC 29602-0007
Class B
Bear Stearns Securities Corp. 3,548 7.62%
FBO 486-86679-18
1 Metrotech Center North
Brooklyn, NY 11201-3870
MLPF&S 8,023 17.23%
For the Sole Benefit of its
Customers
Attn Fund Admin. (97SA5)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484
NFSC FEB 3 #W60-029270 3,696 7.94%
60
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Davida C. Johns
c/o James Hayes
4417 Powells Point Road
Virginia Bch, VA 23455-2113
NFSC FEBO #W82-002852 3,058 6.57%
Stephen J. O'Dell Ttee
Stephen J. O'Dell Rev Living Tr.
U/A 7/19/99
P.O. Box 931
Tempe, AZ 85280-0931
Class C
MLPF&S 2,563 41.05%
For the Sole Benefit of its
Customers
Attn: Fund Adm (97SA6)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484
Edward D. Jones & Co. FAO 890 14.27%
Edward D. Jones & Co. Cust.
FBO Frans I Van Rossum IRA
EDJ #295-90305-1-7
PO Box 2500
Maryland Hts. MO 63043-8500
AG Edwards & Sons Inc. Cust. 343 5.50%
FBO Patricia C. Comer S/D IRA
4323 E Shore Dr.
Grawn, MI 9637-9727
Attn: Mutual Funds Dept. 385 6.18%
BHC Securities Inc.
FAO 75881258
One Commerce Square
2005 Market Street Suite 1200
Philadelphia, PA 19103-7084
Alliance Plans DIV/F.T.C. 358 5.74%
C/F Karen Folex Balicki IRA
27 Broadway
Portland, ME 04103-2301
Roland O Acosta 531 8.52%
15026 Joycedale St.
La Puente, CA 91744-1052
61
<PAGE>
Advisor Class
Alliance Plans Div/FTC 118 12.35%
C/F Michael J. Ferry
Roth IRA
5109 Fairview Terrace, Apt. 2
West New York, NJ 07093-3504
Alan J. Stoga 823 85.82%
163 LaBranchie Road
Hillsdale, NY 12529-5713
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act will be available to shareholders
of the Fund. The rights of the holders of shares of a series may
not be modified except by the vote of a majority of the
outstanding shares of such series.
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Water Street, Boston, Massachusetts 02109, will act as the Fund's
custodian for the assets of the Fund but plays no part in
deciding the purchase or sale of portfolio securities. Subject
to the supervision of the Fund's Directors, Brown Brothers may
enter into sub-custodial agreements for the holding of the Fund's
foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of shares of the Fund. Under the Agreement, 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.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel LLP, New
York, New York. Seward & Kissel LLP has relied upon the opinion
of Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
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<PAGE>
Independent Auditors
Ernst & Young LLP, New York, New York, has been
appointed as independent auditors for the Fund.
Performance Information
From time to time, the Fund advertises its "total
return," which is computed separately for Class A, Class B, Class
C and Advisor Class shares. Such advertisements disclose the
Fund's average annual compounded total return for the periods
prescribed by the Commission. The Fund's total return for each
such period is computed by finding, through the use of a formula
prescribed by the Commission, the average annual compounded rate
of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the
period. For purposes of computing total return, income dividends
and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales
charges applicable to purchases and redemptions of the Fund's
shares are assumed to have been paid.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class, divides
the difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
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<PAGE>
From June 1, 1990 through October 3, 1997, the Fund
operated as a closed-end investment company. Effective after the
close of business on that date, 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's average annual compounded total return based
on net asset value for the one- and five-year periods ended April
30, 1999 and from the inception of the Fund through that date,
were as follows:
Year Ended 5 Years Ended 10 Years Ended
4/30/99 4/30/99 4/30/99
Class A (3.54%) 15.07% 6.29%*
Class B (4.12%) 3.28%* N/A
Class C (4.14%)* 6.03% N/A
Advisor Class (3.12%)* 11.19% N/A
*Inception Dates: Class A - June 1, 1990
Class B - October 6, 1997
Class C - November 5, 1997
Advisor Class - December 29, 1997
The Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. 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. Total return information is useful in reviewing the
Fund's performance, but such information may not provide a basis
for comparison with bank deposits or other investments which pay
a fixed yield for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance ratings of the Fund
as measured by financial publications or independent
organizations such as Lipper, Inc. and Morningstar, Inc. and
advertisements presenting the historical record of payments of
income dividends by the Fund may also from time to time be sent
to investors or may be placed in newspapers, magazines such as
Barrons, Business Week, Changing Times, Forbes, Investor's Daily,
Money Magazine, The New York Times and The Wall Street Journal or
other media on behalf of the Fund. The Fund is ranked by Lipper
in the category known as "specialty and miscellaneous funds."
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
64
<PAGE>
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
Securities and Exchange Commission under the Securities Act.
Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
65
<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT AUDITORS
____________________________________________________________
66
<PAGE>
ALLIANCE GLOBAL ENVIRONMENT FUND
SEMI-ANNUAL REPORT
APRIL 30, 1999
5
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 (UNAUDITED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-100.7%
AUSTRALIA-4.2%
Brambles Industries, Ltd. 15,500 $ 455,468
FRANCE-3.7%
Vivendi 1,700 397,088
NETHERLANDS-4.4%
Thermo Eurotech (a)(b) 165,000 474,602
UNITED STATES-88.4%
AES Corp. (a) 9,200 460,000
Casella Waste Systems, Inc.
Cl. A (a) 8,000 200,000
Cuno, Inc. (a) 22,500 412,031
Ecolab, Inc. 12,200 511,637
General Electric Co. 4,100 432,550
Graco, Inc. 16,500 519,750
IT Group, Inc. (a) 30,000 444,375
Millipore Corp. 14,000 429,625
Minerals Technologies, Inc. 9,000 486,000
Newpark Resources, Inc. (a) 59,500 546,656
OM Group, Inc. 13,000 472,875
Republic Services, Inc.,
Cl. A (a) 38,400 789,600
Sealed Air Corp. (a) 10,100 614,206
TETRA Technologies, Inc. (a) 34,250 828,422
Tyco International, Ltd. 6,200 503,750
United Technologies Corp. 2,900 420,138
Waste Connections, Inc. (a) 24,000 633,000
Waste Management, Inc. 14,418 814,617
------------
9,519,232
Total Common Stocks
(cost $8,435,188) 10,846,390
TIME DEPOSIT-5.6%
West Deutsche Landesbank Girozentrale
4.88%, 5/03/99 (cost $600,000) $600 600,000
TOTAL INVESTMENTS-106.3%
(cost $9,035,188) 11,446,390
Other assets less liabilities-(6.3)% (681,721)
NET ASSETS-100% $10,764,669
(a) Non-income producing security.
(b) Restricted and illiquid security, valued at fair value (See notes A and F).
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $9,035,188) $11,446,390
Cash 24,334
Receivable for investment securities sold 625,586
Receivable for capital stock sold 33,807
Receivable from adviser 9,392
Dividends and interest receivable 7,360
Total assets 12,146,869
LIABILITIES
Payable for investment securities purchased 1,140,000
Payable for capital stock redeemed 27,533
Distribution fee payable 2,789
Accrued expenses 211,878
Total liabilities 1,382,200
NET ASSETS $10,764,669
COMPOSITION OF NET ASSETS
Capital stock, at par $ 1,638
Additional paid-in capital 8,861,390
Accumulated net investment loss (194,756)
Accumulated net realized loss on investments and
foreign currency transactions (314,597)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 2,410,994
$10,764,669
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($10,499,500 / 1,597,356 shares of capital stock
issued and outstanding) $6.57
Sales Charge--4.25% of public offering price .29
Maximum offering price $6.86
CLASS B SHARES
Net asset value and offering price per share
($219,568 / 33,785 shares of capital stock
issued and outstanding) $6.50
CLASS C SHARES
Net asset value and offering price per share
($39,498 / 6,112 shares of capital stock
issued and outstanding) $6.46
ADVISOR CLASS SHARES
Net asset value, redemption and offering price
per share ($6,103 / 921 shares of capital stock
issued and outstanding) $6.63
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends $ 25,055
Interest 6,841 $ 31,896
EXPENSES
Advisory fee 60,523
Distribution fee - Class A 16,150
Distribution fee - Class B 1,033
Distribution fee - Class C 131
Custodian 61,755
Audit and legal 49,821
Registration 36,130
Transfer agency 18,869
Directors' fees 16,000
Printing 15,240
Miscellaneous 8,213
Total expenses 283,865
Less: expenses waived and reimbursed
by the Adviser (see Note B) (56,292)
Less: expense offset arrangement
(see Note B) (921)
Net expenses 226,652
Net investment loss (194,756)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 728,526
Net realized loss on foreign currency
transactions (7,552)
Net change in unrealized appreciation of:
Investments 1,837,836
Foreign currency denominated assets and
liabilities (603)
Net gain on investments and foreign currency
transactions 2,558,207
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,363,451
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (194,756) $ (650,162)
Net realized gain on investments and
foreign currency transactions 720,974 4,572,240
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities 1,837,233 (7,383,845)
Net increase (decrease) in net assets
from operations 2,363,451 (3,461,767)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
Class A (4,656,014) (23,312,560)
Class B (70,731) (15,304)
Class C (9,441) (45,452)
Advisor Class (1,754) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (343,277) (12,060,609)
Total decrease (2,717,766) (38,895,692)
NET ASSETS
Beginning of year 13,482,435 52,378,127
End of period $10,764,669 $ 13,482,435
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999 (UNAUDITED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Global Environment Fund (the "Fund") is registered under the
Investment Company Act of 1940 (the "1940 Act"), as a non-diversified, open-end
management investment company. Until October 3, 1997, the Fund was registered
under the 1940 Act as a non-diversified, closed-end management investment
company. After October 3, 1997 all of the common stock was converted to Class A
shares of the Fund and the Fund commenced a public offering of its Class A,
Class B, Class C and Advisor Class of shares. Class A shares are sold with a
front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000.
With respect to purchases of $1,000,000 or more, Class A shares redeemed within
one year of purchase may be subject to a contingent deferred sales charge of
1%. In order to moderate the impact of a potentially large number of redemption
and exchange requests, redemptions or exchanges of Class A shares received in
the conversion were subject to a 2% redemption fee through October 2, 1998.
There was no redemption fee after October 2, 1998. The entire amount of the
redemption fee was payable to the Fund, and not to Alliance, providing an
antidilutive benefit to stockholders. Class B shares are currently 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 subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. Advisor Class
shares are sold without an initial or contingent deferred sales charge and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
to investors participating in fee-based programs and to certain retirement plan
accounts. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency 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 realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from the holding of foreign currencies, currency
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 on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net change in unrealized appreciation
(depreciation) of foreign currency denomi-
10
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
nated assets and liabilities represents net currency gains and losses from
valuing foreign currency denominated assets and liabilities at period end
exchange rates.
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 any, to
shareholders. Therefore, no provisions for Federal income or excise taxes are
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as an adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fees.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Advisory Agreement, the Fund pays Alliance Capital Management L.P.
("the Adviser) a fee at the annual rate of 1.10% of the Fund's average daily
net assets up to $100 million, .95 of 1% of the next $100 million of the Fund's
average daily net assets, and .80 of 1% of the Fund's average daily net assets
over $200 million. The fee is accrued daily and paid monthly. Effective
February 1, 1999 the Adviser has agreed to voluntarily waive its fees and bear
certain expenses to the extent necessary to limit total operating expenses on
an annual basis to 3.00%, 3.70%, 3.70% and 2.70% of the daily average net
assets for the Class A, Class B, Class C and Advisor Class shares,
respectively. For the six month period ended April 30, 1999, such waivers and
reimbursement amounted to $56,292. The Adviser may terminate the voluntary
waiver at any time.
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 $10,691 for the six months ended April 30, 1999.
For the six months ended April 30, 1999, the Fund's expenses were reduced by
$921 under an expense offset arrangement with Alliance Fund Services.
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 $116 from the sale of Class A shares and $2,073 in
contingent deferred sales charges imposes upon redemption by shareholders of
Class B shares, for the six months ended April 30, 1999.
Brokerage commissions paid on investment transactions for the six months ended
April 30, 1999, amounted to $19,029, 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.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
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 the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. There is no distribution fee on the Advisor Class 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
$300,636 and $127,347 for Class B and Class C shares, respectively; such costs
may be recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor, beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government obligations) aggregated $4,716,643 and $9,238,872 respectively, for
the six months ended April 30, 1999. There were no purchases or sales of U.S.
government or government agency obligations for the six months ended April 30,
1999. At April 30, 1999, the cost of investments for federal income tax
purposes was 2,666,775. Accordingly, gross unrealized appreciation of
investments was $2,473,651 and gross unrealized depreciation of investments was
$159,011, resulting in net unrealized appreciation of $2,314,640, (excluding
foreign currency transactions).
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $0.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each Class consists of 3,000,000,000 authorized shares. Until
October 3, 1997, the Fund was a closed end management investment company.
Transactions in capital stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 52,423 55,756 $ 325,598 $ 849,917
Shares issued in
reinvestment of
distributions 563,375 1,310,177 2,935,183 11,708,454
Shares redeemed (613,311) (2,561,773) (3,707,803) (24,890,942)
Net increase
(decrease) 2,487 (1,195,840) $ (447,022) $(12,332,571)
CLASS B
Shares sold 23,628 17,859 $ 140,075 $ 188,915
Shares issued in
reinvestment of
distributions 11,443 1,716 59,160 15,304
Shares redeemed (19,653) (1,221) (108,716) (9,093)
Net increase 15,418 18,354 $ 90,519 $ 195,126
12
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS NOV. 5, SIX MONTHS NOV. 5,
ENDED 1997(A) ENDED 1997(A)
APRIL 30, 1999 TO APRIL 30, 1999 TO
(UNAUDITED) OCT. 31, 1998 (UNAUDITED) OCT. 31, 1998
------------ ------------ -------------- --------------
CLASS C
Shares sold 3,203 8,706 $ 17,730 $ 123,284
Shares issued in
reinvestment of
distributions 245 5,087 1,263 45,325
Shares redeemed (1,041) (10,088) (7,718) (96,487)
Net increase 2,407 3,705 $ 11,275 $ 72,122
DEC. 29, 1997(A) DEC. 29, 1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
------------ ------------ -------------- --------------
ADVISOR CLASS
Shares sold 33 1,557 $ 213 $ 15,054
Shares issued in
reinvestment of
distributions 331 -0- 1,738 -0-
Shares redeemed -0- (1,000) -0- (10,340)
Net increase 364 557 $1,951 $ 4,714
NOTE F: RESTRICTED AND ILLIQUID SECURITY
DATE ACQUIRED COST
--------------- --------
Thermo Eurotech 3/19/91-4/15/91 $529,926
The security shown above, formerly known as Beheersmaatchappij J. Amerika N.V.,
is restricted as to sale and has been valued at fair value in accordance with
the procedures in Note A. The value of this security at April 30, 1999 was
$474,602 representing 4.4% of net assets.
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility ("the Facility")
intended to provide for short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the six months ended April 30, 1999.
(a) Commencement of distribution.
13
FINANCIAL HIGHLIGHTS ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1999 --------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.34 $18.77 $16.48 $12.37 $11.74 $10.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.11)(a)(b) (.24)(a) (.23)(a) (.13)(a) .03 -0-
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.44 (1.12) 3.65 4.26 .60 .77
Net increase (decrease) in net asset
value from operations 1.33 (1.36) 3.42 4.13 .63 .77
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- (.02) -0- -0-
Distributions from net realized gain on
investments and foreign currency
transactions (3.10) (9.07) (1.13) -0- -0- -0-
Total dividends and distributions (3.10) (9.07) (1.13) (.02) -0- -0-
Net asset value, end of period $6.57 $8.34 $18.77 $16.48 $12.37 $11.74
Market value, end of year $13.25 $9.375 $9.50
TOTAL RETURN
Total investment return based on net
asset value (c) 25.60% (10.51)% 23.51% 33.48% 5.37% 7.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $10,500 $13,295 $52,378 $100,271 $85,416 $81,102
Ratios to average net assets:
Expenses, net of waivers/
reimbursements 4.12%(d)(e) 2.80%(d) 2.39% 1.60% 1.57% 1.67%
Expenses, before waivers/
reimbursements 5.14%(e) -- -- -- -- --
Ratio of net investment income (loss) to
average net assets (3.56)%(e) (2.27)% (1.35)% (.85)% .21% (.04)%
Portfolio turnover rate 86% 205% 145% 268% 109% 42%
</TABLE>
See footnote summary on page 17.
14
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
------------------------------------
SIX MONTHS OCTOBER 6,
ENDED 1997(F)
APRIL 30, YEAR ENDED TO
1999 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1998 1997
----------- ----------- ----------
Net asset value, beginning of period $8.30 $18.76 $19.92
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.13)(b) (.27) (.20)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.43 (1.12) (.96)
Net increase (decrease) in net asset
value from operations 1.30 (1.39) (1.16)
LESS: DISTRIBUTIONS
Distributions from net realized gain on
investments and foreign currency
transactions (3.10) (9.07) -0-
Total distributions (3.10) (9.07) -0-
Net asset value, end of period $6.50 $8.30 $18.76
TOTAL RETURN
Total investment return based on net
asset value (c) 25.22% (10.79)% (5.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $220 $152 $235(g)
Ratios to average net assets:
Expenses, net of waivers/
reimbursements 4.78%(d)(e) 3.52%(d) 20.84%(e)
Expenses, before waivers/
reimbursements 5.90%(e) -- --
Ratio of net investment loss to
average net assets (4.22)%(e) (2.93)% (1.03)%(e)
Portfolio turnover rate 86% 205% 145%
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
-------------------------
SIX MONTHS NOVEMBER 5,
ENDED 1997(F)
APRIL 30, TO
1999 OCTOBER 31,
(UNAUDITED) 1998
----------- ----------
Net asset value, beginning of period $8.27 $19.15
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.12)(b) (.27)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.41 (1.54)
Net increase (decrease) in net asset
value from operations 1.29 (1.81)
LESS: DISTRIBUTIONS
Distributions from net realized gain on
investments and foreign currency
transactions (3.10) (9.07)
Total distributions (3.10) (9.07)
Net asset value, end of period $6.46 $8.27
TOTAL RETURN
Total investment return based on net
asset value (c) 25.18% (12.88)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $39 $31
Ratios to average net assets:
Expenses, net of waivers/
reimbursements (d)(e) 4.61% 3.39%
Expenses, before waivers/
reimbursements(e) 5.87% --
Ratio of net investment loss to
average net assets (e) (4.07)% (2.75)%
Portfolio turnover rate 86% 205%
See footnote summary on page 17.
16
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
--------------------------
SIX MONTHS DECEMBER 29,
ENDED 1997(F)
APRIL 30, TO
1999 OCTOBER 31,
(UNAUDITED) 1998
----------- ----------
Net asset value, beginning of period $8.37 $9.15
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.10)(b) (.20)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.46 (.58)
Net increase (decrease) in net asset
value from operations 1.36 (.78)
LESS: DISTRIBUTIONS
Distributions from net realized gain on
investments and foreign currency
transactions (3.10) -0-
Total distributions (3.10) -0-
Net asset value, end of period $6.63 $8.37
TOTAL RETURN
Total investment return based on net
asset value (c) 25.94% (8.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6 $5
Ratios to average net assets:
Expenses, net of waivers/
reimbursements (d)(e) 3.73% 3.04%
Expenses, before waivers/
reimbursements (e) 4.88% --
Ratio of net investment loss to
average net assets (e) (3.16)% (2.39)%
Portfolio turnover rate 86% 205%
(a) Based on average shares outstanding.
(b) Net of expenses waived/reimbursed by the Adviser.
(c) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment and Cash Purchase Plan. Generally, total
investment return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such years. Conversely, total investment
return based on net asset value will be lower than total investment return
based on market value in years where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such years.
(d) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the six months ended April 30, 1999 and the year ended
October 31, 1998, the ratios of expenses to average net assets were 4.15% and
2.79% for Class A, 4.81% and 3.51% for Class B, 4.67% and 3.38% for Class C and
3.76% and 3.03% for Advisor Class shares, respectively.
(e) Annualized
(f) Commencement of distribution.
(g) Actual net assets without 000's omitted.
17
<PAGE>
ALLIANCE GLOBAL ENVIRONMENT FUND
ANNUAL REPORT
OCTOBER 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998 ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS-95.0%
AUSTRALIA-4.3%
Brambles Industries, Ltd. 26,000 $ 570,441
FRANCE-3.7%
Vivendi 2,200 502,439
NETHERLANDS-3.9%
Thermo Eurotech (a)(b) 165,000 529,974
UNITED STATES-83.1%
AES Corp.(a) 5,300 216,969
Allied Waste Industries, Inc. (a) 12,375 267,609
Casella Waste Systems, Inc. (a) 7,900 233,050
Cuno, Inc. (a) 32,500 495,625
Eastern Environmental Services, Inc.(a) 30,800 854,700
Ecolab, Inc. 28,500 851,437
General Electric Co. 7,900 691,250
KTI, Inc.(a) 32,500 682,500
Millipore Corp. 6,000 147,750
Minerals Technologies, Inc. 12,000 546,750
Newpark Resources, Inc.(a) 65,500 618,156
OM Group, Inc. 18,500 603,563
Praxair, Inc. 8,400 338,100
Republic Services, Inc., CL. A(a) 40,900 894,687
Sealed Air Corp. (a) 21,900 776,081
TETRA Technologies, Inc. (a) 32,750 665,234
Tyco International, Ltd. 12,000 743,250
United States Filter Corp.(a) 33,812 716,392
United Technologies Corp 5,200 495,300
Waste Connections, Inc.(a) 19,000 361,000
------------
11,199,403
Total Common Stocks
(cost $12,228,891) 12,802,257
TIME DEPOSIT-5.2%
Dresdner
5.56%, 11/02/98
(cost $700,000) $ 700 700,000
TOTAL INVESTMENTS-100.2%
(cost $12,928,891) 13,502,257
Other assets less liabilities-(0.2)% (19,822)
NET ASSETS-100% $ 13,482,435
(a) Non-income producing security.
(b) Restricted and illiquid security, valued at fair value (See notes A and F)
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998 ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $12,928,891) $ 13,502,257
Cash 212,523
Dividends and interest receivable 6,628
Receivable for capital stock sold 5,152
Total assets 13,726,560
LIABILITIES
Advisory fee payable 12,855
Payable for capital stock redeemed 8,730
Accrued expenses 222,540
Total liabilities 244,125
NET ASSETS $ 13,482,435
COMPOSITION OF NET ASSETS
Capital stock, at par $ 1,617
Additional paid-in capital 9,204,688
Accumulated net realized gain on investments
and foreign currency transactions 3,702,369
Net unrealized appreciation of investments
and foreign currency denominated assets
and liabilities 573,761
$ 13,482,435
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($13,294,761 / 1,594,869 shares of
capital stock issued and outstanding) $8.34
Sales charge--4.25% of public offering price 0.37
Maximum offering price $8.71
CLASS B SHARES
Net asset value and offering price per share
($152,389 / 18,367 shares of
capital stock issued and outstanding) $8.30
CLASS C SHARES
Net asset value and offering price per share
($30,624 / 3,705 shares of
capital stock issued and outstanding) $8.27
ADVISOR CLASS SHARES
Net asset value, redemption and offering price
per share ($4,661 / 557 shares of
capital stock issued and outstanding) $8.37
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998 ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes
withheld of $978) $ 97,693
Interest 49,483 $ 147,176
EXPENSES
Advisory fee 314,210
Distribution fee - Class A 85,334
Distribution fee - Class B 854
Distribution fee - Class C 287
Custodian 128,675
Audit and legal 95,613
Directors' fees 41,000
Registration 34,896
Transfer agency 33,119
Printing 23,201
Miscellaneous 38,589
Total expenses before interest 795,778
Interest expense 4,738
Total expenses 800,516
Less: expense offset arrangement
(see Note B) (3,178)
Net expenses 797,338
Net investment loss (650,162)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 4,666,985
Net realized loss on foreign
currency transactions (94,745)
Net change in unrealized appreciation of:
Investments (7,383,265)
Foreign currency denominated assets
and liabilities (580)
Net loss on investments and foreign
currency transactions (2,811,605)
NET DECREASE IN NET ASSETS FROM OPERATIONS $(3,461,767)
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (650,162) $(1,346,736)
Net realized gain on investments and
foreign currency transactions 4,572,240 24,901,517
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities (7,383,845) (1,178,992)
Net increase (decrease) in net assets
from operations (3,461,767) 22,375,789
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
Class A (23,312,560) (6,786,801)
Class B (15,304) -0-
Class C (45,452) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (12,060,609) (63,481,665)
Total decrease (38,895,692) (47,892,677)
NET ASSETS
Beginning of year 52,378,127 100,270,804
End of year $13,482,435 $ 52,378,127
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Global Environment Fund (the "Fund") is registered under the
Investment Company Act of 1940 (the "1940 Act"), as a non-diversified, open-end
management investment company. Until October 3, 1997, the Fund was registered
under the 1940 Act as a non-diversified, closed-end management investment
company. After October 3, 1997, all of the common stock was converted to Class
A shares of the Fund and the Fund commenced a public offering of its Class A,
Class B, Class C and Advisor Class of shares. Class A shares are sold with a
front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000.
With respect to purchases of $1,000,000 or more, Class A shares redeemed within
one year of purchase will be subject to a contingent deferred sales charge of
1%. In order to moderate the impact of a potentially large number of redemption
and exchange requests, redemptions or exchanges of Class A shares received in
the conversion were subject to a 2% redemption fee through October 2, 1998.
There was no redemption fee after October 2, 1998. The entire amount of the
redemption fee was payable to the Fund, and not to Alliance, providing an
antidilutive benefit to stockholders. Class B shares are currently 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 subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. Advisor Class
shares are sold without an initial or contingent deferred sales charge and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
to investors participating in fee-based programs and to certain retirement plan
accounts. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or if no sale occurred, at the
mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the mean of the quoted bid and asked price of the respective
currency 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 realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from the holding of foreign currencies, currency
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 on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net change in unrealized appreciation
(depreciation) of foreign currency denomi-
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
nated assets and liabilities represents net currency gains and losses from
valuing foreign currency denominated assets and liabilities at period end
exchange rates.
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 any, to
shareholders. Therefore, no provisions for Federal income or excise taxes are
required. Withholding taxes on foreign interest and dividends have been
provided for in accordance with the applicable tax requirements.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as an adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fees.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to net operating loss, resulted in a net decrease in accumulated
net investment loss and a corresponding decrease in accumulated net realized
gain on investments and foreign currency denominated assets and liabilities.
This reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Advisory Agreement, the Fund pays Alliance Capital Management L.P.
("the Adviser") a fee at the annual rate of 1.10% of the Fund's average daily
net assets up to $100 million, .95 of 1% of the next $100 million of the Fund's
average daily net assets, and .80 of 1% of the Fund's average daily net assets
over $200 million. The fee is accrued daily and paid monthly. Prior to the
Fund's conversion to an open-end Fund, the fee was calculated based on average
weekly net assets.
Commencing October 6, 1997 the Fund began compensating 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 $27,577 for the year ended
October 31, 1998.
In addition, for the year ended October 31, 1998, the Fund's expenses were
reduced by $3,178 under an expense offset arrangement with Alliance Fund
Services. Transfer Agency fees reported in the statement of operations exclude
these credits.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $1,830 from the sale of Class A shares and $180 in
contingent deferred sales charges imposes upon redemption by shareholders of
Class B shares, for the year ended October 31, 1998.
Brokerage commissions paid on investment transactions for the year ended
October 31, 1998, amounted to $195,494, 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.
12
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
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 the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. There is no distribution fee on the Advisor Class 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
$151,011 and $101,842 for Class B and Class C shares, respectively; such costs
may be recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor, beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term and U.S.
government obligations) aggregated $275,503,634 and $315,270,128 respectively,
for the year ended October 31, 1998. There were no purchases or sales of U.S.
government or government agency obligations for the year ended October 31,
1998. At October 31, 1998, the cost of investments for federal income tax
purposes was $13,825,524. Accordingly, gross unrealized appreciation of
investments was $1,275,337 and gross unrealized depreciation of investments was
$1,598,604, resulting in net unrealized depreciation of $323,267, (excluding
foreign currency transactions).
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $0.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each Class consists of 3,000,000,000 authorized shares. Until
October 3, 1997, the Fund was a closed end management investment company. On
March 14, 1996 the Fund initiated a share repurchase program. The program
allowed for repurchase over a twelve month period of up to 20% of the 6,907,169
shares outstanding at March 14, 1996. For the year ended October 31, 1997,
117,700 shares were repurchased at a cost of $1,575,322 representing 13.60% of
the 6,907,169 shares outstanding at March 14, 1996. This included $46,995 in
commissions paid to Paine Webber Incorporated. The average discount of market
price to net asset value of shares repurchased over the period of March 15,
1996 to March 14, 1997 was 19.60%. Transactions in capital stock were as
follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 55,756 2,558 $ 849,917 $ 48,826
Shares issued in
reinvestment of
distributions 1,310,177 -0- 11,708,454 -0-
Shares redeemed (2,561,773) (3,179,118) (24,890,942) (61,955,419)
Shares repurchased
in tender offer
prior to conversion
of Fund to
open-end status -- (117,700) -- (1,575,322)
Net decrease (1,195,840) (3,294,260) $ (12,332,571) $ (63,481,915)
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED OCT. 6,1997(A) YEAR ENDED OCT. 6,1997(A)
OCTOBER 31, TO OCTOBER 31, TO
1998 OCT. 31, 1997 1998 OCT. 31, 1997
------------ ------------ -------------- --------------
CLASS B
Shares sold 17,859 13 $188,915 $250
Shares issued in
reinvestment of
distributions 1,716 -0- 15,304 -0-
Shares redeemed (1,221) -0- (9,093) -0-
Net increase 18,354 13 $195,126 $250
NOV. 5, 1997(A) NOV. 5, 1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
-------------- --------------
CLASS C
Shares sold 8,706 $ 123,284
Shares issued in
reinvestment of
distributions 5,087 45,325
Shares redeemed (10,088) (96,487)
Net increase 3,705 $ 72,122
DEC. 29,1997(A) DEC. 29,1997(A)
TO TO
OCT. 31, 1998 OCT. 31, 1998
-------------- --------------
ADVISOR CLASS
Shares sold 1,557 $ 15,054
Shares redeemed (1,000) (10,340)
Net increase 557 $ 4,714
NOTE F: RESTRICTED AND ILLIQUID SECURITY
DATE ACQUIRED COST
--------------- --------
Thermo Eurotech 3/19/91-4/15/91 $529,926
The security shown above, formerly known as Beheersmaatchappij J. Amerika N.V.,
is restricted as to sale and has been valued at fair value in accordance with
the procedures in Note A.
The value of this security at October 31, 1998 was $529,974 representing 3.9%
of net assets.
(a) Commencement of distribution.
14
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility ("the Facility")
intended to provide for short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expense in the statement of operations. During the year ended
October 31, 1998, the Fund had borrowings outstanding for twelve days and the
weighted average interest on such borrowings was 5.59%. The Fund had no
borrowings outstanding on October 31, 1998.
15
FINANCIAL HIGHLIGHTS ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.77 $16.48 $12.37 $11.74 $10.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.24)(a) (.23)(a) (.13)(a) .03 -0-
Net realized and unrealized gain
(loss) on investments
and foreign currency
transactions (1.12) 3.65 4.26 .60 .77
Net increase (decrease) in net asset
value from operations (1.36) 3.42 4.13 .63 .77
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- (.02) -0- -0-
Distributions from net realized gain
on investments and
foreign currency transactions (9.07) (1.13) -0- -0- -0-
Total dividends and distributions (9.07) (1.13) (.02) -0- -0-
Net asset value, end of year $8.34 $18.77 $16.48 $12.37 $11.74
Market value, end of year $13.25 $9.375 $9.50
TOTAL RETURN
Total investment return based on net
asset value (b) (10.51)% 23.51% 33.48% 5.37% 7.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $13,295 $52,378 $100,271 $85,416 $81,102
Ratio of expenses to average net assets 2.80%(c) 2.39% 1.60% 1.57% 1.67%
Ratio of net investment income (loss) to
average net assets (2.27)% (1.35)% (.85)% .21% (.04)%
Portfolio turnover rate 205% 145% 268% 109% 42%
</TABLE>
See footnote summary on page 19.
16
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
----------------------------
OCTOBER 6,
1997(D)
YEAR ENDED TO
OCTOBER 31, OCTOBER 31,
1998 1997
----------- ------------
Net asset value, beginning of period $18.76 $19.92
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.27) (.20)
Net realized and unrealized loss on
investments and foreign currency
transactions (1.12) (.96)
Net decrease in net asset value from
operations (1.39) (1.16)
LESS: DISTRIBUTIONS
Distributions from net realized gain
on investments and foreign currency
transactions (9.07) -0-
Total distributions (9.07) -0-
Net asset value, end of period $8.30 $18.76
TOTAL RETURN
Total investment return based on net
asset value (b) (10.79)% (5.82)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $152 $235(e)
Ratio of expenses to average net assets 3.52%(c) 20.84%(f)
Ratio of net investment loss to average
net assets (2.93)% (1.03)%(f)
Portfolio turnover rate 205% 145%
See footnote summary on page 19.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD
CLASS C
-----------
NOVEMBER 5,
1997(D)
TO
OCTOBER 31,
1998
-----------
Net asset value, beginning of period $19.15
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.27)
Net realized and unrealized loss on investments
and foreign currency transactions (1.54)
Net decrease in net asset value from
operations (1.81)
LESS: DISTRIBUTIONS
Distributions from net realized gain on investments and
foreign currency transactions (9.07)
Total distributions (9.07)
Net asset value, end of period $8.27
TOTAL RETURN
Total investment return based on net asset value (b)(f) (12.88)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $31
Ratio of expenses to average net assets (f) 3.39%(c)
Ratio of net investment loss to average
net assets (f) (2.75)%
Portfolio turnover rate 205%
See footnote summary on page 19.
18
ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD
ADVISOR
CLASS
------------
DECEMBER 29,
1997(D)
TO
OCTOBER 31,
1998
------------
Net asset value, beginning of period $9.15
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) (.20)
Net realized and unrealized loss on investments
and foreign currency transactions (.58)
Net decrease in net asset value from
operations (.78)
Net asset value, end of period $8.37
TOTAL RETURN
Total investment return based on net asset value (b)(f) (8.52)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5
Ratio of expenses to average net assets (f) 3.04%(c)
Ratio of net investment loss to average
net assets (f) (2.39)%
Portfolio turnover rate 205%
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment and Cash Purchase Plan. Generally, total
investment return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such years. Conversely, total investment
return based on net asset value will be lower than total investment return
based on market value in years where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such years.
(c) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended October 31, 1998, the ratios of expenses to
average net assets were 2.79%, 3.51%, 3.38% and 3.03% for Class A, B, C and
Advisor Class shares, respectively.
(d) Commencement of distribution.
(e) Actual net assets without 000's omitted.
(f) Annualized
19
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE GLOBAL ENVIRONMENT FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE GLOBAL ENVIRONMENT FUND,
INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Global Environment Fund, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, 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 auditing
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
October 31, 1998, 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 Global Environment Fund, Inc. at October 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
December 2, 1998
20
<PAGE>
_________________________________________________________________
APPENDIX A:
CERTAIN EMPLOYEE BENEFIT PLANS
_________________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
by Merrill Lynch as of the date the plan
becomes an Active Plan.
A-1
<PAGE>
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
A-2
00250070.BC9
