As filed with the Securities and Exchange
Commission on February 28, 1995
File No. 33-37512
8ll-6205
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 11 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 X
Alliance World Income Trust, Inc.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 221-5672
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas, New York, New York 10105
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
- -----
- ----- on (date) pursuant to paragraph (b)
- ----- 60 days after filing pursuant to paragraph (a)
- ----- on (date) pursuant to paragraph (a) of rule 485.
<PAGE>
Registrant has registered an indefinite number of shares of
Capital Stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant filed a notice pursuant to such Rule for
its fiscal year ended October 31, 1994 on December 23, 1994.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A ITEM NO. LOCATION IN PROSPECTUS
(CAPTION)
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis The Fund At a Glance
Item 3. Condensed Financial
Information Financial Highlights
Item 4. General Description of
Registrant Description of the Fund
Item 5. Management of the Fund Management of the Fund;
General Information
Item 6. Capital Stock and Other
Securities General Information;
Dividends, Distributions
and Taxes
Item 7. Purchase of Securities
Being Offered Purchase and Sale of Shares;
General Information
Item 8. Redemption or Repurchase General Information;
Purchase and Sale of Shares
Item 9. Pending Legal Proceedings Not Applicable
<PAGE>
LOCATION IN STATEMENT OF
ADDITIONAL INFORMATION
PART B (CAPTION)
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information
and History Description of the Fund;
General Information
Item 13. Investment Objectives
and Policies Investment Objective,
Policies and Restrictions
Item 14. Management of the
Registrant Management of the Fund
Item 15. Control Persons and
Principal Holders of
Securities Management of the Fund;
General Information
Item 16. Investment Advisory
and Other Services Management of the Fund
Item 17. Brokerage Allocation
and Other Practices Not Applicable
Item 18. Capital Stock and
Other Securities General Information
Item 19. Purchase, Redemption
and Pricing of
Securities
Being Offered Purchase and Redemption
of Shares; Net
Asset Value
Item 20. Tax Status Investment Objective, Policies
and Restrictions; Dividends,
Distributions and Taxes
Item 21. Underwriters General Information
Item 22. Calculation of
Performance Data General Information
<PAGE>
Item 23. Financial Financial Statements; Report
Statements of Independent Auditors
<PAGE>
- --------------------------------------------------------------------------------
THE ALLIANCE
- --------------------------------------------------------------------------------
BOND FUNDS
- --------------------------------------------------------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
March 1, 1995
U.S. Government Funds
- --Alliance Short-Term U.S. Government Fund
- --U.S. Government Portfolio
Mortgage Funds
- --Alliance Mortgage Strategy Trust
- --Alliance Mortgage Securities Income Fund
Multi-Market Funds
- --Alliance World Income Trust
- --Alliance Short-Term Multi-Market Trust
- --Alliance Multi-Market Strategy Trust
Global Bond Funds
- --Alliance North American Government Income Trust
- --Alliance Global Dollar Government Fund
Corporate Bond Fund
- --Corporate Bond Portfolio
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Funds at a Glance.................................. 2
Expense Information.................................... 4
Financial Highlights................................... 7
Glossary............................................... 13
Description of the Funds............................... 14
Investment Objectives and Policies................ 14
Additional Investment Practices................... 20
Certain Fundamental Investment Policies........... 31
Risk Considerations............................... 32
Purchase and Sale of Shares............................ 36
Management of the Funds................................ 39
Dividends, Distributions and Taxes..................... 41
General Information.................................... 42
Appendix A: Bond Ratings............................... A-1
Appendix B: General Information About Canada,
Mexico and Argentina.............................. B-1
</TABLE>
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Funds invest in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.
Each Fund offers three classes of shares that may be purchased at the investor's
choice at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"), except that Alliance
World Income Trust offers only one class of shares which may be purchased at a
price equal to its net asset value without any initial or contingent deferred
sales charge. See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
ALLIANCE(R)
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Manager Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 103 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $121 billion in
assets under management. Alliance provides investment management services to 29
of the FORTUNE 100 companies.
U.S. Government Funds
Short-Term U.S. Government Fund
Seeks . . . High current income consistent with preservation of capital.
Invests primarily in . . . A diversified portfolio of U.S. Government
securities.
U.S. Government Portfolio
Seeks . . . As high a level of current income as is consistent with safety of
principal.
Invests solely in . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
Mortgage Funds
Mortgage Strategy Trust
Seeks . . . The highest level of current income, consistent with low volatility
of net asset value, that is available from a portfolio of mortgage-related
securities of the highest quality.
Invests primarily in . . . A diversified portfolio of adjustable and fixed-rate
mortgage-related securities that are U.S. Government securities or rated AAA by
S&P or Aaa by Moody's or, if not rated, are of equivalent investment quality.
The Fund's portfolio is structured to achieve low volatility of net asset value
approximating that of a portfolio investing exclusively in two-year U.S.
Treasury securities.
Mortgage Securities Income Fund
Seeks . . . A high level of current income consistent with prudent investment
risk.
Invests primarily in . . . A diversified portfolio of mortgage-related
securities.
Multi-Market Funds
World Income Trust
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.
Short-Term Multi-Market Trust
Seeks . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
Multi-Market Strategy Trust
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated in
foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the U.S.
Dollar.
Global Bond Funds
North American Government Income Trust
Seeks . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
Invests primarily in . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso, and
expects to maintain at least 25% of its assets in securities denominated in the
U.S. Dollar. In addition, the Fund may invest up to 25% of its total assets in
debt securities issued by governmental entities in Argentina.
2
<PAGE>
Global Dollar Government Fund
Seeks . . . Primarily a high level of current income and, secondarily, capital
appreciation.
Invests primarily in . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
Corporate Bond Fund
Corporate Bond Portfolio
Seeks . . . Primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment;
secondarily, the Fund will attempt to increase its capital through appreciation
of its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment.
Invests primarily in . . . A diversified portfolio of corporate bonds issued by
domestic and foreign issuers that give promise of relatively attractive yields.
A Word About Risk . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. The prices of non-U.S. Dollar denominated bonds also fluctuate with
changes in foreign exchange rates. Investment in the Global Bond Funds, the
Multi-Market Funds and any other Fund that may invest a significant amount of
its assets in non-U.S. securities involves risks not associated with Funds that
invest primarily in securities of U.S. issuers. While the Funds invest
principally in bonds and fixed-income securities, in order to achieve their
investment objectives, the Funds may at times use certain types of derivative
instruments, such as options, futures, forwards and swaps. These instruments
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. These risks are fully discussed in
this Prospectus. See "Description of the Funds-Additional Investment Practices"
and "--Risk Considerations."
Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares of each Fund
can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:
Automatic Reinvestment
Automatic Investment Program
Retirement Plans
Shareholder Communications
Dividend Direction Plans
Auto Exchange
Systematic Withdrawals
Check-writing
A Choice Of Purchase Plans
Telephone Transactions
24 Hour Information
ALLIANCE (R)
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following tables summarize your maximum transaction costs
from investing in a Fund, other than World Income, and annual operating expenses
for each class of shares of each Fund. World Income, which has only one class
of shares, has no sales charge on purchases or reinvested dividends, deferred
sales charge, redemption fee or exchange fee. For each Fund, the "Examples"
below show the cumulative expenses attributable to a hypothetical $1,000
investment, assuming a 5% annual return, in each class for the periods
specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price).................... 4.25%(a) None None
Sales charge imposed on dividend
reinvestments...................... None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)................. None 3.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
third year (b)
Exchange fee........................ None None None
</TABLE>
(a) Reduced for larger purchases. See "Purchase and Sale of Shares--How to Buy
Shares" --page 36.
(b) Class B shares of each Fund automatically convert to Class A shares after
six years. See "Purchase and Sale of Shares--How to Buy Shares" --page 36.
<TABLE>
<CAPTION>
Annual Operating Expenses Examples
- ---------------------------------------------------------- -------------------------------------------------------------
Short-Term U.S.
Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees(b)(after
waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66
Other expenses(a)(b)(after After 5 years $116 $113 $113 $113
reimbursement) 1.10% 1.10% 1.10% After 10 years $203 $209 $209 $243
---- ---- ----
Total fund operating
expenses(b) 1.40% 2.10% 2.10%
==== ==== ====
<CAPTION>
U. S. Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .54% .54% .54% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54
Other expenses(a) .18% .18% .16% After 5 years $ 96 $ 93 $ 93 $ 92
---- ---- ---- After 10 years $162 $167 $167 $201
Total fund operating
expenses 1.02% 1.72% 1.70%
==== ==== ====
<CAPTION>
Mortgage Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .65% .65% .65% After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 83 $ 75 $ 65 $ 64
Other expenses(a) .39% .43% .39% After 5 years $113 $112 $112 $110
---- ---- ---- After 10 years $197 $205 $205 $237
Total fund operating
expenses 1.34% 2.08% 2.04%
==== ==== ====
<CAPTION>
Mortgage Securities Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .48% .48% .48% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .51% .52% .49% After 5 years $110 $108 $108 $106
---- ---- ---- After 10 years $192 $198 $198 $230
Total fund operating
expenses 1.29% 2.00% 1.97%
---- ---- ----
</TABLE>
Please refer to the footnotes on page 5.
4
<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Examples
- ---------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
World Income
Management fees(c)(after
waiver) .49% After 1 year $ 17
12b-1 fees(c)(after
waiver) .68% After 3 years $ 54
Other expenses(c) .53% After 5 years $ 92
---- After 10 years $201
Total fund operating
expenses(c) 1.70%
=====
<CAPTION>
Short-Term
Multi-Market Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .55% .55% .55% After 1 year $ 54 $ 49 $ 19 $ 19
12b-1 fees .30% 1.00% 1.00% After 3 years $ 77 $ 68 $ 58 $ 58
Other expenses(a) .28% .30% .28% After 5 years $102 $100 $100 $ 99
---- ---- ---- After 10 years $174 $181 $181 $215
Total fund operating
expenses 1.13% 1.85% 1.83%
==== ==== ====
<CAPTION>
Multi-Market
Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees(d) .60% .60% .60% After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 65
Other expenses After 5 years $116 $113 $113 $112
Interest expense .11% .10% .09% After 10 years $204 $210 $210 $241
Other operating
expenses(a) .40% .40% .39%
--- --- ----
Total other expenses .51% .51% .48%
---- ---- -----
Total fund operating
expenses(e) 1.41% 2.11% 2.08%
==== ==== ====
<CAPTION>
North American
Government Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees(f) .69% .69% .68% After 1 year $ 59 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 85 $ 75 $ 75
Other expenses After 5 years $131 $129 $129 $128
Interest expense .33% .34% .33% After 10 years $235 $241 $241 $273
Other operating
expenses(a) .38% .38% .38%
--- --- ---
Total other expenses .71% .72% .71%
---- ---- ----
Total fund operating
expenses(g) 1.70% 2.41% 2.39%
==== ==== ====
<CAPTION>
Global Dollar Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees(h) .75% .75% .75% After 1 year $ 58 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 92 $ 83 $ 73 $ 73
Other expenses After 5 years $127 $126 $126 $125
Interest expense 0.00% 0.00% 0.00% After 10 years $228 $234 $234 $268
Other operating
expenses(a) .58% .60% .59%
---- ---- -----
Total other expenses .58% .60% .59%
---- ---- ----
Total fund operating
expenses 1.63% 2.35% 2.34%
==== ==== ====
<CAPTION>
Corporate Bond Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .37% .37% .36% After 5 years $111 $108 $108 $107
---- ---- ---- After 10 years $193 $198 $198 $232
Total fund operating
expenses 1.30% 2.00% 1.99%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
++ Assumes no redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(b) Net of voluntary fee waivers and expense reimbursements. Absent such
waivers and reimbursements, annualized management fees would have been
.55%, annualized other expenses would have been 2.10% for Class A, 2.05%
for Class B and 2.09% for Class C and annualized total fund operating
expenses would have been 2.95% for Class A, 3.60% for Class B and 3.64% for
Class C.
(c) Net of voluntary fee waivers. Absent such waivers, management fees would
have been .65%, Rule 12b-1 fees would have been .90% and total fund
operating expenses would have been 2.08%.
(d) Represents .60 of 1% of the average daily value of the Fund's adjusted
total net assets.
(e) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.30%, for Class B, 2.01% and for Class C, 1.99%.
(f) Represents .65 of 1% of the average daily value of the Fund's adjusted
total net assets.
(g) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.37%, for Class B, 2.07% and for Class C, 2.06%.
(h) Reflects management fee in effect during the Fund's current fiscal year.
5
<PAGE>
The purpose of the tables on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the Funds-
Distribution Services Agreements." The Rule 12b-1 fee for each class comprises a
service fee not exceeding .25% of the aggregate average daily net assets of the
Fund attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of Multi-Market
Strategy and North American Government Income, "interest expense" represents
interest paid by the Fund on borrowings for the purpose of making additional
portfolio investments. Such borrowings are intended to enable each of those
Funds to produce higher net yields to shareholders than the Funds could pay
without such borrowings. See "Risk Considerations-Effects of Borrowing."
Excluding interest expense, total fund operating expenses of each of Multi-
Market Strategy and North American Government Income would be lower (see notes
(e) and (g) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The information shown in the table for
Short-Term U.S. Government reflects annualized expenses based on the Fund's most
recent fiscal period. The management fee rate of Global Dollar Government is
higher than that paid by most other investment companies, but Alliance believes
the fee is comparable to those paid by investment companies of similar
investment orientation. The expense ratios for Class B and Class C shares of
Multi-Market Strategy and North American Government Income are higher than the
expense ratios of most other mutual funds, but are comparable to the expense
ratios of mutual funds whose shares are similarly priced. The Examples set forth
above assume reinvestment of all dividends and distributions and utilize a 5%
annual rate of return as mandated by Commission regulations. The Examples should
not be considered representative of past or future expenses; actual expenses may
be greater or less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for Short-Term U.S. Government has been audited by
Price Waterhouse LLP, the independent accountants for the Fund, and for U.S.
Government, Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income,
Global Dollar Government and Corporate Bond has been audited by Ernst & Young
LLP, the independent auditors for each Fund. A report of Price Waterhouse LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "Literature" telephone number
shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) in Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government+
Class A
Period Ended 8/31/94**....... $ 9.77 $ .14 $ (.09) $ .05 $ (.12) $ 0.00
Year Ended 4/30/94........... 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93........... 10.00 .46 .34 .80 (.46) (.12)
Class B
Period Ended 8/31/94**....... $ 9.88 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
Year Ended 4/30/94........... 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93........... 10.00 .38 .33 .71 (.38) (.02)
Class C
Period Ended 8/31/94**....... $ 9.87 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
8/2/93++ to 4/30/94.......... 10.34 .26 (.42) (.16) (.25) 0.00
U.S. Government
Class A
Year Ended 6/30/94........... $ 8.64 $ .65 $ (.80) $ (.15) $ (.65) $ 0.00
Year Ended 6/30/93........... 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92........... 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91........... 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90........... 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89........... 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88........... 8.90 .93 (.39) .54 (.93) 0.00
Year Ended 6/30/87........... 9.24 .98 (.34) .64 (.98) 0.00
12/1/85+ to 6/30/86.......... 9.45 .63 (.21) .42 (.63) 0.00
Class B
Year Ended 6/30/94........... $ 8.64 $ .59 $ (.80) $ (.21) $ (.59) $ 0.00
Year Ended 6/30/93........... 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92......... 8.25 .49 .09 .58 (.49) 0.00
Class C
Year Ended 6/30/94........... $ 8.64 $ .59 $ (.81) $ (.22) $ (.59) $ 0.00
4/30/93++ to 6/30/93......... 8.56 .10 .08 .18 (.10) 0.00
Mortgage Securities Income
Class A
Year Ended 12/31/94.......... $ 9.29 $ .57 $ (1.13) $ (.56) $ (.58) $ 0.00
Year Ended 12/31/93.......... 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92.......... 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91.......... 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90.......... 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89.......... 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88.......... 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87.......... 9.74 1.00 (.68) .32 (1.00) (.03)
Year Ended 12/31/86.......... 9.97 1.06 (.02) 1.04 (1.06) (.21)
Year Ended 12/31/85.......... 9.54 1.22 .43 1.65 (1.22) 0.00
Class B
Year Ended 12/31/94.......... $ 9.29 $ .51 $(1.14) $(.63) $ (.51) $ 0.00
Year Ended 12/31/93.......... 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92........ 9.16 .68 (.08) .60 (.68) 0.00
Class C
Year Ended 12/31/94.......... $ 9.29 $ .51 $(1.14) $(.63) $ (.51) $ 0.00
5/3/93++ to 12/31/93......... 9.30 .40 0.00 .40 (.40) 0.00
Mortgage Strategy
Class A
Year Ended 11/30/94.......... $ 9.94 $ .42 $ (.32) $ .10 $ (.48) $ (.01)
Year Ended 11/30/93.......... 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92.......... 10.00 .35 (.17) .18 (.34) 0.00
Class B
Year Ended 11/30/94.......... $ 9.94 $ .39 $ (.35) $ .04 $ (.42) $ (.01)
Year Ended 11/30/93.......... 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92.......... 10.00 .31 (.17) .14 (.30) 0.00
Class C
Year Ended 11/30/94.......... $ 9.94 $ .37 $ (.33) $ .04 $ (.42) $ (.01)
5/3/93++ to 11/30/93......... 9.98 .27 (.03) .24 (.28) 0.00
World Income
Year Ended 10/31/94.......... $ 1.90 $ .18 $ (.12) $ .06 $ (.05) $ 0.00
Year Ended 10/31/93.......... 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92.......... 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91......... 2.00 .14 (.03) .11 (.13) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the footnotes on page 12.
8
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
In Excess Total Investment At End Of
of Net Return Dividends Net Asset Return Period
Investment of and Value End Based on Net (000's
Income Capital Distributions of Period Asset Value (b) Omitted)
------------- ----------- ------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government+
Class A
Period Ended 8/31/94**....... $ (.03)(a) $ 0.00 $ (.15)(c) $9.67 .53% $2,272
Year Ended 4/30/94........... (.09)(a) 0.00 (.51)(c) 9.77 .52 2,003
5/4/92+ to 4/30/93........... 0.00 0.00 (.58)(c) 10.22 8.20 6,081
Class B
Period Ended 8/31/94**....... $ (.02)(a) $ 0.00 $ (.13)(c) $9.78 .28 % $6,281
Year Ended 4/30/94........... (.09)(a) 0.00 (.44)(c) 9.88 .03 7,184
5/4/92+ to 4/30/93........... 0.00 0.00 (.40)(c) 10.31 7.22 1,292
Class C
Period Ended 8/31/94**....... $ (.02)(a) $ 0.00 $ (.13)(c) $9.77 .28 % $7,128
8/2/93++ to 4/30/94.......... (.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763
U.S. Government
Class A
Year Ended 6/30/94........... $0.00 $ 0.00 $ (.65) $7.84 (1.93)% $482,595
Year Ended 6/30/93........... 0.00 0.00 (.68) 8.64 12.23 527,968
Year Ended 6/30/92........... 0.00 0.00 (.72) 8.34 13.52 492,448
Year Ended 6/30/91........... 0.00 0.00 (.83) 8.01 8.97 491,910
Year Ended 6/30/90........... 0.00 0.00 (.83) 8.14 5.99 510,675
Year Ended 6/30/89........... 0.00 0.00 (.88) 8.49 10.87 532,525
Year Ended 6/30/88........... 0.00 0.00 (.93) 8.51 6.41 529,909
Year Ended 6/30/87........... 0.00 0.00 (.98) 8.90 7.00 496,600
12/1/85+ to 6/30/86.......... 0.00 0.00 (.63) 9.24 4.53 128,870
Class B
Year Ended 6/30/94........... $0.00 $ 0.00 $ (.59) $7.84 (2.63)% $756,282
Year Ended 6/30/93........... 0.00 0.00 (.62) 8.64 11.45 552,471
9/30/91++ to 6/30/92......... 0.00 0.00 (.49) 8.34 6.95 32,227
Class C
Year Ended 6/30/94........... $0.00 $ 0.00 $ (.59) $7.83 (2.75)% $231,859
4/30/93++ to 6/30/93......... 0.00 0.00 (.10) 8.64 2.12 67,757
Mortgage Securities Income
Class A
Year Ended 12/31/94.......... $0.00 $ (.02) $ (.60) $8.13 (6.14)% $553,889
Year Ended 12/31/93.......... (.02) 0.00 (.69) 9.29 10.14 848,069
Year Ended 12/31/92.......... 0.00 0.00 (.81) 9.08 7.73 789,898
Year Ended 12/31/91.......... 0.00 0.00 (.87) 9.21 15.44 544,171
Year Ended 12/31/90.......... 0.00 0.00 (.87) 8.79 11.01 495,353
Year Ended 12/31/89.......... 0.00 0.00 (.97) 8.76 10.98 556,077
Year Ended 12/31/88.......... 0.00 0.00 (.98) 8.81 8.64 619,572
Year Ended 12/31/87.......... 0.00 0.00 (1.03) 9.03 3.49 682,650
Year Ended 12/31/86.......... 0.00 0.00 (1.27) 9.74 11.18 756,730
Year Ended 12/31/85.......... 0.00 0.00 (1.22) 9.97 18.35 609,566
Class B
Year Ended 12/31/94.......... $0.00 $ (.02) $ (.53) $8.13 (6.84)% $921,418
Year Ended 12/31/93.......... (.02) 0.00 (.62) 9.29 9.38 1,454,303
1/30/92++ to 12/31/92........ 0.00 0.00 (.68) 9.08 7.81 1,153,957
Class C
Year Ended 12/31/94.......... $0.00 $ (.02) $ (.53) $8.13 (6.84)% $ 58,338
5/3/93++ to 12/31/93......... (.01) 0.00 (.41) 9.29 4.38 91,724
Mortgage Strategy
Class A
Year Ended 11/30/94.......... $ 0.00 $ (.04) $ (.53) $9.51 1.03% $ 43,173
Year Ended 11/30/93.......... 0.00 0.00 (.58) 9.94 7.02 59,215
6/1/92+ to 11/30/92.......... 0.00 0.00 (.34) 9.84 1.84 24,186
Class B
Year Ended 11/30/94.......... $0.00 $ (.03) $ (.46) $9.52 .42% $136,458
Year Ended 11/30/93.......... 0.00 0.00 (.51) 9.94 6.27 168,157
6/1/92+ to 11/30/92.......... 0.00 0.00 (.30) 9.84 1.50 149,188
Class C
Year Ended 11/30/94.......... $0.00 $ (.03) $ (.46) $9.52 .42% $141,838
5/3/93++ to 11/30/93......... 0.00 0.00 (.28) 9.94 2.40 228,703
World Income
Year Ended 10/31/94.......... $0.00 $ (.03) $ (.08) $1.88 3.27% $103,310
Year Ended 10/31/93.......... 0.00 0.00 (.07) 1.90 3.51 149,623
Year Ended 10/31/92.......... 0.00 0.00 (.09) 1.91 1.26 318,716
12/3/90+ to 10/31/91......... 0.00 0.00 (.13) 1.98 6.08 1,059,222
<CAPTION>
Ratio of Net
Ratio Investment
Of Expenses Income (Loss) Portfolio
To Average To Average Turnover
Net Assets Net Assets Rate
----------- ------------- ---------
<S> <C> <C> <C>
Short-Term U.S. Government+
Class A
Period Ended 8/31/94**....... 1.40%(d) 3.98% 144%
Year Ended 4/30/94........... 1.27(d) 4.41 55
5/4/92+ to 4/30/93........... 1.00*(d) 4.38* 294
Class B
Period Ended 8/31/94**....... 2.10%(d) 3.22% 144%
Year Ended 4/30/94........... 2.05(d) 3.12 55
5/4/92+ to 4/30/93........... 1.75*(d) 3.36* 294
Class C
Period Ended 8/31/94**....... 2.10%(d) 3.26% 144%
8/2/93++ to 4/30/94.......... 2.10*(d) 2.60* 55
U.S. Government
Class A
Year Ended 6/30/94........... 1.02% 7.76% 188%
Year Ended 6/30/93........... 1.10 8.04 386
Year Ended 6/30/92........... 1.12 8.43 418
Year Ended 6/30/91........... 1.07 10.02 402
Year Ended 6/30/90........... 1.09 10.35 455
Year Ended 6/30/89........... 1.11 10.70 148
Year Ended 6/30/88........... 1.14 10.70 149
Year Ended 6/30/87........... 1.07(d) 10.36 255
12/1/85+ to 6/30/86.......... 1.01*(d) 9.30* 193
Class B
Year Ended 6/30/94........... 1.72% 7.04% 188%
Year Ended 6/30/93........... 1.81 7.25 386
9/30/91++ to 6/30/92......... 1.80* 7.40* 418
Class C
Year Ended 6/30/94........... 1.70% 6.97% 188%
4/30/93++ to 6/30/93......... 1.80* 6.00* 386
Mortgage Securities Income
Class A
Year Ended 12/31/94.......... 1.29% 6.77% 438%
Year Ended 12/31/93.......... 1.00 7.20 622
Year Ended 12/31/92.......... 1.18 8.56 555
Year Ended 12/31/91.......... 1.16 9.92 439
Year Ended 12/31/90.......... 1.12 10.09 393
Year Ended 12/31/89.......... 1.13 11.03 328
Year Ended 12/31/88.......... 1.11 10.80 239
Year Ended 12/31/87.......... 1.15 10.79 211
Year Ended 12/31/86.......... 1.00 10.86 190
Year Ended 12/31/85.......... .87 12.30 164
Class B
Year Ended 12/31/94.......... 2.00% 6.05% 438%
Year Ended 12/31/93.......... 1.70 6.47 622
1/30/92++ to 12/31/92........ 1.67* 5.92* 555
Class C
Year Ended 12/31/94.......... 1.97% 6.06% 438%
5/3/93++ to 12/31/93......... 1.67* 5.92* 622
Mortgage Strategy
Class A
Year Ended 11/30/94.......... 1.34%(e) 4.78% 375%
Year Ended 11/30/93.......... 1.54 (e) 5.66 499
6/1/92+ to 11/30/92.......... 1.44*(d)(e) 6.58*(d) 101
Class B
Year Ended 11/30/94.......... 2.08%(e) 4.12% 375%
Year Ended 11/30/93.......... 2.26 (e) 4.98 499
6/1/92+ to 11/30/92.......... 2.13*(d)(e) 6.01*(d) 101
Class C
Year Ended 11/30/94.......... 2.04%(e) 4.10% 375%
5/3/93++ to 11/30/93......... 1.58*(e) 3.70* 499
World Income
Year Ended 10/31/94.......... 1.70%(d) 3.96%(d) N/A
Year Ended 10/31/93.......... 1.54 (d) 5.14 (d) N/A
Year Ended 10/31/92.......... 1.59 (d) 7.21 (d) N/A
12/3/90+ to 10/31/91......... 1.85*(d) 7.29*(d) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the footnotes on page 12.
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) in Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
- --------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Short-term Multi-Market
Class A
Year Ended 10/31/94 $ 9.25 $ .93 $ (.86) $ .07 $ 0.00 $0.00
Year Ended 10/31/93 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89 9.70 .53 (.01) .52 (.53) 0.00
Class B
Year Ended 10/31/94 $ 9.25 $ .94 $ (.93) $ .01 $ 0.00 $0.00
Year Ended 10/31/93 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90 9.77 .74 .12 .86 (.74) 0.00
Class C
Year Ended 10/31/94 $ 9.25 $ .58 $ (.57) $ .01 $ 0.00 $0.00
5/3/93++ to 10/31/93 9.18 .28 .05 .33 (.26) 0.00
Multi-Market Strategy
Class A
Year Ended 10/31/94 $ 8.94 $ .85 $(1.08) $ (.23) $ (.09) $0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
Class B
Year Ended 10/31/94 $ 8.94 $ .88 $(1.18) $ (.30) $ (.08) $0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
Class C
Year Ended 10/31/94 $ 8.94 $ .46 $ (.75) $ (.29) $ (.09) $0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
North American Government Income
Class A
Year Ended 11/30/94 $10.35 $1.02 $(2.12) $(1.10) $(.91) $0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
Class B
Year Ended 11/30/94 $10.34 $ .96 $(2.13) $(1.17) $ (.84) $0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
Class C
Year Ended 11/30/94 $10.34 $ .96 $(2.12) $(1.16) $(.84) $0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
Global Dollar Government
Class A
2/25/94+ to 8/31/94 $10.00 $ .45 $ (.86) $ (.41) $ (.45) $0.00
Class B
2/25/94+ to 8/31/94 $10.00 $ .42 $ (.86) $ (.44) $ (.42) $0.00
Class C
2/25/94+ to 8/31/94 $10.00 $ .42 $ (.86) $ (.44) $ (.42) $0.00
Corporate Bond
Class A
Year Ended 6/30/94 $14.15 $1.11 $(1.36) $ (.25) $(1.11) $(.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86 11.52 1.20 .73 1.93 (1.20) 0.00
Year Ended 9/30/85 10.50 1.24 1.04 2.28 (1.26) 0.00
Year Ended 9/30/84 11.11 1.25 (.60) .65 (1.26) 0.00
Class B
Year Ended 6/30/94 $14.15 $1.02 $(1.37) $ (.35) $(1.04) $(.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
Class C
Year Ended 6/30/94 $14.15 $1.02 $(1.37) $ (.35) $(1.05) $(.25)
5/30/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the footnotes on page 12.
10
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
In Excess Total Investment At End Of
of Net Return Dividends Net Asset Return Period
Investment of and Value End Based on Net (000's
Fiscal Year or Period Income Capital Distributions of Period Asset Value (b) Omitted)
- --------------------- ------------- ---------- ------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Short-term Multi-Market
Class A
Year Ended 10/31/94 $ 0.00 $ (.61) $ (.61) $ 8.71 .84% $ 593,677
Year Ended 10/31/93 0.00 0.00 (.60) 9.25 6.67 953,571
Year Ended 10/31/92 0.00 0.00 (.74) 9.25 .49 1,596,903
Year Ended 10/31/91 0.00 0.00 (.98) 9.94 10.91 2,199,393
Year Ended 10/31/90 0.00 0.00 (1.08) 9.89 13.86 1,346,035
5/5/89+ to 10/31/89 0.00 0.00 (.53) 9.69 5.57 210,294
Class B
Year Ended 10/31/94 $ 0.00 $ (.55) $ (.55) $ 8.71 (.12)% 1,003,633
Year Ended 10/31/93 0.00 0.00 (.53) 9.25 5.91 1,742,703
Year Ended 10/31/92 0.00 0.00 (.67) 9.25 (.24) 2,966,071
Year Ended 10/31/91 0.00 0.00 (.91) 9.94 10.11 3,754,003
2/5/90++ to 10/31/90 0.00 0.00 (.74) 9.89 9.07 1,950,330
Class C
Year Ended 10/31/94 $ 0.00 $ (.55) $ (.55) $ 8.71 (.12)% $ 8,136
5/3/93++ to 10/31/93 0.00 0.00 (.26) 9.25 3.66 5,538
Multi-Market Strategy
Class A
Year Ended 10/31/94 $ 0.00 $ (.58) $ (.67) $ 8.04 (2.64)% $ 52,385
Year Ended 10/31/93 0.00 0.00 (.67) 8.94 9.01 82,977
Year Ended 10/31/92 0.00 0.00 (.83) 8.85 (2.80) 141,526
5/29/91+ to 10/28/91 0.00 0.00 (.42) 9.91 3.68 143,594
Class B
Year Ended 10/31/94 $ 0.00 $ (.52) $ (.60) $ 8.04 (3.35)% $ 233,896
Year Ended 10/31/93 0.00 0.00 (.61) 8.94 8.25 431,186
Year Ended 10/31/92 0.00 0.00 (.76) 8.85 (3.51) 701,465
5/29/91+ to 10/28/91 0.00 0.00 (.39) 9.91 3.36 662,981
Class C
Year Ended 10/31/94 $ 0.00 $ (.52) $ (.61) $ 8.04 (3.34)% $ 1,252
5/3/93++ to 10/31/93 0.00 0.00 (.30) 8.94 5.54 718
North American Government Income
Class A
Year Ended 11/30/94 $ 0.00 $ (.21) $(1.12) $8.13 (11.32)% $303,538
Year Ended 11/30/93 0.00 0.00 (1.10) 10.35 18.99 268,233
3/27/92+ to 11/30/92 0.00 0.00 (.68) 9.70 3.49 61,702
Class B
Year Ended 11/30/94 $ 0.00 $ (.21) $(1.05) $8.13 (11.89)% $1,639,602
Year Ended 11/30/93 0.00 0.00 (1.03) 10.35 18.15 1,313,591
3/27/92+ to 11/30/92 0.00 0.00 (.63) 9.70 3.30 216,317
Class C
Year Ended 11/30/94 $ 0.00 $ (.21) $(1.05) $8.13 (11.89)% $369,714
5/3/93++ to 11/30/93 0.00 0.00 (.58) 10.34 9.00 310,230
Global Dollar Government
Class A
2/25/94+ to 8/31/94 $ 0.00 $ 0.00 $ (.45) $9.14 (3.77)% $ 10,995
Class B
2/25/94+ to 8/31/94 $ 0.00 $ 0.00 $ (.42) $9.14 (4.17)% $ 47,030
Class C
2/25/94+ to 8/31/94 $ 0.00 $ 0.00 $ (.42) $9.14 (4.16)% $ 10,404
Corporate Bond
Class A
Year Ended 6/30/94 $ (.03) $ 0.00 $(1.39) $12.51 (2.58)% $ 219,182
Year Ended 6/30/93 0.00 0.00 (1.24) 14.15 29.62 216,171
Year Ended 6/30/92 0.00 0.00 (1.08) 12.01 17.43 60,356
Year Ended 6/30/91 0.00 0.00 (1.23) 11.21 9.71 62,268
Year Ended 6/30/90 0.00 0.00 (1.14) 11.39 3.27 68,049
Year Ended 6/30/89 0.00 0.00 (1.11) 12.15 12.99 52,381
Year Ended 6/30/88 0.00 0.00 (1.14) 11.82 6.24 37,587
Nine Months Ended 6/30/87 0.00 0.00 (.81) 12.24 7.32 41,072
Year Ended 9/30/86 0.00 0.00 (1.20) 12.25 17.19 45,178
Year Ended 9/30/85 0.00 0.00 (1.26) 11.52 22.66 40,631
Year Ended 9/30/84 0.00 0.00 (1.26) 10.50 6.44 36,435
Class B
Year Ended 6/30/94 $ (.01) $ 0.00 $(1.30) $12.50 (3.27)% $ 184,129
1/8/93++ to 6/30/93 0.00 0.00 .50 14.15 17.75 55,508
Class C
Year Ended 6/30/94 $ 0.00 $ 0.00 $(1.30) $12.50 (3.27)% $ 50,860
5/30/93++ to 6/30/93 0.00 0.00 (.17) 14.15 5.08 5,115
<CAPTION>
Ratio of Net
Ratio Investment
Of Expenses Income (Loss) Portfolio
To Average To Average Turnover
Fiscal Year or Period Net Assets Net Assets Rate
- --------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Short-term Multi-Market
Class A
Year Ended 10/31/94 1.13% 7.28% 109%
Year Ended 10/31/93 1.16 8.26 182
Year Ended 10/31/92 1.10 9.00 133
Year Ended 10/31/91 1.09 9.64 146
Year Ended 10/31/90 1.18 10.81 152
5/5/89+ to 10/31/89 1.14* 10.83* 10
Class B
Year Ended 10/31/94 1.85 % 6.58 % 109 %
Year Ended 10/31/93 1.87 7.57 182
Year Ended 10/31/92 1.81 8.28 133
Year Ended 10/31/91 1.81 8.87 146
2/5/90++ to 10/31/90 1.86* 9.90* 152
Class C
Year Ended 10/31/94 1.83% 6.50% 109%
5/3/93++ to 10/31/93 1.82* 7.19* 182
Multi-Market Strategy
Class A
Year Ended 10/31/94 1.41%(f) 7.17% 605%
Year Ended 10/31/93 1.94 (f) 9.17(g) 200
Year Ended 10/31/92 2.53 (f) 10.58(g) 239
5/29/91+ to 10/28/91 2.81*(f) 10.17*(g) 121
Class B
Year Ended 10/31/94 2.11%(f) 6.33% 605%
Year Ended 10/31/93 2.64 (f) 8.46(g) 200
Year Ended 10/31/92 3.24 (f) 9.83(g) 239
5/29/91+ to 10/28/91 3.53*(f) 9.40*(g) 121
Class C
Year Ended 10/31/94 2.08%(f) 6.10% 605%
5/3/93++ to 10/31/93 2.44*(f) 7.17*(g) 200
North American Government Income
Class A
Year Ended 11/30/94 1.70%(f) 11.22% 131%
Year Ended 11/30/93 1.61 (f) 10.77 254
3/27/92+ to 11/30/92 2.45*(d)(f) 10.93*(d) 86
Class B
Year Ended 11/30/94 2.41%(f) 10.53% 131%
Year Ended 11/30/93 2.31 (f) 10.01 254
3/27/92+ to 11/30/92 3.13*(d)(f) 10.16*(d) 86
Class C
Year Ended 11/30/94 2.39%(f) 10.46% 131%
5/3/93++ to 11/30/93 2.21*(f) 9.74* 254
Global Dollar Government
Class A
2/25/94+ to 8/31/94 .75%*(d) 9.82%* 100%
Class B
2/25/94+ to 8/31/94 1.45%*(d) 9.11%* 100%
Class C
2/25/94+ to 8/31/94 1.45%*(d) 9.05%* 100%
Corporate Bond
Class A
Year Ended 6/30/94 1.30% 7.76% 372%
Year Ended 6/30/93 1.39 9.29 579
Year Ended 6/30/92 1.48 8.98 610
Year Ended 6/30/91 1.44 9.84 357
Year Ended 6/30/90 1.51 10.70 480
Year Ended 6/30/89 1.84 9.53 104
Year Ended 6/30/88 1.81 9.24 98
Nine Months Ended 6/30/87 1.27 9.17 95
Year Ended 9/30/86 1.08 9.80 240
Year Ended 9/30/85 1.15 11.00 142
Year Ended 9/30/84 1.18 11.88 10
Class B
Year Ended 6/30/94 2.00% 7.03% 372%
1/8/93++ to 6/30/93 2.10* 7.18* 579
Class C
Year Ended 6/30/94 1.99% 6.98% 372%
5/30/93++ to 6/30/93 2.05* 5.51* 579
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the footnotes on page 12.
11
<PAGE>
+ Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable") served as the investment adviser to The Alliance Portfolios
(the "Trust"), of which Short-Term U.S. Government is a series. On July 22,
1993, Alliance acquired the business and substantially all of the assets of
Equitable and became investment adviser of the Trust.
+ Commencement of operations.
++ Commencement of distribution.
* Annualized.
** Reflects newly adopted fiscal year end.
(a) Includes with respect to Short-Term U.S. Government a return of capital for
the year ended April 30, 1994 of $(0.08) for Class A, $(0.08) for Class B
and $(0.05) for Class C and for the period ended August 31, 1994 of $(0.03)
for Class A and $(0.02) for Class B and Class C.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(c) "Total dividends and distributions" includes dividends in excess of net
investment income and return of capital. Short-Term U.S. Government had
dividends in excess of net investment income with respect to Class A
shares, for the year ended April 30, 1994, of $(.01); with respect to Class
B shares, $(.01); and with respect to Class C shares, $(.01).
(d) Net of expenses assumed and/or waived/reimbursed. If Short-Term U.S.
Government had borne all expenses, the expense ratios would have been with
respect to Class A shares, 2.20% (annualized) for 1993, 2.17% for the year
ended April 30, 1994 and 2.95% (annualized) for the period ended August 31,
1994; with respect to Class B shares, 4.81% (annualized) for 1993, 3.21%
for the year ended April 30, 1994 and 3.60% (annualized) for the period
ended August 31, 1994; and with respect to Class C shares, 3.10%
(annualized) for the year ended April 30, 1994 and 3.64% (annualized) for
the period ended August 31, 1994. If U.S. Government had borne all
expenses, the expense ratios would have been 1.22% for 1986 and 1.09% for
1987. If Mortgage Strategy had borne all expenses, the expense ratios would
have been with respect to Class A shares, 1.55% (annualized) for 1992; and
with respect to Class B shares, 2.28% (annualized) for 1992. The ratio of
net investment income to average net assets would have been with respect to
Class A shares, 6.47% (annualized) for 1992; and with respect to Class B
shares, 5.86% (annualized) for 1992. If World Income had borne all
expenses, the expense ratios would have been 1.87% for 1992, 1.92% for 1993
and 2.08% for 1994. If North American Government Income had borne all
expenses, the expense ratios would have been with respect to Class A
shares, 2.49% (annualized) for 1992; and with respect to Class B shares,
3.16% (annualized) for 1992. If Global Dollar Government had borne all
expenses, the expense ratios would have been with respect to Class A
shares, 1.91% (annualized); with respect to Class B shares, 2.63%
(annualized); and with respect to Class C shares, 2.59% (annualized).
(e) Includes interest expenses. If Mortgage Strategy had not borne interest
expenses, the ratio of expenses to average net assets would have been with
respect to Class A shares, 1.42% (annualized) for 1992, 1.33% for 1993 and
1.20% for 1994; with respect to Class B shares, 2.10% (annualized) for
1992, 2.07% for 1993 and 1.91% for 1994; and with respect to Class C
shares, 1.74% (annualized) for 1993 and 1.89% for 1994.
(f) Includes interest expenses. If Multi-Market Strategy had not borne interest
expenses, the ratio of expenses to average net assets would have been with
respect to Class A shares, 1.33% (annualized) for 1991, 1.33% for 1992,
1.40% for 1993 and 1.30% for 1994; with respect to Class B shares, 2.05%
(annualized) for 1991, 2.05% for 1992, 2.11% for 1993 and 2.01% for 1994;
and with respect to Class C shares, 2.11% (annualized) for 1993 and 1.99%
for 1994. If North American Government Income had not borne interest
expenses, the ratio of expenses (net of interest expenses) to average net
assets would have been with respect to Class A shares, 1.66% (annualized)
for 1992, 1.33% for 1993 and 1.37% for 1994; with respect to Class B
shares, 2.35% (annualized) for 1992, 2.04% for 1993 and 2.07% for 1994;
and with respect to Class C shares, 2.04% (annualized) for 1993 and 2.06%
for 1994.
(g) Includes loan fees. If Multi-Market Strategy had not incurred loan fees,
the ratio of net investment income to average net assets would have been
with respect to Class A shares, 11.65% (annualized) for 1991, 11.78% for
1992 and 9.73% for 1993; with respect to Class B shares, 10.88%
(annualized) for 1991, 11.02% for 1992 and 8.99% for 1993; and with respect
to Class C shares, 7.50% (annualized) for 1993.
12
<PAGE>
- --------------------------------------------------------------------------------
Glossary
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds--Additional
Investment Practices" and in Appendix A.
Bonds are fixed, floating and variable rate debt obligations.
Debt securities are bonds, debentures, notes, bills and repurchase agreements.
Fixed-income securities are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments. Fixed-
income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality to
those rated) triple-A (Aaa or AAA), high quality (Aa or AA or above), high grade
(A or above) or investment grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities, as
defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
Lower-rated securities are fixed-income securities rated Ba and BB or below, or
determined by Alliance to be of equivalent quality and are commonly referred to
as "junk bonds."
Equity securities are common and preferred stocks, securities convertible into
common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Convertible securities are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental, government-
related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities,
SMRS, which are stripped mortgage-related securities,
CMOs, which are collateralized mortgage obligations,
GNMA certificates, which are securities issued by the Government National
Mortgage Association,
FNMA certificates, which are securities issued by the Federal National
Mortgage Association, and
FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation.
Interest-only or IO securities receive only the interest payments on an
underlying debt that has been structured to have two classes, one of which is
the IO class and another of which is the principal-only or PO class, which class
receives only the principal payments on the underlying obligation. POs are
similar to, and are sometimes referred to as, zero coupon securities, which are
debt securities issued without interest coupons.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Corporation.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, Inc.
Prime commercial paper is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
13
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
Alliance Short-Term U.S. Government Fund
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. The Fund's investment objective is not
fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as well
as the risk (present with all fixed-income securities) of fluctuations in value
as interest rates change. The Fund will not be obligated to dispose of any
security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the box,"
(iv) enter into various hedging transactions, such as interest rate swaps, caps
and floors, (v) enter into reverse repurchase agreements, (vi) purchase and sell
futures contracts for hedging purposes, (vii) purchase and sell call and put
options on futures contracts or on securities, for hedging purposes or to earn
additional income, (viii) make secured loans of portfolio securities, (ix) enter
into repurchase agreements, and (x) purchase securities for future delivery. The
Fund may not invest more than 15% of its total assets in illiquid securities or
more than 5% of its total assets in securities the disposition of which is
restricted under Federal securities laws (excluding, to the extent permitted by
applicable law, Rule 144A securities). For additional information on the use,
risks and costs of these practices, see "Additional Investment Practices."
U.S. Government Portfolio
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's portfolio
of U.S. Government securities is expected to vary between one year or less and
30 years. For additional information on the use, risks and cost of these
practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the Fund
are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United States,
(ii) savings and loan associations chartered under the laws of Alabama, Arizona,
Arkansas, Colorado, Connecticut, Delaware, Illinois, Louisiana, Maine, Missouri,
Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Oklahoma, Pennsylvania,
Tennessee, Utah, Washington and Wyoming, (iii) credit unions chartered under the
laws of Alaska*, California, Florida*, Maine, Nevada, New York, Ohio and Utah
and (iv) commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Connecticut, Delaware, Idaho, Indiana, Kentucky,
Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode
Island, Tennessee, Texas, Washington and West Virginia. Institutions in the
asterisked(*) states should obtain prior state regulatory approval before
investing in shares of the Fund. In addition, the Fund believes that it is
currently a legal investment for savings and loan associations, credit unions
and commercial banks chartered under the laws of certain other states.
MORTGAGE FUNDS
The Mortgage Funds are diversified investment companies that have been designed
to offer investors high current income from investment in mortgage-related
securities.
Alliance Mortgage Strategy Trust
Alliance Mortgage Strategy Trust, Inc. ("Mortgage Strategy") seeks the highest
level of current income, consistent with low volatility of net asset value, that
is available from a portfolio of mortgage-related securities of the highest
quality. As a matter of fundamental policy the Fund normally has at least 65% of
the value of its total assets invested in mortgage-related securities. The Fund
will purchase only those mortgage-related securities that are triple-A
securities or U.S. Government securities. The Fund's portfolio is structured to
achieve low volatility of net asset value approximating that of
14
<PAGE>
a portfolio investing exclusively in two-year U.S. Treasury securities. The Fund
invests primarily in ARMS and fixed-rate mortgage securities and is designed to
provide a more consistent and less volatile net asset value than that
characteristic of a mutual fund investing primarily in fixed-rate mortgage
securities and a higher yield than that of a mutual fund investing in ARMS.
The Fund believes that because of the nature of its assets, it is not exposed to
any material risk of loss as a result of default on its portfolio securities.
The Fund is, however, exposed to the risk that the prices of such securities
will fluctuate, in some cases significantly, as interest rates change.
Mortgage-related securities in which the Fund may invest include (i) pass-
through mortgage-related securities, including pass-through securities backed by
ARMS and issued by GNMA, FNMA, FHLMC and by private organizations, (ii) CMOs and
multi-class pass-through securities, including floating rate CMOs that are ARMS,
(iii) SMRS, (iv) high coupon fixed-rate mortgage securities, and (v) foreign
mortgage-related securities. For a description of these mortgage-related
securities, see "Additional Investment Practices--Mortgage-Related Securities."
The Fund expects that new types of ARMS, other mortgage-related securities,
asset-backed securities and other securities in which the Fund may invest will
be developed from time to time and will consider investing in such new types of
securities.
The Fund may invest up to 35% of its total assets in (i) triple-A asset-backed
securities, (ii) non-mortgage-related U.S. Government securities, including
certain zero coupon Treasury securities, (iii) Treasury securities issued by
private corporate issuers, (iv) qualifying bank deposits, (v) prime commercial
paper or, if not rated, issued by companies which have outstanding triple-A debt
issues and (vi) triple-A debt securities secured by mortgages on commercial real
estate or residential rental properties.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these practices, see "Additional Investment Practices."
Alliance Mortgage Securities Income Fund
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
seeks a high level of current income to the extent consistent with prudent
investment risk. The Fund invests primarily in a diversified portfolio of
mortgage-related securities, including CMOs, and, as a matter of fundamental
policy, maintains at least 65% of its total assets in mortgage-related
securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors, the
Fund will consider making investments in such new types of securities. The Fund
may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types of
securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For additional
information on the use, risk and costs of these practices, see "Additional
Investment Practices."
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.
Alliance World Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Multi-Market Strategy Trust
Alliance World Income Trust, Inc. ("World Income"), Alliance Short-Term Multi-
Market Trust, Inc. ("Short-Term Multi-Market") and Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") each seek the highest level of
current income, consistent with what Alliance considers to be prudent investment
risk, that is available from a portfolio of high quality debt securities having
remaining maturities of not more than, with respect to World Income, one year,
with respect to Short-Term Multi-Market, three years, and with respect to Multi-
Market Strategy, five years. Each Fund seeks high current yields by investing in
a portfolio of debt securities
15
<PAGE>
denominated in the U.S. Dollar and selected foreign currencies. The Multi-Market
Funds seek investment opportunities in foreign, as well as domestic, securities
markets. World Income, which is not a money market fund, will maintain at least
35% of its net assets in U.S. Dollar-denominated securities. Short-Term Multi-
Market will normally maintain a substantial portion of its assets in debt
securities denominated in foreign currencies but will invest at least 25% of its
net assets in U.S. Dollar-denominated securities. Multi-Market Strategy normally
expects to maintain at least 70% of its assets in debt securities denominated in
foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to minimize
credit risk and fluctuations in net asset value by investing only in short-term
debt securities. Normally, a high proportion of these Funds' portfolios consists
of money market instruments. Alliance actively manages the Multi-Market Funds'
portfolios in accordance with a multi-market investment strategy, allocating a
Fund's investments among securities denominated in the U.S. Dollar and the
currencies of a number of foreign countries and, within each such country, among
different types of debt securities. Alliance adjusts each Multi-Market Fund's
exposure to each currency such that the percentage of assets invested in
securities of a particular country or denominated in a particular currency
varies in accordance with Alliance's assessment of the relative yield and
appreciation potential of such securities and the relative strength of a
country's currency. Fundamental economic strength, credit quality and interest
rate trends are the principal factors considered by Alliance in determining
whether to increase or decrease the emphasis placed upon a particular type of
security or industry sector within the Fund's investment portfolio. None of the
Multi-Market Funds invests more than 25% of its net assets in debt securities
denominated in a single currency other than the U.S. Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including "cross-
hedges" (see "Additional Investment Practices--Forward Foreign Currency Exchange
Contracts"), can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders and declines in the net asset
value of a Fund's shares resulting from adverse changes in currency exchange
rates. For example, the return available from securities denominated in a
particular foreign currency would diminish in the event the value of the U.S.
Dollar increased against such currency. Such a decline could be partially or
completely offset by an increase in value of a cross-hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to a Fund than a contract to sell the
currency in which the position being hedged is denominated. It is Alliance's
belief that cross-hedges can therefore provide significant protection of net
asset value in the event of a general rise in the U.S. Dollar against foreign
currencies. However, a cross-hedge cannot protect against exchange rate risks
perfectly, and if Alliance is incorrect in its judgment of future exchange rate
relationships, a Fund could be in a less advantageous position than if such a
hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition to
the U.S. Dollar, such currencies include, among others, the Australian Dollar,
Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, European Currency Unit ("ECU"), French Franc, Irish Pound, Italian
Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian Krone, Spanish
Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated. In
addition, the Multi-Market Funds may purchase debt securities denominated in one
currency the principal amounts of which and value of interest payments on which
are determined with reference (or "linked") to another currency. In this regard,
as of the date of this Prospectus each Fund has invested in U.S. Dollar
denominated securities issued by Mexican issuers and/or Peso-linked securities.
The value of these investments may fluctuate inversely in correlation with
changes in the Peso-Dollar exchange rate and with the general level of interest
rates in Mexico, and, when added to a Multi-Market Fund's investments in Mexican
Peso denominated securities, may exceed 25% of the value of the Fund's net
assets. For a general description of Mexico, see Appendix B and each Fund's
Statement of AdditionalInformation.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the member states of the European Union, a twelve-nation organization engaged
in cooperative economic activities. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Union to reflect changes in relative values of the underlying currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and World Income will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds' portfolio
securities will consist of (i) U.S. Government securities, (ii) high quality
foreign government securities, (iii) obligations issued by supranational
entities and corporate debt securities having a triple-A rating, with respect to
World
16
<PAGE>
Income, or a high quality rating, with respect to Short-Term Multi-Market and
Multi-Market Strategy, (iv) certificates of deposit and bankers' acceptances
issued or guaranteed by, or time deposits maintained at, banks (including
foreign branches of foreign banks) having total assets of more than $1 billion,
with respect to World Income, or $500 million, with respect to Short-Term Multi-
Market and Multi-Market Strategy, and determined by Alliance to be of high
quality, and (v) prime commercial paper or, if not rated, issued by U.S. or
foreign companies having outstanding high quality debt securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in "Additional
Investment Practices--Repurchase Agreements." See "Risk Considerations--
Investment in the Banking Industry."
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) with
respect to Short-Term Multi-Market and Multi-Market Strategy, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if as a result more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices." Multi-Market
Strategy maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See "Risk Considerations-Effects
of Borrowing."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
Alliance North American Government Income Trust
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of Argentina
("Argentine Government securities"). The Fund expects that it will not retain a
debt security which is down-graded below BBB or Baa, or, if unrated, determined
by Alliance to have undergone similar credit quality deterioration, subsequent
to purchase by the Fund. The average weighted maturity of the Fund's portfolio
of fixed-income securities is expected to vary between one year or less and 30
years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations and
the growing coordination of their fiscal and monetary policies, will over the
long term benefit the economic performance of all three countries and promote
greater correlation of currency fluctuation among the U.S. and Canadian Dollars
and the Mexican Peso. See, however, Appendix B and the Fund's Statement of
Additional Information with respect to the current economic crisis and Peso
devaluation in Mexico.
Alliance will actively manage the Fund's assets in relation to market conditions
and general economic conditions and adjust the Fund's investments in an effort
to best enable the Fund to achieve its investment objective. Thus, the
percentage of the Fund's assets invested in a particular country or denominated
in a particular currency will vary in accordance with Alliance's assessment of
the relative yield and appreciation potential of such securities and the
relationship of the country's currency to the U.S. Dollar. The Fund invests at
least, and normally substantially more than, 65% of its total assets in
Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Canada Treasury bills are debt obligations with maturities of less than
one year. A new issue of Government of Canada bonds frequently consists of
several different bonds with maturities ranging from one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and
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Crown corporations raise funds through the bond market in order to finance
capital expenditures. Unlike U.S. municipal securities, which have special tax
status, Canadian municipal securities have the same tax status as other Canadian
Government securities and trade similarly to such securities. The Canadian
municipal market may be less liquid than the provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that of
GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bondes, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos, which
are adjustable-rate bonds with a minimum three-year term issued directly by the
Mexican Government with the face amount adjusted each quarter by the quarterly
inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ("BIC"), which
are investment and growth bonds issued directly by the Argentine Government with
maturities of up to ten years, (ii) Bono de Consolidacion Economica ("BOCON"),
which are economic consolidation bonds issued directly by the Argentine
Government with maturities of up to ten years and (iii) Bono de Credito a la
Exportacion ("BOCREX"), which are export credit bonds issued directly by the
Argentine government with maturities of up to four years. To date, Argentine
Government securities are not rated by either S&P, Moody's, Duff & Phelps or
Fitch. Alliance, however, believes, that there are Argentine Government
securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale of
securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if as a result 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practice, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other than
the amount borrowed). See "Risk Considerations--Effects of Borrowing."
Alliance Global Dollar Government Fund
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to as
"Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional Investment
Practices--Brady Bonds." The Fund may also invest up to 35% of its total assets
in U.S. and non-U.S. corporate fixed-income securities. See "Risk
Considerations--U.S. Corporate Fixed-Income Securities." The Fund will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate fixed-
income securities to U.S. Dollar-denominated securities. Alliance expects that,
based upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15 years
and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25 years. Alliance anticipates
that the Fund's portfolio of sovereign debt obligations will have a longer
average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for non-
subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with the Fund's
investment objectives and policies. As of August 31, 1994, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
14.3% in A and above, 3.0% in Baa or BBB, 35.4% in Ba or BB, 39.1% in B, 6.6% in
Caa or CCC, and 1.6% non-rated. See "Risk Considerations--Securities Ratings,"
"--Investment in Fixed-
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Income Securities Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's initial
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines and Venezuela because these countries
are now, or are expected by Alliance at a future date to be, the principal
participants in debt restructuring programs (including, in the case of
Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. See Appendix A to the Fund's
Statement of Additional Information for information about those six countries.
Alliance anticipates that other countries that will provide initial investment
opportunities for the Fund include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. See "Additional Investment Practices--Brady Bonds."
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of which
is an emerging market country, and the Fund will limit investments in the
sovereign debt obligations of each such country (or of any other single foreign
country) to less than 25% of its total assets. The Fund expects that it will not
invest more than 10% of its total assets in the sovereign debt obligations and
corporate fixed-income securities of issuers in any other single foreign country
and is not required to invest any minimum amount of its assets in the securities
or obligations of issuers located in any particular country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell exchange-
traded options on any securities index composed of the types of securities in
which it may invest, and (xiv) invest in variable, floating and inverse floating
rate instruments. The Fund may also at any time, with respect to up to 35% of
its total assets, temporarily invest funds awaiting reinvestment or held for
reserves for dividends and other distributions to shareholders in U.S. Dollar-
denominated money market instruments. For additional information on the use,
risks and costs of these practices, see "Additional Investment Practices." While
the Fund does not currently intend to do so, it reserves the right to borrow an
amount not to exceed one-third of the Fund's assets less liabilities (other than
the amount borrowed). See "Risk Considerations--Effects of Borrowing."
CORPORATE BOND FUND
Corporate Bond Portfolio
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of capital.
The Fund follows a policy of maintaining at least 65% of its net assets invested
in debt securities. Such objectives and policies cannot be changed without the
approval of the shareholders. Although the Fund also follows a policy of
maintaining at least 65% of its total assets invested in corporate bonds, it is
permitted to invest in securities of non-corporate issuers.
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be implemented
by investing at least 65% of its total assets in fixed-income securities
considered investment grade or higher. The remainder of the Fund's assets may be
invested in lower-rated fixed-income securities. See "Risk Considerations--
Securities Ratings," "--Investment in Fixed-Income Securities Rated Baa and
BBB," "--Investment in Lower-Rated Fixed-Income Securities" and Appendix A.
During the fiscal year ended June 30, 1994, on a weighted average basis, the
percentages of the Fund's assets invested in securities rated (or considered by
Alliance to be of equivalent quality to securities rated) in particular rating
categories were 22% in A and above, 46% in Baa or BBB, 19% in Ba or BB, and 10%
in B. The Fund did not invest in securities rated below B by each of Moody's,
S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance to be of
equivalent quality to securities so rated.
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The Fund has complete flexibility as to the types of securities in which it will
invest and the relative proportions thereof, and the Fund plans to vary the
proportions of its holdings of long- and short-term fixed-income securities and
of equity securities in order to reflect its assessment of prospective cyclical
changes even if such action may adversely affect current income. However,
substantially all of the Fund's investments will be income producing. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities and
sovereign debt obligations. Not more than 15% of the Fund's total assets may be
invested in these other sovereign debt obligations, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through. As a matter
of fundamental policy, the Fund will not purchase illiquid securities. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices."
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to the
extent described in this Prospectus. See the Statement of Additional Information
of each Fund for a further discussion of the uses, risks and costs of engaging
in these practices.
Derivatives. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails greater
risk than if derivatives were used solely for hedging purposes. Derivatives are
a valuable tool which, when used properly, can provide significant benefit to
Fund shareholders. Alliance is not an aggressive user of derivatives with
respect to any of the Funds. However, a Fund may take a significant position in
those derivatives that are within its investment policies if, in Alliance's
judgement, this represents the most effective response to current or anticipated
market conditions. The Multi-Market Funds in particular generally make extensive
use of carefully selected forwards and other derivatives to achieve the currency
hedging that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call option
entitles the holder to purchase, while a put option entitles the holder to
sell, the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is exercised the
writer of the option would be obligated to sell (in the case of a call option)
or to purchase (in the case of a put option) the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered
to be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method
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in which futures contracts are liquidated. A cash-settled futures contract
does not require physical delivery of the underlying asset but instead is
settled for cash equal to the difference between the values of the contract on
the date it is entered into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts
are customized, privately negotiated agreements designed to satisfy the
objectives of each party. A forward contract usually results in the delivery
of the underlying asset upon maturity of the contract in return for the agreed
upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These securities
are described below under "Mortgage-Related Securities" and "Other Asset-Backed
Securities."
While the judicious use of derivatives by highly experienced investment managers
such as Alliance can be quite beneficial, derivatives also involve risks
different from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.
. Market Risk--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the
Fund's interest.
. Management Risk--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the derivative
itself, without the benefit of observing the performance of the derivative
under all possible market conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a derivative
adds to a Fund's portfolio and the ability to forecast price, interest rate or
currency exchange rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by a Fund as a
result of the failure of a another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
. Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
. Other Risks--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the
value of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
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Derivatives Used by the Funds. Following is a description of specific
derivatives currently used by one or more of the Funds.
Options on Securities. In purchasing an option on securities, a Fund would be in
a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is retained
by the Fund whether or not the option is exercised. Except with respect to
uncovered call options written for cross-hedging purposes, none of the Funds
will write uncovered call or put options. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by a Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the underlying
security at its current price and sell it at a lower price. The risk of loss
from writing an uncovered put option is limited to the exercise price of the
option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." A Fund would write a
call option for cross-hedging purposes, instead of writing a covered call
option, when the premium to be received from the cross-hedge transaction exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved from other hedging strategies.
Short-Term U.S. Government, Mortgage Securities Income, North American
Government Income, Global Dollar Government and Corporate Bond generally
purchase or write privately negotiated options on securities. A Fund that
purchases or writes privately negotiated options on securities will effect such
transactions only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy by
Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Fund may be illiquid, and it may not be possible for the Fund to
effect a closing transaction at an advantageous time. See "Illiquid Securities"
below. Neither Mortgage Securities Income nor Corporate Bond will purchase an
option on a security if, immediately thereafter, the aggregate cost of all
outstanding options purchased by such Fund would exceed 2% of the Fund's total
assets. Nor will either such Fund write an option if, immediately thereafter,
the aggregate value of the Fund's portfolio securities subject to outstanding
options would exceed 15% of the Fund's total assets.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Options on Foreign Currencies. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although if rates move adversely, a Fund may forfeit the entire amount of
the premium plus related transaction costs.
Warrants. Global Dollar Government may invest in warrants, which are option
securities permitting their holders to subscribe for other securities. Global
Dollar Government may invest in warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Warrants do
not carry with them dividend or voting rights with respect to the underlying
securities, or any rights in the assets of the issuer. As a result, an
investment in warrants may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does not necessarily
change with the value of the underlying securities, and a warrant ceases to have
value if it is not exercised prior to its expiration date.
Futures Contracts and Options on Futures Contracts. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign
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currencies, and contracts based on interest rates or financial indices,
including any index of U.S. Government securities, foreign government securities
or corporate debt securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or purchased
by a Fund will be traded on U.S. or foreign exchanges and, except with respect
to Short-Term U.S. Government, will be used only for hedging purposes.
Mortgage Strategy, World Income, Short-Term Multi-Market, Multi-Market Strategy,
and North American Government Income will not enter into a futures contract or
option on a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
its total assets. Nor will Mortgage Strategy, Mortgage Securities Income, World
Income, Short-Term Multi-Market, Multi-Market Strategy or North American
Government Income do so if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the Fund and
premiums paid on outstanding options on futures contracts would exceed 5% of the
market value of the total assets of the Fund. In addition, Mortgage Securities
Income will not enter into (i) options on futures contracts, (ii) any futures
contract other than one on fixed-income securities or based on interest rates,
or (iii) any futures contract if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales and the aggregate futures market
prices of instruments required to be delivered under open futures contract
purchases would exceed 30% of the value of the Fund's total assets.
Eurodollar Instruments. Eurodollar instruments are essentially U.S. Dollar-
denominated futures contracts or options thereon that are linked to LIBOR.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. Mortgage
Strategy intends to use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR (to which many short-term borrowings and floating
rate securities in which the Fund invests are linked).
Forward Foreign Currency Exchange Contracts. Each Fund that purchases or sells
forward contracts on foreign currencies ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price of
the security ("transaction hedge"). When a Fund believes that a foreign currency
may suffer a substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). Instead of entering into a position hedge, a Fund may, in
the alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. Dollar amount where the Fund believes that the U.S.
Dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. Dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").
Forward Commitments. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or purchases
or sales on a "delayed delivery" basis. In some cases, a forward commitment may
be conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring or
approval of a proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation,
and no interest or dividends accrues to the purchaser prior to the settlement
date. At the time a Fund enters into a forward commitment, it records the
transaction and thereafter reflects the value of the security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such valuation would be
canceled if the required conditions did not occur and the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
Mortgage Strategy, North American Government Income or Global Dollar Government
if, as a result, the Fund's aggregate forward commitments under such
transactions would be more than 30% of its total assets.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as
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the case may be. If a Fund, however, chooses to dispose of the right to acquire
a when-issued security prior to its acquisition or dispose of its right to
deliver or receive against a forward commitment, it may incur a gain or loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) computed based on a contractually-based
principal (or "notional") amount. Interest rate swaps are entered into on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). Interest
rate caps and floors are similar to options in that the purchase of an interest
rate cap or floor entitles the purchaser, to the extent that a specified index
exceeds (in the case of a cap) or falls below (in the case of a floor) a
predetermined interest rate, to receive payments of interest on a notional
amount from the party selling the interest rate cap or floor. A Fund may enter
into interest rate swaps, caps and floors on either an asset-based or liability-
based basis, depending upon whether it is hedging its assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions. Short-
Term Multi-Market, Multi-Market Strategy and North American Government Income
may enter into interest rate swaps involving payments to the same currency or in
different currencies. Short-Term U.S. Government, Mortgage Strategy, Mortgage
Securities Income, Global Dollar Government and Corporate Bond will not enter
into an interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is then rated in
the highest rating category of at least one nationally recognized rating
organization. Each of Short-Term Multi-Market, Multi-Market Strategy and North
American Government Income will enter into interest rate swap, cap or floor
transactions with its respective custodian, and with other counterparties, but
only if: (i) for transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for transactions
with maturities greater than one year, the counterparty has outstanding high
quality debt securities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate transactions
is limited to the net amount of interest payments that the Fund is contractually
obligated to make.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. The Funds will not enter into
standby commitments with a remaining term in excess of 45 days and will limit
their investments in such commitments so that the aggregate purchase price of
the securities subject to the commitments does not exceed 20% of their
respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in the
event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Indexed Commercial Paper. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables a Fund to hedge (or cross-hedge) against a decline in the U.S. Dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. A Fund will purchase such commercial
paper for hedging purposes only, not for speculation.
Mortgage-Related Securities. The mortgage-related securities in which a Fund may
invest typically are securities representing interests in pools of mortgage
loans made to home owners. Mortgage-related securities bear interest at either a
fixed rate or an adjustable rate determined by reference to an index rate. The
mortgage loan pools may be assembled for sale to investors (such as a Fund) by
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governmental or private organizations. Mortgage-related securities issued by
GNMA are backed by the full faith and credit of the United States; those issued
by FNMA and FHLMC are not so backed.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded. A Fund may buy mortgage-related securities without credit
enhancement if the securities meet the Fund's investment standards. Although the
market for mortgage-related securities is becoming increasingly liquid, those of
certain private organizations may not be readily marketable.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities. Some mortgage-
related securities, such as securities issued by GNMA, are referred to as
"modified pass-through" securities. The holders of these securities are entitled
to the full and timely payment of principal and interest, net of certain fees,
regardless of whether payments are actually made on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer regardless of
whether payments are actually made on the underlying mortgages.
Collateralized mortgage obligations (CMOs) are the predominant type of "pay-
through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each having
different maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. The collateral securing the CMOs may consist of a pool
of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. Government instrumentality or agency or
by a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities that
are usually structured with two classes of securities collateralized by a pool
of mortgages or a pool of mortgaged-backed bonds or pass-through securities,
with each class receiving different proportions of the principal and interest
payments from the underlying assets. A common type of SMRS has one class of
interest-only securities (IOs) receiving all of the interest payments from the
underlying assets, while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase in
value as interest rates decrease. If prepayments of the underlying mortgages are
greater than anticipated, the amount of interest earned on the overall pool will
decrease due to the decreasing principal balance of the assets. Changes in the
values of IOs and POs can be substantial and occur quickly, such as occurred in
the first half of 1994 when the value of many POs dropped precipitously due to
increases in interest rates. For this reason, none of the Funds relies on IOs
and POs as the principal means of furthering its investment objective.
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The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates, mortgage-
related securities may be paid earlier than expected as a result of prepayment
of the underlying mortgages. If property owners make unscheduled prepayments of
their mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event a Fund may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield volatility
than experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related securities.
If the life of a mortgage-related security is inaccurately predicted, a Fund may
not be able to realize the rate of return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rate of mortgage
prepayments and early payment of mortgage-related securities generally tends to
decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as much
as the value of fixed-rate mortgage securities is affected by rising interest
rates, ARMS may still decline in value as a result of rising interest rates.
Although, as described above, the yield on ARMS varies with changes in the
applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
Mortgage Strategy may invest up to 15% of the value of its total assets in
mortgage-related securities denominated in U.S. Dollars or in foreign currencies
and issued or guaranteed by foreign governments or issued by foreign non-
governmental issuers, provided that such foreign mortgage-related securities are
triple-A rated. The percentage of Mortgage Strategy's assets invested in foreign
mortgage-related securities will vary and its portfolio of foreign mortgage-
related securities may include those of a number of foreign countries or,
depending upon market conditions, those of a single country. See "Risk
Considerations--Foreign Investment."
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
U.S. Government Securities. U.S. Government securities may be backed by the full
faith and credit of the United States, supported only by the right of the issuer
to borrow from the U.S. Treasury or backed only by the credit of the issuing
agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full
faith and credit of the United States and differ only in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence
issued at a discount and repaid at full face value upon maturity),
U.S. Treasury notes (maturities of one to ten years with interest
payable every six months) and U.S. Treasury bonds (generally
maturities of greater than ten years with interest payable every six
months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by
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the full faith and credit of the U.S. Government, such as securities
issued by GNMA, the Farmers Home Administration, the Department of
Housing and Urban Development, the Export-Import Bank, the General
Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit
of the U.S. Government, such as securities issued by FNMA and FHLMC,
and governmental CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see "Mortgage-
Related Securities" above.
U.S. Government securities also include zero coupon securities and principal-
only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a PO
class. See "Mortgage-Related Securities" above and "Zero Coupon and Principal-
Only Securities" below. Although these stripped securities are purchased and
sold by institutional investors through several investment banking firms acting
as brokers or dealers, these securities were only recently developed. As a
result, established trading markets have not yet developed and, accordingly,
these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and principal-
only (PO) securities are debt securities that have been issued without interest
coupons or stripped of their unmatured interest coupons, and include receipts or
certificates representing interests in such stripped debt obligations and
coupons. Such a security pays no interest to its holder during its life. Its
value to an investor consists of the difference between its face value at the
time of maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value. Such securities usually trade at
a deep discount from their face or par value and are subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities and credit quality that make current
distributions of interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these securities eliminate
reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately traded
and owned. In addition, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of U.S. Treasury bonds and notes and sold them separately in the form
of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with the
staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year even though the holder receives no interest payment in cash on
the security during the year. As a result, in order to make the distributions
necessary for a Fund not to be subject to federal income or excise taxes, the
Fund might be required to pay out as an income distribution each year an amount,
obtained by liquidation of portfolio securities or borrowings if necessary,
greater than the total amount of cash that the Fund has actually received as
interest during the year. Each Fund believes, however, that it is highly
unlikely that it would be necessary to liquidate portfolio securities or borrow
money in order to make such required distributions or to meet its investment
objective. For a discussion of the tax treatment of zero coupon Treasury
securities, see "Dividends, Distributions and Taxes--Zero Coupon Treasury
Securities" in the Statement of Additional Information of each Fund that is
permitted to invest in such securities.
Corporate Bond may also invest in "pay-in-kind" debentures (i.e., debt
obligations the interest on which may be paid in the form of obligations of the
same type rather than cash), which have characteristics similar to zero coupon
securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating
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rates of interest. Variable and floating rate securities pay interest at rates
that are adjusted periodically, according to a specified formula. A "variable"
interest rate adjusts at predetermined intervals (e.g., daily, weekly or
monthly), while a "floating" interest rate adjusts whenever a specified
benchmark rate (such as the bank prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate securities.
Structured Securities. Structured securities in which Global Dollar Government
and Corporate Bond may invest represent interests in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of sovereign debt obligations, with respect to Global Dollar Government, or
foreign government securities, with respect to Corporate Bond. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. Global Dollar
Government may invest up to 25% of its total assets, and Corporate Bond may
invest without limit, in these types of structured securities.
Loan Participations and Assignments. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will acquire
participations only if the lender interpositioned between the Fund and the
borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund purchases
a loan assignment from a lender it will acquire direct rights against the
borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender. The
assignability of certain sovereign debt obligations, with respect to Global
Dollar Government, or foreign government securities, with respect to Corporate
Bond, is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Fund may acquire an interest in a
loan is through a participation and not an assignment. A Fund may have
difficulty disposing of assignments and participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, such securities can probably be sold only to a
limited number of institutional investors. The lack of a liquid secondary market
may have an adverse effect on the value of such securities and a Fund's ability
to dispose of particular assignments or participations when necessary to meet
its liquidity needs in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
Global Dollar Government may invest up to 25%, and Corporate Bond may invest up
to 15%, of their total assets, in loan participations and assignments. The
government that is the borrower on the loan will be considered by a Fund to be
the issuer of a loan participation or assignment for purposes of its fundamental
investment policy that it may not invest 25% or more of its total assets in
securities of issuers conducting their principal business activities in the same
industry (i.e., foreign government).
Brady Bonds. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. Dollar-denominated) and they are actively traded in the over-the-
counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate par
bonds or floating rate discount bonds,
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are generally collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations that have the same maturity as the Brady Bonds.
Interest payments on these Brady Bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having up to four valuation
components: (i) collateralized repayment of principal at final maturity, (ii)
collateralized interest payments, (iii) uncollateralized interest payments, and
(iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities of
the same or similar issuers. The price of a convertible security will normally
vary with changes in the price of the underlying stock, although the higher
yield tends to make the convertible security less volatile than the underlying
common stock. As with debt securities, the market value of convertible
securities tends to decline as interest rates increase and increase as interest
rates decline. While convertible securities generally offer lower interest or
dividend yields than non-convertible debt securities of similar quality, they
enable investors to benefit from increases in the market price of the underlying
common stock. Convertible debt securities that are rated Baa or lower by Moody's
or BBB or lower by S&P, Duff & Phelps or Fitch and comparable unrated securities
may share some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Risk Considerations--Investment in Lower-Rated
Fixed-Income Securities."
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. Short-Term U.S. Government and Global Dollar Government each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to Global Dollar Government,
and 10% of total assets, with respect to Short-Term U.S. Government, would be
held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time a Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Certain special federal income
tax considerations may apply to short sales entered into by a Fund. See
"Dividends, Distributions and Taxes" in the relevant Fund's Statement of
Additional Information.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that Short-Term U.S. Government may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although Mortgage Strategy, World Income, Short-Term Multi-Market, Multi-Market
Strategy, North American Government Income and Global Dollar Government
currently enter into repurchase agreements only with their custodians and such
primary dealers.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive principal
and interest payments on these securities. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to a
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Fund of the reverse repurchase transaction is less than the cost of otherwise
obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, a Fund forgoes principal and interest paid on the securities. A
Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. Short-Term U.S. Government may enter
into reverse repurchase agreements with commercial banks and registered broker-
dealers in order to increase income, in an amount up to 33-1/3% of its total
assets. Under normal circumstances, Mortgage Strategy does not expect to engage
in reverse repurchase agreements and dollar rolls with respect to greater than
50% of its total assets. Reverse repurchase agreements and dollar rolls together
with any borrowings by Global Dollar Government will not exceed 33% of its total
assets less liabilities (other than amounts borrowed). See "Risk Considerations-
Effects of Borrowing."
Loans of Portfolio Securities. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high-grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained by
the borrower with the Fund. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to lend securities
to a particular borrower, Alliance will consider all relevant facts and
circumstances, including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in portfolio securities, thereby earning
additional income, or receive an agreed upon amount of income from a borrower
who has delivered equivalent collateral. Each Fund will have the right to regain
record ownership of loaned securities to exercise beneficial rights such as
voting rights, subscription rights and rights to dividends, interest or
distributions. A Fund may pay reasonable finders', administrative and custodial
fees in connection with a loan. A Fund will not lend portfolio securities in
excess of 25%, with respect to Short-Term U.S. Government, and 20%, with respect
to each of Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income and
Global Dollar Government, of its total assets, nor will a Fund lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
Illiquid Securities. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct placements
or other securities that are subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., when trading in
the security is suspended or, in the case of unlisted securities, when market
makers do not exist or will not entertain bids or offers), including many
currency swaps and any assets used to cover currency swaps, (ii) over-the-
counter options and assets used to cover over-the-counter options, and (iii)
repurchase agreements not terminable within seven days. Rule 144A securities
that have legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid. Alliance will monitor the liquidity of
each Fund's Rule 144A portfolio securities under the supervision of the
Directors of that Fund. A Fund that invests in illiquid securities may not be
able to sell such securities and may not be able to realize their full value
upon sale.
Investment in Other Investment Companies. Global Dollar Government may invest in
other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund or are not available but may yet be developed, to the extent
such investment practices are consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks that exceed those involved in the practices described above.
Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime commercial
paper and other types of short-term debt securities including notes and bonds.
For Funds that may invest in foreign countries, such securities may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete
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description of the types of securities in which a Fund may invest while in a
temporary defensive position, see the Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement of
Additional Information.
Short-Term U.S. Government may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25% or
more of its total assets in the securities of any one industry.
U.S. Government may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
Mortgage Strategy may not (i) invest more than 5% of its total assets in the
securities of any one issuer or own more than 10% of the outstanding voting
securities of such issuer (other than U.S. Government securities), except that
up to 25% of the value of the Fund's total assets may be invested without regard
to the 5% and 10% limitations, (ii) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to investments in the mortgage and mortgage-
financed industry (in which more than 25% of the value of the Fund's total
assets will, except for temporary defensive positions, be invested) or U.S.
Government securities, (iii) borrow money except from banks for emergency or
temporary purposes in an amount not exceeding 5% of the value of the total
assets of the Fund, except that the Fund may engage in reverse repurchase
agreements and dollar rolls in an amount up to 50% of the Fund's total assets,
and (iv) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings.
Mortgage Securities Income may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except for
temporary defensive positions, be invested) or U.S. Government securities, (iii)
borrow money except from banks for temporary or emergency purposes, including
the meeting of redemption requests which might require the untimely disposition
of securities, borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of the
Fund's total assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made, outstanding
borrowings in excess of 5% of the value of the Fund's total assets will be
repaid before any subsequent investments are made, (iv) pledge, hypothecate,
mortgage or otherwise encumber its assets, except in an amount of not more than
15% of the value of its total assets to secure borrowings for temporary or
emergency purposes and except as provided in (vi) below, provided, however, that
this limitation does not apply to deposits made in connection with the entering
into and holding of interest rate futures contracts, (v) invest more than 10% of
the value of its total assets in the aggregate in illiquid securities or other
illiquid investments and repurchase agreements maturing in more than seven days,
or (vi) lend its portfolio securities if immediately after such a loan more than
20% of the value of the Fund's total assets would be subject to such loans.
World Income may not (i) invest 25% or more of its total assets in securities of
companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
Short-Term Multi-Market may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions
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may not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
Multi-Market Strategy may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S. Government
securities, (ii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
North American Government Income may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry except
that this restriction does not apply to U.S. Government securities, (ii) borrow
money, except that the Fund may, in accordance with provisions of the 1940 Act,
(a) borrow from a bank, if after such borrowing, there is asset coverage of at
least 300% as defined in the 1940 Act, and (b) borrow for temporary or emergency
purposes in an amount not exceeding 5% of the value of the total assets of the
Fund, or (iii) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings.
Global Dollar Government may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities of
any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings, or (v)
purchase a security if, as a result (unless the security is acquired pursuant to
a plan of reorganization or an offer of exchange), the Fund would own more than
3% of the total outstanding voting stock of any investment company or more than
5% of the value of the Fund's net assets would be invested in securities of any
one or more investment companies.
Corporate Bond may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
RISK CONSIDERATIONS
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments will change as
the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities generally rise. Conversely,
during periods of rising interest rates, the values of a Fund's securities
generally decline.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but are reflected in the net asset value of a Fund.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Global Dollar Government invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Fund may also invest in
U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Fund's
rights with respect to defaults on such securities will be subject to applicable
U.S. bankruptcy, moratorium and other similar laws.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. Furthermore, foreign investment in the securities markets of
certain foreign countries is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the cost and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
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securities from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government notification or
authority, and if a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances. A
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected and Alliance will monitor the effect of any such factor
or factors on a Fund's investments. Furthermore, transaction costs including
brokerage commissions for transactions both on and off the securities exchanges
in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
World Income may invest a portion of its net assets in securities denominated in
the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.
Alliance believes that, except for currency fluctuations between the U.S. Dollar
and the Canadian Dollar, the matters described above are not likely to have a
material adverse effect on North American Government Income's investments in the
securities of Canadian issuers or investments denominated in Canadian issuers or
investments denominated in Canadian Dollars. The factors described above are
more likely to have a material adverse effect on the Fund's investments in the
securities of Mexican and other non-Canadian foreign issuers, including
investments in securities denominated in Mexican Pesos or other non-Canadian
foreign currencies. If not hedged, however, currency fluctuations could affect
the unrealized appreciation and depreciation of Canadian Government securities
as expressed in U.S. Dollars.
Currency Considerations. Those Funds that invest some portion of their assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect a Fund's net assets, distributions
and income. If the value of the foreign currencies in which a Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, a Fund may be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. Dollars to
meet the distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, which themselves, involve certain special risks.
See "Additional Investment Practices" above.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which Global Dollar Government will invest.
Reduced secondary market liquidity may have an adverse effect on the market
price and the Fund's ability to dispose of particular instruments when necessary
to meet its liquidity requirements or in response to specific economic events
such as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain sovereign debt obligations may also make it more
difficult for the Fund to obtain accurate market quotations for the purpose of
valuing its portfolio. Market quotations are generally available on many
sovereign debt obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected,
33
<PAGE>
among other things, in its inflation rate, the amount of its external debt and
its gross domestic product, will also affect the government's ability to honor
its obligations.
The sovereign debt obligations in which the Fund will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of a country to these forms of
external funding may not be certain, and a withdrawal of external funding could
adversely affect the capacity of a government to make payments on its
obligations. In addition, the cost of servicing debt obligations can be affected
by a change in international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically based upon
international rates.
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives. The
Fund may have limited legal recourse in the event of a default with respect to
certain sovereign debt obligations it holds. For example, remedies from defaults
on certain sovereign debt obligations, unlike those on private debt, must, in
some cases, be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy, moratorium and
other similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness of an issuer of
sovereign debt obligations to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt will not contest payments to the
holders of securities issued by foreign governments in the event of default
under commercial bank loan agreements.
Effects of Borrowing. A Fund's loan agreements provide for additional borrowings
and for repayments and reborrowings from time to time, and each Fund that may
borrow expects to effect borrowings and repayments at such times and in such
amounts as will maintain investment leverage in an amount approximately equal to
its borrowing target. The loan agreements provide for a selection of interest
rates that are based on the bank's short-term funding costs in the U.S. and
London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from time
to time as does their relationship to each other, depending upon such factors as
supply and demand forces, monetary and tax policies within each country and
investor expectations. Changes in such factors could cause the relationship
between such rates to change so that rates on U.S. Dollar-denominated
obligations may substantially increase relative to the foreign currency-
denominated obligations in which the Fund may be invested. To the extent that
the interest expense on borrowings approaches the net return on a Fund's
investment portfolio, the benefit of leverage to the Fund's shareholders will be
reduced, and if the interest expense on borrowings were to exceed the net return
to shareholders, a Fund's use of leverage would result in a lower rate of return
than if a Fund were not leveraged. Similarly, the effect of leverage in a
declining market could be a greater decrease in net asset value per share than
if the Fund were not leveraged. In an extreme case if a Fund's current
investment income were not sufficient to meet the interest expense on
borrowings, it could be necessary for the Fund to liquidate certain of its
investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either Multi-Market
Strategy or North American Government Income could adversely affect the Funds'
shareholders, as noted above, or in anticipation of such changes, either Fund
may increase the percentage of its investment portfolio invested in U.S.
Government securities, which would tend to offset the negative impact of
leverage on Fund shareholders. Either Fund may also reduce the degree to which
it is leveraged by repaying amounts borrowed.
34
<PAGE>
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25% of
the Fund's total assets less liabilities (other than such borrowings), the asset
coverage of the Fund's portfolio would be 400%. A Fund will maintain asset
coverage of outstanding borrowings of at least 300% and if necessary will, to
the extent possible, reduce the amounts borrowed by making repayments from time
to time in order to do so. Such repayments could require a Fund to sell
portfolio securities at times considered disadvantageous by Alliance. In the
event that a Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might adversely
affect the Fund's yield. See "Dividends, Distributions and Taxes."
Each of Multi-Market Strategy, North American Government Income and Global
Dollar Government may also borrow to repurchase its shares or to meet redemption
requests. In addition, each Fund may borrow for temporary purposes (including
the purposes mentioned in the preceding sentence) in an amount not exceeding 5%
of the value of the assets of the Fund. Borrowings for temporary purposes are
not subject to the 300% asset average limit described above. See "Certain
Fundamental Investment Policies." Short-Term U.S. Government, Multi-Market
Strategy, North American Government Income and Global Dollar Government may also
borrow through the use of reverse repurchase agreements, and Global Dollar
Government also through the use of dollar rolls to the extent permitted by the
1940 Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements
and Dollar Rolls."
Investment in the Banking Industry. Due to the investment policies of Multi-
Market Strategy, World Income and Short-Term Multi-Market with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of: the concentration of loan portfolios
in particular business such as real estate, energy, agriculture or high
technology-related companies; national and local regulation; and competition
within those industries as well as with other types of financial institutions.
In addition, each Fund's investments in commercial banks located in several
foreign countries are subject to additional risks due to the combination in such
banks of commercial banking and diversified securities activities. As discussed
above, however, the Funds will seek to minimize their exposure to such risks by
investing only in debt securities which are determined to be of high quality.
Securities Ratings. The ratings of fixed-income securities by S&P, Moody's, Duff
& Phelps and Fitch are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Securities rated Ba or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B are judged to have highly speculative
elements or to be predominantly speculative. Such securities may have small
assurance of interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can
35
<PAGE>
adversely affect the prices at which these securities can be sold. To the extent
that there is no established secondary market for lower-rated securities, a Fund
may experience difficulty in valuing such securities and, in turn, the Fund's
assets. Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989, federally-insured savings and loan associations were required to have
divested their investments in non-investment grade corporate debt securities by
July 1, 1994. Such divestiture and continuing restrictions on the ability of
such associations to acquire lower-rated securities could have a material
adverse effect on the market and prices of such securities.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in lower-
rated securities. In considering investments for the Fund, Alliance will attempt
to identify those high-yielding securities whose financial condition is adequate
to meet future obligations, has improved, or is expected to improve in the
future. Alliance's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
Non-rated Securities. Non-rated securities will also be considered for
investment by North American Government Income, Global Dollar Government and
Corporate Bond when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
Non-diversified Status. Each of World Income, Short-Term Multi-Market, Multi-
Market Strategy, North American Government Income and Global Dollar Government
is a "non-diversified" investment company, which means the Fund is not limited
in the proportion of its assets that may be invested in the securities of a
single issuer. However, each Fund intends to conduct its operations so as to
qualify to be taxed as a "regulated investment company" for purposes of the
Code, which will relieve the Fund of any liability for federal income tax to the
extent its earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes" in each Fund's Statement of Additional Information. To
so qualify, among other requirements, each Fund will limit its investments so
that, at the close of each quarter of the taxable year, (i) not more than 25% of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single issuer. A
Fund's investments in U.S. Government securities are not subject to these
limitations. Because World Income, Short-Term Multi-Market, Multi-Market
Strategy, North American Government Income and Global Dollar Government is each
a non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
such Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate issuers
for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, North American Government Income will be required to diversify its
portfolio of foreign government securities in a manner which would not be
necessary if the Fund had made similar investments in U.S. Government
securities.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ("AFD"), each Fund's principal underwriter. The minimum initial investment
in each Fund is $250. The minimum for subsequent investments in each Fund is
$50. Investments of $25 or more are allowed under the automatic investment
program of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statements of Additional Information for more
information.
Each Fund offers three classes of shares, Class A, Class B and Class C, except
that World Income offers only one class of shares that you can purchase without
any initial sales charge or contingent deferred sales charge ("CDSC").
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
36
<PAGE>
<TABLE>
<CAPTION>
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
---------------- ---------- -------------- -----------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to
less than $250,000 3.36 3.25 3.00
$250,000 to
less than $500,000 2.30 2.25 2.00
$500,000 to
less than $1,000,000 1.78 1.75 1.50
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption or
original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in accordance
with a Fund's Combined Purchase Privilege, Cumulative Quantity Discount,
Statement of Intention, Privilege for Certain Retirement Plans, Reinstatement
Privilege and Sales at Net Asset Value programs. Consult the Subscription
Application and Statements of Additional Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. Shares obtained from dividend or distribution reinvestment are
not subject to the CDSC. The amount of the CDSC (expressed as a percentage of
the lesser of the current net asset value or original cost) will vary according
to the number of years from the purchase of Class B shares until the redemption
of those shares. The amount of the CDSC for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's current
Statement of Additional Information.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
------------------- ----
<S> <C>
First......................................... 3.0%
Second........................................ 2.0%
Third......................................... 1.0%
Fourth........................................ None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period of six years (after which they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder or to meet the
requirements of certain qualified retirement plans. See the Statements of
Additional Information.
How the Funds Value Their Shares
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.
General
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is $250,000. The
maximum purchase of Class C shares is $5,000,000. The Funds may refuse any order
to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with
37
<PAGE>
travel by persons associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of equivalent amount in
lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class B shares) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will not
send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
Selling Shares Through Your Broker
A Fund must receive your broker's request before 4:00 p.m. Eastern time for you
to receive that day's net asset value (less any applicable CDSC for Class B
shares). Your broker is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service.
Selling Shares Directly to a Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend-
disbursing agent, along with certificates, if any, that represent the shares you
want to sell. For your protection, signatures must be guaranteed by a bank, a
member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial intermediary,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672 by a
shareholder who has completed the Subscription Application or an "Autosell"
application obtained from AFS. Telephone redemption requests must be for a least
$500 and may not exceed $100,000, and must be made between 9 a.m. and 4 p.m. New
York time on a Fund business day. Proceeds of telephone redemptions will be send
by electronic funds transfer. Proceeds of telephone redemptions also may be sent
by check to a shareholder's address of record, but only once in any 30-day
period and in amount not exceeding $25,000. Telephone redemption by check is not
available for shares purchased within 15 calendar days prior to the redemption
request, shares held in nominee or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed his or her address of
record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of World Income for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by telephone
or written request.
Class A and Class B shares will continue to age without regard to exchanges for
the purpose of determining the CDSC, if any, upon redemption and, in the case of
Class B shares, for the purpose of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
38
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1994 totaling more than $121 billion (of
which more than $37 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 51 registered investment companies managed by Alliance comprising 103
separate investment portfolios currently have over one million shareholders. As
of December 31, 1994, Alliance was retained as an investment manager for 29 of
the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and control of Equitable
by AXA is set forth in each Fund's Statement of Additional Information under
"Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
<TABLE>
<CAPTION>
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
---- ------------------------- --------------------
<S> <C> <C>
Short-Term Paul J. DeNoon since 1993-- Associated with
U.S. Government Vice President Alliance since
January 1992; prior
thereto, a Vice President
at Manufacturers Hanover
Trust
U.S. Government Wayne D. Lyski since 1983 Associated with
--Executive Vice President Alliance
Paul J. DeNoon since (see above)
January 1992-(see above)
Mortgage Strategy Patricia J. Young since Associated with
inception Alliance since
-Senior Vice President March 1992;
prior thereto, a managing
director and portfolio
manager for Hyperion
Capital since March 1991
and a managing director
with Fischer, Francis,
Trees & Watts
Paul A. Ullman Associated with
since inception- Alliance since
Vice President March 1992;
prior thereto, a director
and portfolio manager for
Hyperion Capital since
July 1990 and a Vice
President at Salomon
Brothers Inc.
Mortgage Securities Patricia J. Young since (see above)
Income March 1992--(see above)
Paul A. Ullman since (see above)
March 1992--(see above)
World Income Robert M. Sinche since Associated with
inception--Senior Vice Alliance
President
Douglas J. Peebles since Associated with
inception--Vice President Alliance
Short-Term Robert M. Sinche since (see above)
Multi-Market inception--(see above)
Multi-Market Strategy Robert M. Sinche since (see above)
inception--(see above)
Douglas J. Peebles since (see above)
inception--(see above)
North American Wayne D. Lyski since (see above)
Government Income inception--(see above)
Robert M. Sinche since (see above)
inception--(see above)
Global Dollar Wayne D. Lyski since (see above)
Government inception--(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987--(see above)
Paul J. DeNoon since (see above)
January 1992--(see above)
</TABLE>
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly
39
<PAGE>
adopted plan. Each Fund has adopted one or more "Rule 12b-1 plans" (for each
Fund, a "Plan") and has entered into a Distribution Services Agreement (the
"Agreement") with AFD. Pursuant to its Plan, a Fund pays to AFD a Rule 12b-1
distribution services fee, which may not exceed for each Fund other than World
Income an annual rate of .30% (.50% with respect to Short-Term U.S. Government)
of the Fund's aggregate average daily net assets attributable to the Class A
shares, 1.00% of the Fund's aggregate average daily net assets attributable to
the Class B shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, and for World Income may not exceed an
annual rate of .90% of the Fund's aggregate average daily net assets, for
distribution expenses. The Directors of Short-Term U.S. Government currently
limit payments with respect to Class A shares under the Plan to .30% of the
Fund's aggregate average daily net assets attributable to Class A shares. The
Plans provide that a portion of the distribution services fee in an amount not
to exceed .25% of the aggregate average daily net assets of each Fund
attributable to each class of shares constitutes a service fee used for personal
service and/or the maintenance of shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to, with
respect to each Fund other than World Income, .25%, annualized, with respect to
Class A shares and Class B shares, and 1.00%, annualized, with respect to Class
C shares, and, with respect to World Income, .90%, annualized, of the assets
maintained in a Fund by their customers. Distribution services fees received
from World Income and the other Funds, except Short-Term U.S. Government, with
respect to Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of overhead of AFD.
Distribution services fees received from the Funds, with respect to Class B and
Class C shares, may be used for these purposes. The Plans also provide that
Alliance may use its own resources to finance the distribution of each Fund's
shares.
The Funds are not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. Except as noted below for Short-Term
U.S. Government, with respect to Class A shares of each Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from distribution
services fees received from the Fund in subsequent fiscal years. AFD's
compensation with respect to Class B and Class C shares under the Plans of the
other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B shares, payments
subsequently received through CDSCs, so long as the Plan is in effect. Since
AFD's compensation under the Plan of Short-Term U.S. Government is not directly
tied to its expenses incurred, the amount of compensation received by it during
any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except Short-
Term U.S. Government), were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
-------------------- -------------------
<S> <C> <C> <C> <C>
Short-Term U.S.
Government............... $ 165,033 (2.63%) $ 354,366 (4.97%)
U.S. Government............ $13,948,924 (1.84%) $1,761,762 (.76%)
Mortgage Strategy.......... $ 1,042,848 (.76%) $1,875,176 (1.32%)
Mortgage Securities
Income................... $16,372,116 (1.76%) $1,459,018 (2.50%)
Short-Term Multi-Market.... $12,115,694 (1.20%) $ 798,673 (9.82%)
Multi-Market Strategy...... $ 7,234,301 (3.10%) $ 286,168 (2.29%)
North American
Government Income........ $29,558,594 (1.80%) $2,355,558 (.64%)
Global Dollar Government $ 1,072,560 (2.28%) $ 88,662 (.85%)
Corporate Bond $ 4,172,860 (2.27%) $ 391,688 (.77%)
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
40
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays and
holidays will be declared on the previous business day. Each Fund pays dividends
on its shares after the close of business on the last business day each month.
At your election (which you may change at least 30 days prior to the record date
for a particular dividend or distribution), dividends and distributions are paid
in cash or reinvested in additional shares without charge.
If you receive an income dividend or capital gains distribution in cash you may,
within 30 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid,
but there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends from certain Funds
may be eligible for the dividends-received deduction, except that the amount
eligible for the deduction is limited to the amount of qualifying dividends
received by the Fund. A corporation's dividends-received deduction will be
disallowed unless the corporation holds shares in the Fund at least 46 days.
Furthermore, the dividends-received deduction will be disallowed to the extent a
corporation's investment in shares of a Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by each Fund to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution taxable to such shareholder as long-term
capital gain, any loss realized on the sale of such shares during such six-month
period would be a long-term capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an
41
<PAGE>
individual retirement account, 403(b)(7) retirement plan or corporate pension or
profit-sharing plan, will not be taxable to the plan. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. U.S.
Government, Mortgage Strategy, Mortgage Securities Income, World Income, Short-
Term Multi-Market, Multi-Market Strategy, North American Government Income and
Corporate Bond are qualified to do business in the Commonwealth of Pennsylvania
and, therefore, are subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of their business activities in Pennsylvania.
Accordingly, shares of such Funds are exempt from Pennsylvania personal property
taxes. These Funds anticipate continuing such business activities but reserve
the right to suspend them at any time, resulting in the termination of the
exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers to
enter into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. Government Portfolio and Corporate Bond Portfolio (each a series
of Alliance Bond Fund, Inc.) (1973), Alliance Mortgage Strategy Trust, Inc.
(1992), Alliance Mortgage Securities Income Fund, Inc. (1983), Alliance World
Income Trust, Inc. (1990), Alliance Short-Term Multi-Market Trust, Inc. (1989),
Alliance Multi-Market Strategy Trust, Inc. (1991), Alliance North American
Government Income Trust, Inc. (1992) and Alliance Global Dollar Government Fund,
Inc. (1993). Prior to January 4, 1993, Corporate Bond Portfolio was known as
Monthly Income Portfolio. Alliance Short-Term U.S. Government Fund is a series
of The Alliance Portfolios, a Massachusetts business trust that was organized in
1987. Prior to August 2, 1993, The Alliance Portfolios was known as The
Equitable Funds and Short-Term U.S. Government was known as The Equitable Short-
Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal, or in the case of the Funds
organized as Maryland corporations, state law. Shareholders have available
certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented by
the redeemed shares less any applicable CDSC. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, Class B and Class C shares
have identical voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses. Each class of
shares votes separately with respect to a Fund's Rule 12b-1 distribution plan
and other matters for which separate class voting is appropriate under
applicable law. Shares are freely transferable, are entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are entitled to
receive the net assets of the Fund. Since this Prospectus sets forth information
about all the Funds, it is theoretically possible that a Fund might be liable
for any materially inaccurate or incomplete disclosure in this Prospectus
concerning another Fund. Based on the advice of counsel, however, the Funds
believe that the potential liability of each Fund with respect to the disclosure
in this Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to a Fund's organization are discussed in its
Statement of Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
Between January 6 and February 15, 1995, nine complaints were filed by groups
of shareholders of North American Government Income alleging, among other
things, violations of various federal securities laws as well as fraud,
negligence, negligent misrepresentations and omissions, breach of fiduciary duty
and breach of contract in connection with the Fund's investments in Mexican and
Argentine securities. Four of the actions were filed in the United States
District Court for the Southern District of California, and five actions were
filed in the United States District Court for the Southern District of New York.
Each of the actions is brought against the Fund, Alliance and ACMC. Other
defendants named in certain of the complaints are AFS and certain officers of
the fund and ACMC.
42
<PAGE>
Each of the actions seeks to have a plaintiff class certified consisting of all
shareholders of the Fund who purchased or owned shares in the Fund at varying
times between February 1992 and December 1994. The actions seek an unspecified
amount of damages, costs and attorneys' fees. The Fund believes that the
allegations in each of the actions are without merit and intends to vigorously
defend against the claims in the actions.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Fund. The transfer agency fee with respect to Class
B shares will be higher than the transfer agency fee with respect to Class A
shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. A Fund may also state in sales
literature an "actual distribution rate" for each class which is computed in the
same manner as yield except that actual income dividends declared per share
during the period in question are substituted for net investment income per
share. The actual distribution rate is computed separately for Class A, Class B
and Class C shares. Advertisements of a Fund's total return disclose its average
annual compounded total return for the periods prescribed by the Commission. A
Fund's total return for each such period is computed by finding, through the use
of a formula prescribed by the Commission, the average annual compounded rate of
return over the period that would equate an assumed initial amount invested to
the value of the investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions paid on shares of
a Fund are assumed to have been reinvested when paid and the maximum sales
charges applicable to purchases and redemptions of a Fund's shares are assumed
to have been paid. A Fund will include performance data for each class of its
shares in any advertisement or sales literature using performance data of that
Fund. These advertisements may quote performance rankings or ratings of a Fund
by financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
43
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A:
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation
A-1
<PAGE>
and CCC the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest claims paying ability. Risk factors are negligible.
AA+, AA, AA--Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic and/or
underwriting conditions.
A+, A, A--High claims paying ability. Protection factors are average and there
is an expectation of variability in risk over time due to economic and/or
underwriting conditions.
BBB+, BBB, BBB--Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time due to economic
and/or underwriting conditions.
BB+, BB, BB--Uncertain claims paying ability and less than investment-grade
quality. However, the company is deemed likely to meet these obligations when
due. Protection factors will vary widely with changes in economic and/or
underwriting conditions.
B+, B, B--Possessing risk that policy holder and contract-holder obligations
will not be paid when due. Protection factors will vary widely with changes in
economic and/or underwriting conditions or company fortunes.
CCC--There is substantial risk that policy holder and contract holder
obligations will not be paid when due. Company has been or is likely to be
placed under state insurance department supervision.
DD--Company is under an order of liquidation.
FITCH INVESTORS SERVICE, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B:
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT CANADA, MEXICO
- --------------------------------------------------------------------------------
AND ARGENTINA
- --------------------------------------------------------------------------------
General Information About Canada
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division of
powers between the federal and Provincial governments. The Parliament of Canada
has jurisdiction over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and coinage, banks
and banking, national defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely goods-
producing economy to a predominantly service-based one. Agriculture and other
primary production play a small but key role in the economy. Canada is also an
exporter of energy to the United States in the form of natural gas (of which
Canada has substantial reserves) and hydroelectric power, and has significant
mineral resources. The Canadian economy had experienced little or no growth over
the past several years, and the rate of growth of Canada's gross domestic
product (on an inflation adjusted basis) has declined.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. Recently, however, Canada has experienced a weakening of its
currency. Through January 31, 1995, the Canadian Dollar decreased in value
compared to the U.S. Dollar by approximately 21% from October 1991 and
approximately 5% from September 1994. The range of fluctuation that occurred in
the past is not necessarily indicative of the range of fluctuation that will
occur in the future. Future rates of exchange cannot be predicted.
General Information About The United Mexican States
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which took
effect on May 1, 1917, established Mexico as a Federal Republic and provides for
the separation of executive, legislative and judicial branches. The President
and the members of the General Congress are elected by popular vote.
While in recent years the Mexican economy has experienced improvement in a
number of areas, including five consecutive years of growth in gross domestic
product and a substantial reduction in the rate of inflation and in public
sector financial deficit, beginning in 1994, Mexico has experienced an economic
crisis that led to the devaluation of the Peso in December 1994. Much of the
past improvement in the Mexican economy has been attributable to a series of
economic policy initiatives initiated by the Mexican government over the past
decade, which seek to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the Mexican
government has been proceeding with a program for privatizing certain state
owned enterprises, developing and modernizing the securities markets, increasing
investment in the private sector and permitting increased levels of foreign
investment. The recent adoption by Canada, the United States and Mexico of the
North American Free Trade Agreement could also contribute to the growth of the
Mexican economy.
Relatively high rates of interest, inflation, unemployment and, most
recently, the economic crisis that led to the devaluation of the Peso beginning
in December 1994 continue to affect the Mexican economy adversely. Mexico is
currently the second largest debtor nation (among developing countries) to
commercial banks and foreign governments. The successful implementation of the
economic policy initiatives and the growth of the Mexican economy involve
significant structural changes to the Mexican economy and will necessitate
continued economic and fiscal discipline. In addition, as a condition to
receiving assistance from the United States, other countries and certain
international agencies to stabilize the Mexican economy, the Mexican government
has agreed to adhere to a program of strict economic reform. An important aspect
of Mexico's economic policy is the ability of the government to be successful in
its continuing efforts to control its financial deficit, finance its current
account deficit, further reduce inflation and stabilize the Mexican Peso.
Mexico's economy may also be influenced by international economic conditions,
particularly those in the United States, and by world prices for oil and other
commodities. There is no assurance that Mexico's economic policy initiatives
will be successful or that succeeding administrations will continue these
initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since
B-1
<PAGE>
December 1987, the Mexican government introduced a series of schedules allowing
for the gradual devaluation of the Mexican Peso against the U.S. Dollar. These
gradual devaluations continued until December 1994. On December 20, 1994, the
Mexican government announced a new policy that would allow a more substantial
yet still controlled devaluation of the Mexican Peso. On December 22, 1994 the
Mexican government announced that it would not continue with the policy
announced two days earlier and would instead permit the Peso to float against
other currencies, resulting in a continued decline against the U.S. Dollar.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's ability to
obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the federal
capital of Buenos Aires. Its federal constitution provides for an executive
branch headed by a President, a legislative branch and a judicial branch. Each
province has its own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most
recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization program,
a reduction in the size of the public sector and an opening of the economy to
international competition.
In the decade prior to the current announcement of a new economic plan in March
1991, the Argentine economy was characterized by low and erratic growth,
declining investment rates and rapidly worsening inflation. Despite its
strengths, which include a well-balanced natural resource base and a high
literacy rate, the Argentine economy failed to respond to a series of economic
plans in the 1980's. The Economy Minister's plan represented a pronounced
departure from its predecessors in calling for raised revenues, reduced
expenditures and a reduced public deficit. The extensive privatization program
commenced in 1989 was accelerated, the domestic economy deregulated and opened
up to foreign trade and the frame-work for foreign investment reformed.
Significant progress was also made in 1992 in rescheduling Argentina's debt with
both external and domestic creditors, which improved fiscal cash flows in the
medium terms and allowed a return to voluntary credit markets. Further reforms
are currently being implemented in order to sustain and continue the progress to
date. There is no assurance that Argentina's economic policy initiatives will be
successful or that succeeding administrations will continue these initiatives.
The Argentine Peso has been the Argentine currency since January 1, 1992. The
rate of exchange from the Argentine Peso to the U.S. Dollar has been
approximately one to one. However, the historic range is not necessarily
indicative of fluctuations that may occur in the exchange rate over time and
there can be no assurance that future rates of exchange can be accurately
predicted. The Argentine foreign exchange market was highly controlled until
December 1989, when a free exchange rate was established for all foreign
currency transactions. Argentina has eliminated restrictions on foreign direct
investment and capital repatriation. On September 8, 1993, legislation was
adopted abolishing previous requirements of a three-year waiting period for
capital repatriation. Under the new legislation, foreign investors will be
permitted to remit profits at any time.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO THE
ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO ANY
OTHER FUND. SEE "GENERAL INFORMATION--ORGANIZATION."
B-2
<PAGE>
- --------------------------------------------------------------------------------
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
Alliance Bond Funds
Short-Term U.S. Government Fund Short-Term Multi-Market Trust
U.S. Government Portfolio Multi-Market Strategy Trust
Mortgage Strategy Trust North American Government Income Trust
Mortgage Securities Income Fund Global Dollar Government Fund
World Income Trust Corporate Bond Portfolio
INFORMATION AND INSTRUCTIONS
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign (please
indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign (please
indicate capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares recently purchased by
check, redemption proceeds will not be made available until the Fund is
reasonably assured that the check has cleared, normally up to 15 calendar days
following the purchase date.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800)221-5672.
<PAGE>
- -------------------------------------------------------------------------------
SUBSCRIPTION APPLICATION
- -------------------------------------------------------------------------------
Alliance Bond funds
(see instructions at the front of the application)
- -------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print)
- -------------------------------------------------------------------------------
[_] INDIVIDUAL OR JOINT ACCOUNT
------------------------------- --------------- ---------------------
Owner's Name (First Name) (MI) (Last Name)
- -
-------------------------------
Social Security Number (Required to open account)
------------------------------- --------------- ---------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated
[_] GIFT/TRANSFER TO A MINOR
------------------------------- --------------- ---------------------
Custodian -- One Name Only (First Name) (MI) (Last Name)
------------------------------- --------------- ---------------------
Minor's (First Name) (MI) (Last Name)
- -
-------------------------------
Minor's Social Security Number (Required to open account)
Under the State of (Minor's Residence) Uniform Gifts/Transfer
---------
to Minor's Act
[_] TRUST ACCOUNT
------------------------------------------------------------------------
Name of Trustee
------------------------------------------------------------------------
Name of Trust
------------------------------------------------------------------------
Name of Trust (cont'd)
------------ ---------------------------------------------------------
Trust Dated Tax ID or Social Security Number (Required to open account)
[_] OTHER
------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
----------------------
Tax ID Number
- -------------------------------------------------------------------------------
2. ADDRESS
- -------------------------------------------------------------------------------
-------------------------------------------------------------------------
Street
-------------------------------------------------------------------------
City State Zip Code
-------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
--------------------------- -------------------------------------
Daytime Phone Evening Phone
I am a: [_] U.S. Citizen [_] Non-Resident Alien
[_] Resident Alien [_] Other
----------------------------------
++++ ++++
+ +
+ +
For Alliance Use Only
+ +
+ +
++++ ++++
<PAGE>
================================================================================
3. INITIAL INVESTMENT
================================================================================
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000. Make
all checks payable to The Alliance Bond Fund in which you are investing.
I hereby subscribe for shares of the following Alliance Bond Fund(s):
<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Sales Dollar
Charge) Amount Sales Charge) Amount Charge) Amount
-------------- ------ -------------------- ------ ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
[_] Short-Term U.S. Government [_] (37) ______ [_] (51) ______ [_] (337) ______
[_] U.S. Government [_] (46) ______ [_] (76) ______ [_] (346) ______
[_] Mortgage Strategy [_] (88) ______ [_] (89) ______ [_] (388) ______
[_] Mortgage Securities Income [_] (52) ______ [_] (63) ______ [_] (352) ______
[_] World Income+ [_] (54) ______ not offered ______ not offered ______
[_] Short-Term Multi-Market [_] (70) ______ [_] (68) ______ [_] (370) ______
[_] Multi-Market Strategy [_] (22) ______ [_] (23) ______ [_] (322) ______
[_] North American Government [_] (55) ______ [_] (56) ______ [_] (355) ______
[_] Global Dollar Government [_] (166) ______ [_] (266) ______ [_] (366) ______
[_] Corporate Bond+ [_] (95) ______ [_] (295) ______ [_] (395) ______
</TABLE>
to be purchased with the enclosed check or draft for $
-------------------
+ No checkwriting available on these funds.
+-----------------------------------+
+ DEALER USE ONLY +
+ Wire Confirm No.: +
+-----------------------------------+
================================================================================
4. REDUCED CHARGES (Class A Only)
================================================================================
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or the
Statement of Intent section.
- ------------------- --------------------- ----------------- -----------------
Fund Account Number Fund Account Number
A. Right of Accumulation
[_] Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. Statement of Intent
[_] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
If the full amount indicated is not purchased within 13 months, I understand an
additional sales charge must be paid from my account.
- ------------------- --------------------- ----------------- -----------------
Name on Account Account Number Name on Account Account Number
================================================================================
5. DISTRIBUTION OPTIONS
================================================================================
If no box is checked, all distributions will be reinvested in additional shares
of the Fund
<TABLE>
<S> <C> <C> <C>
Income Dividends: (elect one) [_] Reinvest dividends [_] Pay dividends in cash [_] Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [_] Reinvest capital gains [_] Pay capital gains in cash [_] Use Dividend Direction Plan
</TABLE>
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- ---------------------------------- --------------------------------------------
Fund Name Existing Account No.
Special Distribution Instructions: [_] Please pay my distributions via check
and send to the address indicated in
Section 2.
[_] Please mail my distributions to the
person and/or address designated below:
- ------------------------------------ ------------------------------------------
Name Address
- ------------------------------------ ----------------------- -----------------
City State Zip
================================================================================
6. SHAREHOLDER OPTIONS
================================================================================
A. AUTOMATIC INVESTMENT PROGRAM (AIP)**
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account,
on or about the ____ day of each month for a monthly investment in my Fund
account in the amount of $________ (minimum $25 per month). Please attach a
preprinted voided check from the bank account you wish to use.
NOTE: If your bank is not a member of the NACHA, your Alliance account will
be credited on or about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear on
bank records.
- ---------------------------------- ------- ---------------------- -----------
Individual Account Date Joint Account Date
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange shares
for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction
service(s) you desire.
. If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a
check from the bank account you wish to use and attach
it to this application.
Purchases and Redemptions via EFT**
[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
The fund requires signatures of bank account owners exactly as they appear on
bank records.
------------------------- -------- --------------------- --------
Individual Account Owner Date Joint Account Owner Date
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the address
must have no change within the last 30 days. The maximum telephone redemption
amount is $25,000. This service can be enacted once every 30 days.
[_] I do not elect the telephone exchange service.
---
[_] I do not elect the telephone redemption by check service.
---
C. SYSTEMATIC WITHDRAWAL PLAN (SWP)**
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments;
. $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[_] I authorize this service to begin in ___________, 19__, for the amount of
Month
$__________ ($50.00 minimum)
Frequency: (Please select one) [_] Monthly [_] Bi-Monthly [_] Quarterly
[_] Annually [_] In the months circled: J F M A M J J A S O N D
Please send payments to: (please select one)
[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: ___________. Please enclose a
preprinted voided check to ensure accuracy.
[_] My address of record designated in Section 2.
[_] The payee and address specified below:
-------------------------------- -------------------------------------------
Name of Payee Address
-------------------------------- -------------------------- ---------------
City State Zip
D. AUTO EXCHANGE
[_] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $________($25.00 minimum) on the ______ day of the month, into the
Alliance Fund noted below:
Fund Name:_____________________________________
[_] Existing account number:___________________ [_] New account
Shares exchanged will be redeemed at net asset value computed on the date
of the month selected. (If the date selected is not a fund business day
the transaction will be processed on the prior fund business day.)
Certificates must remain unissued.
================================================================================
7. SHAREHOLDER AUTHORIZATION This section MUST be completed
================================================================================
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor its Investment Adviser, Principal Underwriter, Transfer Agent or other
Fund Agent will be liable for any loss, injury, damage or expense as a result of
acting upon telephone instructions purporting to be on my behalf, that the Fund
reasonably believes to be genuine, and that neither the Fund nor any such party
will be responsible for the authenticity of such telephone instructions. I
understand that any or all of these privileges may be discontinued by me or the
Fund at any time. I understand and agree that the Fund reserves the right to
refuse any telephone instructions and that my investment dealer or agent
reserves the right to refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ----------------------------------- -------------------------------------------
Signature Date
- ----------------------------------- ------------------ -----------------------
Signature Date Acceptance Date:
================================================================================
DEALER/AGENT AUTHORIZATION For selected Dealers or Agents ONLY.
================================================================================
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm ________________ Authorized Signature ______________________
Representative First Name ___________________ MI ____ Last Name ______________
Representative Number __________________________________________________________
Branch Office Address __________________________________________________________
City _______________________________ State ____________ Zip Code _____________
Branch Number _________________________ Branch Phone ( )_____________________
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>
ALLIANCE WORLD INCOME TRUST, INC
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
- ----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1995
- ----------------------------------------------------------------
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus. A copy of the Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or
telephone numbers shown above.
TABLE OF CONTENTS
Page
Description of the Fund
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Portfolio Transactions
General Information
Report of Independent Auditors and
Financial Statements
Appendix A (Obligations of U.S. Government Agencies
or Instrumentalities) A-1
Appendix B (Bond and Commercial Paper Ratings) B-1
Appendix C (Futures Contracts) C-1
<PAGE>
Appendix D (Additional Information About D-1
The United Mexican States)
<PAGE>
- -----------------------------------------------------------------
DESCRIPTION OF THE FUND
- -----------------------------------------------------------------
INTRODUCTION TO THE FUND
Alliance World Income Trust, Inc. (the "Fund") is a non-
diversified, open-end management investment company commonly known
as a "mutual fund." The investment objective and policies of the
Fund are set forth below. The Fund's investment objective may not
be changed without shareholder approval. Except as otherwise
provided below, the Fund's investment policies are not designated
"fundamental policies" within the meaning of the Investment
Company Act of 1940, as amended ("1940 Act") and may, therefore,
be changed by the Fund's Board of Directors without a shareholder
vote. However, the Fund will not change its investment policies
without contemporaneous written notice to shareholders. There can
be, of course, no assurance that the Fund will achieve its
investment objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek the highest level
of current income, consistent with what Alliance Capital
Management L.P. (the "Adviser"), the Fund's Adviser, considers to
be prudent investment risk, that is available from a portfolio of
high-quality debt securities having remaining maturities of not
more than one year. The Fund seeks high current yields by
investing in a portfolio of debt securities denominated in the
U.S. Dollar and selected foreign currencies. Accordingly, the
Fund will seek investment opportunities in foreign, as well as
domestic, securities markets. The Fund will maintain at least 35%
of its net assets in U.S. Dollar-denominated securities. The
Fund, which is not a money market fund, is designed for the
investor who seeks a higher yield than a money market fund and
less fluctuation in net asset value than a longer-term bond fund.
In pursuing its investment objective, the Fund seeks to
minimize credit risk and fluctuations in net asset value by
investing only in short-term debt securities. Normally, a high
proportion of the Fund's portfolio consists of money market
instruments. The Fund's Adviser actively manages the Fund's
portfolio in accordance with a multi-market investment strategy,
allocating the Fund's investments among securities denominated in
the U.S. Dollar and the currencies of a number of foreign
countries and, within each such country, among different types of
debt securities. The Adviser adjusts the Fund's exposure to each
currency based on its perception of the most favorable markets and
issuers. In this regard, the percentage of assets invested in
securities of a particular country or denominated in a particular
currency will vary in accordance with the Adviser's assessment of
2
<PAGE>
the relative yield and appreciation potential of such securities
and the relationship of a country's currency to the U.S. Dollar.
Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by the Adviser in
determining whether to increase or decrease the emphasis placed
upon a particular type of security or industry sector within the
Fund's investment portfolio. The Fund will not invest more than
25% of its net assets in debt securities denominated in a single
currency other than the U.S. Dollar.
The returns currently available from short-term foreign
currency-denominated debt instruments can be adversely affected by
changes in exchange rates. The Fund's Adviser believes that the
use of foreign currency hedging techniques, including "cross-
hedges" (see "Investment Practices--Forward Foreign Currency
Exchange Contracts," below), can help protect against declines in
the U.S. Dollar value of income available for distribution to
shareholders and declines in the net asset value of the Fund's
shares resulting from adverse changes in currency exchange rates.
For example, the return available from securities denominated in a
particular foreign currency would diminish in the event the value
of the U.S. Dollar increased against such currency. Such a
decline could be partially or completely offset by an increase in
value of a cross-hedge involving a forward exchange contract to
sell a different foreign currency, where such contract is
available on terms more advantageous to the Fund than a contract
to sell the currency in which the position being hedged is
denominated. It is the Adviser's belief that cross-hedges can
therefore provide significant protection of net asset value in the
event of a general rise in the U.S. Dollar against foreign
currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if the Fund's Adviser were
incorrect in its judgment of future exchange rate relationships,
the Fund could be in a less advantageous position than if such a
hedge had not been established.
The Fund invests in debt securities denominated in the
currencies of countries participating in the European Monetary
System ("EMS"). The EMS comprises the commitments of certain
member states of the European Community to jointly manage the
exchange rates of their currencies with the goal of promoting the
harmonization and integration of the economies of the member
states through exchange-rate stability. The nine countries
currently participating in the EMS, and their currencies, are
Belgium (Franc), Denmark (Danish Krone), France (Franc), Germany
(Mark), Great Britain (Pound Sterling), Ireland (Punt), Italy
(Lira), Netherlands (Guilder) and Spain (Peseta). The Fund also
invests in debt securities denominated in the currencies of other
countries whose governments are considered stable by the Adviser.
In addition to the U.S. Dollar, such currencies include, among
3
<PAGE>
others, the Australian Dollar, Austrian Schilling, Canadian
Dollar, Japanese Yen, New Zealand Dollar, Swedish Krona and Swiss
Franc.
An issuer of debt securities purchased by the Fund may be
domiciled in a country other than the country in whose currency
the instrument is denominated. In addition, the Multi-Market
Funds may purchase debt securities denominated in one currency the
principal amounts of which and value of interest payments on which
are determined with reference (or "linked") to another currency.
In this regard, as of the date of this Prospectus each Fund has
invested in U.S. Dollar denominated securities issued by Mexican
issuers and/or Peso-linked securities. The value of these
investments may fluctuate inversely in correlation with changes in
the Peso-Dollar exchange rate and with the general level of
interest rates in Mexico, and, when added to a Multi-Market Fund's
investments in Mexican Peso denominated securities, may exceed 25%
of the value of the Fund's net assets. For a general description
of Mexico, see Appendix D.
The Fund may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts of the currencies of certain of the twelve
member states of the European Community, a twelve-nation
organization engaged in cooperative economic activities. The
specific amounts of currencies comprising the ECU may be adjusted
by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The
Fund's Adviser does not believe that such adjustments will
adversely affect holders of ECU-denominated obligations or the
marketability of such securities. European governments and
supranational organizations (discussed below), in particular,
issue ECU-denominated obligations.
The Fund may invest in debt securities issued by supranational
organizations such as: the International Bank for Reconstruction
and Development (World Bank), which was chartered to finance
development projects in developing member countries; the European
Community; the European Coal and Steel Community, which is an
economic union of various European nations' steel and coal
industries; and the Asian Development Bank, which is an
international development bank established to lend funds, promote
investment and provide technical assistance to member nations in
the Asian and Pacific regions.
The Fund seeks to minimize investment risk by limiting its
portfolio investments to income producing debt securities of high
quality and will invest at least 65% (and normally substantially
4
<PAGE>
all) of its total assets in such securities. The Fund's portfolio
securities will consist only of: (i) debt securities issued or
guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"; (ii) obligations
issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, or
instrumentalities, all of which are rated AAA or AA by Standard &
Poor's Corporation ("S&P") or Aaa or Aa by Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by the
Fund's Adviser to be of equivalent quality; (iii) obligations
issued or guaranteed by supranational entities and corporate debt
securities, all of which are rated AAA by S&P or Aaa by Moody's
or, if unrated, determined by the Fund's Adviser to be of
equivalent quality; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained
at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more
than $1 billion and determined by the Adviser to be of high
quality; and (v) commercial paper rated A-1 by S&P, Prime-1 by
Moody's, Fitch-1 by Fitch Investors Service, Inc., or Duff 1 by
Duff & Phelps Inc. or, if not rated, issued by U.S. or foreign
companies having outstanding debt securities rated AAA by S&P or
Aaa by Moody's and determined by the Adviser to be of equivalent
quality.
Under normal circumstances, and as a matter of fundamental
policy, the Fund "concentrates" at least 25% of its total assets
in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time
deposits, bankers' acceptances, and obligations issued by bank
holding companies, as well as repurchase agreements entered into
with banks (as distinct from non-bank dealers) in accordance with
the policies set forth in "Repurchase Agreements" below. However,
when business or financial conditions warrant the Fund may, for
temporary defensive purposes, vary from its policy of investing at
least 25% of its total assets in the banking industry. For
example, the Fund may reduce its position in debt instruments
issued by domestic and foreign banks and bank holding companies
and increase its position in U.S. Government Securities or cash
equivalents.
Due to the Fund's investment policy with respect to
investments in the banking industry, the Fund will have greater
exposure to the risk factors which are characteristic of such
investments. In particular, the value of and investment return on
the Fund's shares will be affected by economic or regulatory
developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability
and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the
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exposure to credit losses. The banking industry is also subject
to the effects of: the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or
high technology-related companies; national and local regulation;
and competition within those industries as well as with other
types of financial institutions. In addition, the Fund's
investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination
in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Fund will seek to
minimize its exposure to such risks by investing only in debt
securities which are determined to be of high quality.
Investing in securities issued by foreign governments and
corporations involves considerations and possible risks not
typically associated with investing in obligations issued by the
U.S. government and domestic corporations. The values of foreign
investments are affected by changes in currency rates or exchange
control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or
economic or monetary policy (in this country or abroad) or changed
circumstances in dealings between nations. Costs are incurred in
connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than
in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision
than in the United States. Investments in foreign countries could
be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended
settlement periods.
The Fund will invest a portion of its net assets in securities
denominated in the currencies of countries participating in the
EMS or denominated in the ECU. There are risks associated with
concentration of investments in a particular region of the world
such as Western Europe since the economies and markets of the
countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a
similar manner.
The net asset value of the Fund's shares will change as the
general levels of interest rates fluctuate. When interest rates
decline, the value of a portfolio primarily invested in debt
securities can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio primarily invested in debt
securities can be expected to decline. However, a shorter average
maturity is generally associated with a lower level of market
value volatility and, accordingly, it is expected that the net
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asset value of the Fund's shares normally will fluctuate less than
that of a longer-term bond fund.
The Fund is a "non-diversified" investment company, which
means the Fund is not limited in the proportion of its assets that
may be invested in the securities of a single issuer. However,
the Fund conducts, and intends to continue to conduct, its
operations so as to qualify as a "regulated investment company"
for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"), which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Taxes-U.S.
Federal Income Taxes." To so qualify, among other requirements,
the Fund will limit its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the
market value of its total assets, not more than five percent of
the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than
10% of the outstanding voting securities of a single issuer. The
Fund's investments in U.S. Government Securities are not subject
to these limitations. Because the Fund, as a non-diversified
investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in
the Fund may, under certain circumstances, present greater risk to
an investor than an investment in a diversified company.
INVESTMENT PRACTICES
U.S. GOVERNMENT SECURITIES. For a description of obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities ("U.S. Government Securities"), see Appendix A.
CERTIFICATES OF DEPOSIT AND BANKERS ACCEPTANCES. Certificates
of deposit are receipts issued by a depository institution in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited plus interest to the bearer of the receipt on the
date specified on the certificate. The certificate usually can be
traded in the secondary market prior to maturity. Bankers'
acceptances typically arise from short term credit arrangements
designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft
drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally
guarantees to pay the face value of the instrument on its maturity
date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the
going rate of discount for a specific maturity. Although
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maturities for acceptance can be as long as 270 days, most
acceptances have maturities of six months or less.
COMMERCIAL PAPER. The Fund may invest without limitation in
commercial paper which is indexed to certain specific foreign
currency exchange rates. Commercial paper consists of short-term
(usually from 1-270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. The
terms of such commercial paper provide that its principal amount
is adjusted upwards or downwards (but not below zero) at maturity
to reflect changes in the exchange rate between two currencies
while the obligation is outstanding. The Fund will purchase such
commercial paper with the currency in which it is denominated and,
at maturity, will receive interest and principal payments thereon
in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if
any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk
of loss of principal, the potential for realizing gains as a
result of changes in foreign currency exchange rates enables the
Fund to hedge (or cross-hedge) against a decline in the U.S.
Dollar value of investments denominated in foreign currencies
while providing an attractive money market rate of return. The
Fund will purchase such commercial paper for hedging purposes
only, not for speculation.
A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a
letter of agreement between a commercial paper issuer and an
institutional lender pursuant to which the lender may determine to
invest varying amounts.
For a description of commercial paper ratings, see Appendix B.
ILLIQUID SECURITIES. The Fund has adopted the following
investment policy which may be changed by the vote of the Board of
Directors. The Fund will not invest in illiquid securities if
immediately after such investment more than 10% of the Fund's
total assets (taken at market value) would be invested in such
securities. In addition, the Fund will not maintain more than 15%
of its net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale, (b) options purchased
by the Fund over-the-counter and the cover for options written by
the Fund over-the-counter, and (c) repurchase agreements not
terminable within seven days. See "Additional Investment
Policies," below.
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Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of
- -- longer than seven days. Securities eligible for resale under
Rule 144A, as amended, that have legal or contractual restrictions
on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. 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.
During the coming year, the Fund may invest up to 5% of its
total assets 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.
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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
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 issuer.
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 INTER ALIA, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making quotations to purchase or sell the security; (3) the number
of other potential purchasers of the security; (4) the number of
dealers undertaking to make a market in the security; (5) the
nature of the security (including its unregistered nature) and the
nature of the marketplace for the security (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer); and (6) any applicable Securities
and Exchange Commission (the "Commission") interpretation or
position with respect to such type of security.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund
may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S.
Government Securities, foreign government securities or corporate
debt securities ("futures contracts") and may purchase and write
put and call options to buy or sell futures contracts ("options on
futures contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities
or foreign currencies called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract
means the incurring of a contractual obligation to acquire the
securities or foreign currencies called for by the contract at a
specified price on a specified date. The purchaser of a futures
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<PAGE>
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the
contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. Options on
futures contracts to be written or purchased by the Fund will be
traded on U.S. or foreign exchanges or over-the-counter.
The successful use of such instruments draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used as
a hedge and not for speculation. In addition to this requirement,
the Board of Directors has also restricted the Fund's use of
futures contracts so that the aggregate of the market value of the
outstanding futures contracts purchased by the Fund and the market
value of the currencies and futures contracts subject to
outstanding options written by the Fund may not exceed 50% of the
market value of the total assets of the Fund. These restrictions
will not be changed by the Fund's Board of Directors without
considering the policies and concerns of the various applicable
federal and state regulatory agencies. The Fund's Custodian will
place cash not available for investment or U.S. Government
Securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the aggregate
amount of the Fund's commitments in futures contracts.
The Fund will not (i) enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of margin deposits on all the outstanding futures
contracts of the Fund and premiums paid on outstanding options on
futures contracts would exceed 5% of the market value of the total
assets of the Fund, or (ii) enter into any futures contracts or
options on futures contracts if the aggregate of the market value
of the outstanding futures contracts of the Fund and the market
value of the currencies and futures contracts subject to
outstanding options written by the Fund would exceed 50% of the
market value of the total assets of the Fund.
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See Appendix C for further discussion of the use, risks and
costs of futures contracts and options on futures contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and
write put and call options on foreign currencies for the purpose
of protecting against declines in the U.S. Dollar value of foreign
currency-denominated portfolio securities and against increases in
the U.S. Dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option
on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a
foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the
Fund are traded on U.S. and foreign exchanges or over-the-counter.
There is no specific percentage limitation on the Fund's
investments in options on foreign currencies.
See Appendix C for further discussion of the use, risks and
costs of options on foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may
purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. Dollar
and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded
by currency traders and their customers. The Fund may enter into
a forward contract, for example, when it enters into a contract
for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the
security ("transaction hedge"). Additionally, for example, when
the Fund believes that a foreign currency may suffer a substantial
decline against the U.S. Dollar, it may enter into a forward sale
contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes
that the U.S. Dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to
buy that foreign currency for a fixed dollar amount ("position
hedge"). In this situation the Fund may, in the alternative,
enter into a forward contract to sell a different foreign currency
for a fixed U.S. Dollar amount where the Fund believes that the
U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S.
Dollar value of the currency in which portfolio securities of the
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Fund are denominated ("cross-hedge"). The Fund's Custodian will
place cash not available for investment or U.S. Government
Securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the aggregate
amount of the Fund's commitments under forward contracts entered
into with respect to position hedges and cross-hedges. If the
value of the securities placed in a separate account declines,
additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts. As an
alternative to maintaining all or part of the separate account,
the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward
sale contract at a price no higher than the forward contract price
or the Fund may purchase a put option permitting the Fund to sell
the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contract
price.
The Fund may purchase or sell forward foreign currency
exchange contracts. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"),
the CFTC may in the future assert authority to regulate forward
contracts. In such event the Fund's ability to utilize forward
contracts in the manner set forth in the Prospectus may be
restricted. Forward contracts will reduce the potential gain from
a positive change in the relationship between the U.S. Dollar and
foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the prices of or rates
of return on the Fund's foreign currency-denominated portfolio
securities and the use of such techniques will subject the Fund to
certain risks.
The matching of the increase in value of a forward contract
and the decline in the U.S Dollar equivalent value of the foreign
currency-denominated asset that is the subject of the hedge
generally will not be precise. In addition, the Fund may not
always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with
regard to the Fund's use of cross-hedges, there can be no
assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. Dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.
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<PAGE>
GENERAL. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or may
realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded futures
contracts and options on futures contracts, there are no daily
price fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of such
instruments and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Fund's ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed-income
securities and currencies are relatively new and still developing.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund over-the-
counter, it might not be possible to effect a closing transaction
in the option (i.e., dispose of the option) with the result that
(i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may not
be able to sell currencies or portfolio securities covering an
option written by the Fund until the option expires or it delivers
the underlying futures contract or currency upon exercise.
Therefore, no assurance can be given that the Fund will be able to
utilize these instruments effectively for the purposes set forth
above. Furthermore, the Fund's ability to engage in options and
futures transactions may be limited by tax considerations. See
"Dividends, Distributions and Taxes-U.S. Federal Income Taxes."
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that cash, U.S. Government
Securities or other liquid high-quality debt securities or bank
letters of credit equal to at least 100% of the market value of
the securities loaned is deposited and maintained by the borrower
with the Fund. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In
determining whether to lend securities to a particular borrower,
the Fund's Adviser (subject to review by the Board of Directors)
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<PAGE>
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan,
the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent
collateral. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such
as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Fund may pay reasonable
finders', administrative and custodial fees in connection with a
loan. The Fund will not lend portfolio securities in excess of
20% of the value of its total assets, nor will the Fund lend its
portfolio securities to any officer, director, employee or
affiliate of the Fund or the Adviser. The Board of Directors will
monitor the Fund's lending of portfolio securities.
REPURCHASE AGREEMENTS. The Fund may enter into "repurchase
agreements" pertaining to the types of securities it may invest in
with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
Fund's ability to enter into repurchase agreements. Currently the
Fund enters into repurchase agreements only with its Custodian and
such primary dealers. A repurchase agreement arises when a buyer
such as the Fund purchases a security and simultaneously agrees to
resell it to the vendor at an agreed upon future date, normally
one day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed upon interest rate which is
effective for the period of time the buyer's money is invested in
the security and which is related to the current market rate
rather than the coupon rate on the purchased security. Such
agreements permit the Fund to keep all of its assets at work while
retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. The Fund requires continual maintenance by
its Custodian for its account in the Federal Reserve/Treasury Book
Entry System of collateral in an amount equal to, or in excess of,
the market value of the securities which are the subject of the
agreement. In the event a vendor defaulted on its repurchase
obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the
repurchase price. In the event of a vendor's bankruptcy, the Fund
might be delayed in, or prevented from, selling the collateral for
the Fund's benefit. The Fund's Board of Directors has established
procedures, which are periodically reviewed by the Board, pursuant
to which the Fund's Adviser monitors the creditworthiness of the
dealers with which the Fund enters into repurchase agreement
transactions.
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FUNDAMENTAL INVESTMENT POLICIES
The following restrictions, which 'supplement those set forth
in the Fund's Prospectus, may not be changed without shareholder
approval, which means the affirmative vote of the holders of
(i) 67% or more of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares, whichever is less.
The Fund may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;
2. Participate on a joint or joint and several basis in any
securities trading account;
3. Invest in companies for the purpose of exercising control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short ("short sales against the
box"), and unless not more than 10% of the Fund's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of gain or
loss for Federal income tax purposes);
5. Purchase a security if, as a result (unless the security
is acquired pursuant to a plan of reorganization or an offer of
exchange), the Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the
value of the Fund's total assets would be invested in securities
of any one or more closed-end investment companies; or
6. (i) Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein; (ii) purchase or sell commodities or
commodity contracts (except currencies, futures contracts on
currencies and related options, forward contracts or contracts for
the future acquisition or delivery of fixed-income securities and
related options, futures contracts and options on futures
contracts and other similar contracts); (iii) invest in interests
in oil e gas, or other mineral exploration or development
programs; (iv) purchase securities on margin except for such
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<PAGE>
short-term credits as may be necessary for the clearance of
transactions; and (v) act as an underwriter of securities, except
that the Fund may acquire restricted securities under
circumstances in which, if such securities were sold, the Fund
might be deemed to be an underwriter for purposes of the
Securities Act.
To reduce investment risk, as a matter of fundamental policy,
the Fund may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry
other than the banking industry, except that this restriction does
not apply to U.S. Government Securities; (ii) borrow money except
from banks for temporary or emergency purposes, including the
meeting of redemption requests which might require the untimely
disposition of securities; borrowing in the aggregate may not
exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing is made;
securities will not be purchased while borrowings in excess of 5%
of the value of the Fund's total assets are outstanding; or
(iii) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
In connection with the qualification or registration of the
Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the foregoing
investment restrictions, (i) that it will not purchase the
securities of any company that has a record of less than three
years of continuous operation (including that of predecessors) if
such purchase at the time thereof would cause more than 5% of its
total assets, taken at current value, to be invested in the
securities of such companies, (ii) that it will not purchase puts,
calls, straddles, spreads and any combination thereof if by reason
thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets, (iii) that it will
not invest in warrants (other than warrants acquired by the Fund
as a part of a unit or attached to securities at the time of
purchase), if as a result of such warrants valued at the lower of
such cost or market, would exceed 5% of the value of the Fund's
net assets at the time of purchase provided that not more than 2%
of the Fund's net assets at the time of purchase may be invested
in warrants not listed on the New York Stock Exchange or the
American Stock Exchange, (iv) prohibit the purchase or retention
by the Fund of the securities of any issuer if the officers,
directors or trustees of the Fund, its advisers or managers owning
beneficially more than one-half of 1% of the securities of each
issuer together own beneficially more than 5% of such securities,
(v) prohibit the purchase of the securities of any issuer of such
purchase at the time thereof would cause more than 10% of the
voting securities of any issuer to be held by the Fund.
17
<PAGE>
Whenever any investment policy or restriction states a minimum
or maximum percentage of the Fund's assets which may be invested
in any security or other asset, it is intended that such minimum
or maximum percentage limitation be determined immediately after
and as a result of the Fund's acquisition of such security or
other asset. Accordingly, any later increase or decrease in
percentage beyond the specified limitations resulting from a
change in values or net assets will not be considered a violation.
- -----------------------------------------------------------------
MANAGEMENT OF THE FUND
- -----------------------------------------------------------------
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their ages and their
principal occupations during the past five years are set forth
below. Each such Director and officer is also a trustee, director
or officer of other registered investment companies sponsored by
the Adviser. Unless otherwise specified, the address of each such
person is 1345 Avenue of the Americas, New York, New York 10105.
DIRECTORS
JOHN D. CARIFA*, 49, Chairman of the Board, is the President
and Chief Operating Officer and a Director of Alliance Capital
Mangement Corporation ("ACMC")** with which he has been associated
since prior to 1990.
- ----------------------
* An "interested person" of the Fund as defined in the 1940 Act.
** For purposes of this Statement of Additional Information, ACMC
refers to Alliance Capital Management Corporation, the sole
general partner of the Adviser.
18
<PAGE>
RUTH BLOCK, 64, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas).
Previously, she was an Executive Vice President and the Chief
Insurance Officer of The Equitable Life Assurance Society of the
United States since prior to 1990. Her address is P.O. Box 4653,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 65, was formerly Chairman and President of
the Fund and a Senior Vice President of ACMC with which he had
been associated since prior to 1990. He is currently an
independent consultant. His address is P.O. Box 167, Spring Lake,
New Jersey 07762
JOHN H. DOBKIN, 51, is President of Historic Hudson Valley
(historic preservation) since 1990. Previously, he was Director
of the National Academy of Design. From 1987 to 1992, he was a
Director of ACMC. His address is 105 West 55th Street, New York,
New York 10019.
WILLIAM H. FOULK, JR, 62, was formerly a Senior Manager of
Barrett Associates, Inc., a registered investment adviser, since
prior to 1990. His address is 2 Hekma Road, Greenwich,
Connecticut 06831.
DR. JAMES M. HESTER, 70, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide Corporation
with which he has been associated since prior to 1990. He was
formerly President of New York University, the New York Botanical
Garden and Rector of the United Nations University. His address
is 45 East 89th Street, New York, New York 10128.
CLIFFORD L. MICHEL, 55, is a partner of the law firm of Cahill
Gordon & Reindel with which he has been associated since prior to
1990. He is also Chief Executive Officer of Wenonah Development
Company (investments) and a Director of Placer Dome, Inc. (mining)
and Faber-Castell Corporation (writing products). His address is
St. Bernard's Road, Gladstone, New Jersey 07934.
19
<PAGE>
ROBERT C. WHITE, 74, is a Vice President and Chief Financial
Officer of the Howard Hughes Medical Institute with which he has
been associated since prior to 1990. He is also a Trustee of
St. Clair Fixed Income Fund, St. Clair Tax-Free Fund and St. Clair
Equity Fund (registered investment companies) and Director of
MEDSTAAT, Systems, Inc. (health care information). His address is
30835 River Crossing, Bingham Farms, Michigan 48025.
OFFICERS
JOHN D. CARIFA, Chairman and President, see Director
biography, above.
ROBERT M. SINCHE, 42, Senior Vice President, is a Senior Vice
President of ACMC with which he has been associated since prior to
1990.
DOUGLAS J. PEEBLES, 29, Vice President, is a Vice President of
ACMC with which he has been associated since prior to 1990.
EDMUND P. BERGAN, JR., 44, Secretary, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
and Alliance Fund Services, Inc., and Vice President and Assistant
General Counsel of ACMC with which he has been associated since
prior to 1990.
EMILIE D. WRAPP, 39, Assistant Secretary, is Special Counsel
of ACMC with which she has been associated since prior to 1990.
MARK D. GERSTEN, 44, Treasurer and Chief Financial Officer, is
a Senior Vice President of Alliance Fund Services, Inc. with which
he has been associated since prior to 1990.
JOSEPH J. MANTINEO, 35, Controller, is a Vice President of
Alliance Fund Services, Inc. and formerly he was Manager of Fixed
Income Mutual Fund Accounting for Alliance Fund Services, Inc.
with which he has been associated since prior to 1990.
20
<PAGE>
PATRICK J. FARRELL, 35, Assistant Controller, is a Vice
President of Alliance Fund Services, Inc. with which he has
associated since prior to 1990.
STEPHEN M. ATKINS, 29, Assistant Controller, is a Manager of
International Mutual Fund Accounting of Alliance Fund Services,
Inc. and formerly he was a Supervisor in International Mutual Fund
Accounting for Alliance Fund Services, Inc. with which he has been
associated since prior to 1990.
The Fund does not pay any fees to, or reimburse expenses of,
its Directors who are considered "interested persons" of the Fund.
The aggregate compensation paid by the Fund to each of the
Directors during its fiscal period ended October 31, 1994, and the
aggregate compensation paid to each of the Directors during
calendar year 1994 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), are set forth below.
Each of the Directors is a director or trustee of one or more
other registered investment companies in the Alliance Fund
Complex.
Pension or
Retirement
Benefits Estimated Total
Accrued Annual Compensation
Aggregate As Part Benefits from the Alliance
Name of Director Compensation of Fund upon Fund Complex,
of the Fund from the Fund Expenses Retirement Including the Fund
________________ _____________ __________ ___________ __________________
David H. Dievler $0 $-0- $-0- $0
Ruth Block $3,000 $-0- $-0- $157,000
John D. Carifa $0 $-0- $-0- $0
John H. Dobkin $3,000 $-0- $-0- $110,750
William H. Foulk, Jr. $3,000 $-0- $-0- $141,500
Dr. James M. Hester $3,000 $-0- $-0- $154,500
Clifford L. Michel $3,000 $-0- $-0- $120,500
Robert C. White $3,000 $-0- $-0- $133,500
21
<PAGE>
As of February 3, 1995, the Directors and officers of the Fund
as a group owned less than 1% of the shares of the Fund.
ADVISER
Alliance Capital Management L.P., a New York Stock Exchange
listed company with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.
The Adviser is a leading international investment manager
supervising client accounts with assets as of December 31, 1994 of
more than $121 billion (of which more than $37 billion represented
the assets of investment companies). The Adviser's clients are
primarily major corporate employee benefit funds, public employee
retirement systems, investment companies, foundations and
endowment funds. The Adviser and its subsidiaries employ
approximately 1,450 employees who operate out of domestic offices
and the overseas offices of subsidiaries in Bombay, Istanbul,
London, Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore.
The 50 registered investment companies comprising 102 separate
investment portfolios managed by the Adviser currently have more
than one million shareholders. As of December 31, 1994, the
Adviser was retained as an investment manager by 29 of the FORTUNE
100 Companies.
Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest in,
the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of December 31, 1994,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, owned in
the aggregate approximately 59% of the issued and outstanding
units representing assignments of beneficial ownership of limited
partnership interests in the Adviser ("Units"). As of December
31, 1994, approximately 32% and 9% of the Units were owned by the
public and employees of the Adviser and its subsidiaries,
respectively, including employees of the Adviser who serve as
Directors of the Fund.
22
<PAGE>
AXA owns approximately 60% of the outstanding voting shares of
common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of activities
in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7% of
the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation ("Generali")
(one of which, Belgica Insurance Holding S.A., a Belgian
corporation, owned 34.1%). As of January 1, 1995, 62.1% of the
issued shares (representing 75.7% of the voting power) of Finaxa
were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing 65.8%
of the voting power) of AXA. In addition, certain subsidiaries of
AXA own 0.4% of the shares of AXA which are not entitled to be
voted. Acting as a group, the Mutuelles AXA control AXA, Midi
Participations and Finaxa.
In May 1989, the Adviser introduced the concept of multi-
market income products designed for individual investors in the
United States. Since then, the Adviser has expanded its multi-
market family of funds to meet the changing needs of individual
investors. All these products invest in high quality, short-term
global debt securities but each offers a different risk/reward
profile: (i) the Fund which was introduced in November 1990, with
total net assets of approximately $103,309,896 on October 31,
1994, invests in securities with maturities of up to 12 months or
less and seek to offer a higher yield than money market funds with
little fluctuation of share price; (ii) Alliance Short-Term Multi-
Market Trust, Inc. ("ASMT") introduced in May 1989 with total net
assets of approximately $1,605,447,399 on October 31, 1994,
invests in securities with maturities of up to 3 years or less and
seeks a higher yield than money market funds and certificates of
deposit with limited share price fluctuation; (iii) ACM Managed
23
<PAGE>
Multi-Market Trust, Inc. ("ACMT"), the Adviser's closed-end fund
introduced in January 1990 with total net assets of approximately
$88,664,776 on November 30, 1994 invests in securities with
maturities of not more than 5 years and seeks a higher yield than
ASMT with somewhat greater share price fluctuation; (iv) with the
introduction of the Alliance Multi-Market Strategy Trust, Inc. in
April 1991 with net assets of approximately $287,533,879 on
October 31, 1994, which offers the strategy of ACMT in a more
conservative, open-end fund format designed to provide a higher
yield than ASMT but less share price fluctuation than ACMT; and
(v) Alliance Income Builder Fund, Inc. ("AIB") introduced in
September 1991 with total net assets of approximately $66,625,038
on October 31, 1994, invests 60% of its net assets in debt
securities with maturities of up to three years or less and the
balance in equity securities and seeks to offer yields which
compare favorably to money market funds and certificates of
deposit with limited share price fluctuation. AIB also
incorporates the objective of long-term growth of income and
capital into its investment strategy.
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.
For the services rendered by the Adviser under the Advisory
Agreement, the Fund pays the Adviser at the annual rate of .65 of
1% of the average daily value of the Fund's net assets. The fee
is accrued daily and paid monthly. For the fiscal years ended
October 31, 1992, October 31, 1993 and October 31, 1994 advisory
fees payable to the Adviser amounted to $4,235,923, $1,332,452 and
$772,916, respectively. Of those amounts, $769,442, $327,990 and
$190,256 for fiscal 1992, 1993 and 1994 were waived by the Adviser
so that during such period, the Fund paid advisory fees in amounts
aggregating $3,466,481, $1,004,462 and $582,660, respectively.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for its expenses (exclusive of interest, taxes,
brokerage, expenditures pursuant to the Distribution Services
Agreement described below, and extraordinary expenses, all to the
extent permitted by applicable state securities law and
regulations) which in any year exceed the limits prescribed by any
state in which the Fund's shares are qualified for sale. The Fund
24
<PAGE>
may not qualify its shares for sale in every state. The Fund
believes that presently the most restrictive expense ratio
limitation imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the Fund's
average net assets, 2.0% of the next $70 million of its average
net assets and 1.5% of its average net assets in excess of $100
million. Expense reimbursements, if any, are accrued daily and
paid monthly.
The Advisory Agreement became effective on July 22, 1992. The
Advisory Agreement replaced an earlier, substantially identical
agreement (the "First Advisory Agreement") that terminated because
of its technical assignment as a result of AXA's acquisition of
control over Equitable. In anticipation of the assignment of the
First Advisory Agreement, the Advisory Agreement was approved by
the unanimous vote, cast in person, of the Fund's Directors,
including the Directors who are not parties to the Advisory
Agreement or interested persons, as defined in the 1940 Act, of
any such party, at a meeting called for that purpose and held on
September 10, 1991. At a meeting held on June 11, 1992, a
majority of the outstanding voting securities of the Fund approved
the Advisory Agreement.
The Advisory Agreement continues in effect for successive
twelve-month periods computed from each November 1, provided that
such continuance is specifically approved at least annually by a
vote of a majority of the Fund's outstanding voting securities or
by the Fund's Board of Directors, and in either case approval by a
majority of the Directors who are not parties to the Advisory
Agreement or interested persons, as defined in the 1940 Act, of
any such party. Most recently, continuance of the Agreement was
approved for the period ending October 31, 1995 by the Board of
Directors, including a majority of the Directors who are not
parties to the Advisory Agreement or interested persons of any
such party, at their Regular Meeting held on September 13, 1994.
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.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
25
<PAGE>
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 sold, there may be an adverse effect on price.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing 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 ACM Institutional Reserves, Inc., AFD
Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Counterpoint
Fund, Alliance Developing Markets Fund, Inc., Alliance Global
Fund, Alliance Global Dollar Government Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Government Reserves,
Alliance Growth and Income Fund, Inc., Alliance International
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Mortgage Strategy Trust, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance New
Europe Fund, Inc., Alliance North American Government Income
Trust, Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund, Inc.,
The Alliance Portfolios, Fiduciary Management Associates and The
Hudson River Trust, all registered open-end investment companies;
ACM Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM Managed
Multi-Market Trust, Inc., ACM Managed Dollar Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage Fund, Inc., Alliance Global Environment Fund, Inc.,
Alliance World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Global
Privatization Fund, Inc., The Korean Investment Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies; and Alliance Global
Bond Fund, SICAV, Alliance Global Leisure Fund, Alliance Global
Growth Trends Portfolio, Alliance Global Income Fund, Alliance
International Currency Reserves, Alliance International Health
Care Fund, SICAV, Alliance International Technology Fund, SICAV,
26
<PAGE>
Alliance Worldwide Income Fund, India Liberalisation Fund, SICAV,
ML-Alliance Asset Allocation N.V. and The Spanish Smaller
Companies Fund, all foreign 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") and the
Adviser to permit the Fund directly or indirectly to pay expenses
associated with the distribution of its shares in accordance with
a plan which is included in the Agreement and has been duly
adopted and approved in accordance with Rule 12b-1 adopted by the
Commission under the 1940 Act (the "Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid monthly
and are charged as expenses of the Fund as accrued. The
distribution services fee, which provides for the financing of the
Fund's shares, is designed to permit an investor to purchase Fund
shares through broker-dealers without the assessment of a front-
end or contingent deferred sales charge and, at the same time, to
permit the Principal Underwriter to compensate broker-dealers in
connection with the sale of such shares.
Under the Agreement, the Treasurer of the Fund reports the
amounts expended under the Rule 12b-1 Plan and the purposes for
which such expenditures were made to the Directors of the Fund for
their review on a quarterly basis. Also, the Agreement provides
that the selection and nomination of Directors who are not
interested persons (as defined in the 1940 Act) are committed to
the discretion of the Directors, who are not interested, then in
office.
The Agreement became effective on July 22, 1992. The
Agreement replaced an earlier, substantially identical, agreement
(the "First Agreement") that terminated because of its technical
assignment as a result of AXA's acquisition of control over
Equitable. In anticipation of the assignment of the First
Agreement, the Agreement was approved by the unanimous vote, cast
in person, of the Fund's Directors (including the Directors who
are not parties to the Agreement or "interested persons", as
27
<PAGE>
defined in the 1940 Act, of any such party) at a meeting called
for that purpose held on October 14, 1991.
During the fiscal year ended October 31, 1994, distribution
services fees for expenditures payable to the Principal
Underwriter amounted to $1,069,879. Of that amount, $261,291
was waived by the Principal Underwriter so that during such
period, the Fund paid distribution services fees for expenditures
in an amount aggregating $808,588 which constituted .68 of 1%,
annualized, of the Fund's average daily net assets during the
period, and the Adviser made payments from its own resources as
described above aggregating $633,221. Of the $1,441,809 paid by
the Fund and the Adviser under the Plan, $63,975 was spent on
advertising, $31,575 on the printing and mailing of prospectuses
for persons other than current shareholders, $1,101,586 for
compensation to broker-dealers and other financial intermediaries
(including, $221,645 to the Fund's Principal Underwriter), $6,821
for compensation to sales personnel and $237,852 on the printing
of sales literature, travel, entertainment, due diligence and
other promotional expenses.
The Agreement will continue for successive twelve-month
periods (computed from each October 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 Fund's outstanding voting securities (as defined in the 1940
Act), and in either case by a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of any such
party (other than as directions of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 126-1 Plan or any agreements related thereto. Most recently,
continuance of the Agreement was approved for the period ending
October 31, 1995 by the Board of Directors, including a majority
of the Directors who are not "interested persons" as defined in
the 1940 Act, at their Regular Meeting held on September 13, 1994.
All material amendments to the Agreement must be approved by a
vote of the Directors or of the holders of the Fund's outstanding
voting securities and in either case, by a majority of the
disinterested Directors, cast in person at a meeting called for
the purpose of voting on such approval; and the Agreement may not
be amended in order to increase materially the costs that the Fund
may bear pursuant to the Agreement without the approval of a
majority of the outstanding shares of the Fund. The Agreement may
be terminated (a) by the Fund without penalty at any time by a
majority vote of the disinterested Directors who have no direct or
28
<PAGE>
indirect financial interest in the Plan, the Agreement or any
related agreement or by a majority vote of the outstanding shares
of the Fund, or (b) by the Principal Underwriter. To terminate
the Agreement, any party must give the other parties 60 days'
written notice; to terminate the Plan only, the Fund is not
required to give prior written notice to the Principal
Underwriter.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Fund, plus reimbursement for out-of-pocket
expenses. For the fiscal year ended October 31, 1994, the Fund
paid Alliance Fund Services, Inc. $109,948 for transfer agency
services.
- -----------------------------------------------------------------
PURCHASE OF SHARES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the headings "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, without any sales charge,
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates that have entered
into selected agent agreements with the Principal Underwriter
("selected agents") or (iii) the Principal Underwriter. The
minimum for initial investments is $10,000; subsequent investments
(excluding reinvestments of dividends and capital gains
distributions in shares) must be in the minimum amount of $1,000.
The subscriber may use the Subscription Application found in the
Prospectus for his or her initial investment.
Investors may purchase shares of the Fund in the United States
through selected dealers or agents or directly through the
Principal Underwriter. Shares may also be sold in foreign
countries where permissible. The Fund may refuse any order for
the purchase of shares. The Fund reserves the right to suspend the
sale of its shares to the public in response to conditions in the
securities markets or for other reasons.
29
<PAGE>
The public offering price of shares of the Fund is their net
asset value. 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 of the next close of regular trading on the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. New York
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday, exclusive of national holidays
on which the Exchange is closed and Good Friday. For purposes of
this computation, the securities in the Fund's portfolio are
valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily
available, such other methods as the Directors believe would
accurately reflect fair market value.
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, 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. In the case of orders for purchase
of shares placed through selected dealers or agents, the
applicable public offering price will be the net asset value as so
determined, but only if the selected dealer or agent receives the
order prior to the close of regular trading on the Exchange and
transmits it to the Principal Underwriter prior to its close of
business that same day (normally 5:00 p.m. New York time). The
selected dealer or agent is responsible for transmitting such
orders by 5:00 p.m. If the selected dealer or agent fails to do
so, the investor's right to that day's closing price must be
settled between the investor and the selected dealer or agent. If
the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the
net asset value determined as of the close of regular trading on
the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if the
shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "Literature" telephone number shown on the cover of
this Statement of Additional Information. Payment for shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed
30
<PAGE>
the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, share
certificates representing shares of the Fund are not issued except
upon written request to the Fund by the shareholder or his or her
authorized selected dealer or agent. This facilitates later
redemption and relieves the shareholder of the responsibility for
and inconvenience of lost or stolen certificates. No certificates
are issued for fractional shares, although such shares remain in
the shareholder's account on the books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or in
part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives will be conditioned upon the sale of
a specified minimum dollar amount of the shares of the Fund and/or
other mutual funds managed by the Adviser, during a specific
period of time. On some occasions, such cash or other incentives
may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel by
persons associated with a dealer and their immediate family
members to urban or resort locations within or outside of the
United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
The Principal Underwriter is not obligated to sell any
specific amount of shares and will purchase shares for resale only
against orders for shares. The Adviser, may from time to time and
from its own funds or such other sources as may be permitted by
rules of the Commission make payments for distribution services to
the Principal Underwriter; the latter may in turn pay part or all
of such compensation to brokers or other persons for their
distribution assistance.
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- -----------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares -
How to Sell Shares."
REDEMPTION
Subject only to the limitations described below, the Fund's
Articles of Incorporation requires that the Fund redeem the shares
tendered to it, as described below, at a redemption price equal to
their net asset value as next computed following the receipt of
shares tendered for redemption in proper form. There is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption.
The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the 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 to determine fairly 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 may be made either in cash or
in readily marketable portfolio securities (selected at the
discretion of the Directors of the Fund and taken at their value
used in determining the redemption price), or partly in cash and
partly in portfolio securities. However, payments will be made
wholly in cash unless the Directors believe that economic
conditions exist which would make such a practice detrimental to
the best interest of the Fund. The Fund has filed a formal
election with the Commission pursuant to which the Fund will only
effect a redemption in portfolio securities where the particular
shareholder of record is redeeming more than $250,000 or 1% of the
Fund's total net assets, whichever is less, during any 90-day
period. In the opinion of the Fund's management, however, the
amount of a redemption request would have to be significantly
greater than $250,000 or 1% of total net assets before a
redemption wholly or partly in portfolio securities was made. If
payment for shares redeemed is made wholly or partly in portfolio
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<PAGE>
securities, brokerage costs may be incurred by the investor in
converting the securities to cash.
The value of the Fund's shares fluctuates because the value of
the securities in which it invests fluctuates. When the Fund
sells portfolio securities it may realize a gain or a loss,
depending on whether it sells them for more or less than their
costs. (For an explanation of the significance of the treatment
of gains, losses and income for Federal income tax purposes see
"Dividends, Distributions and Taxes").
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.
Payment (either in cash or in portfolio securities) received by a
shareholder upon redemption or repurchase of his or her shares,
assuming the shares constitute capital assets in his 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 share certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
institution that is an "eligible guarantor" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Requests
for redemption of shares for which no share certificates have been
issued can also be made by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance Fund
Services, Inc. A telephone redemption request must be for at
least $500 and may not exceed $100,000, and must be made between
9:00 a.m. and 4:00 p.m. New York time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
Electronic Funds Transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Except as noted below, each
Fund shareholder is eligible to request redemption once in any 30-
day period of Fund shares by telephone at (800) 221-5672 before
4:00 p.m. New York time on a Fund business day in an amount not
exceeding $25,000. Proceeds of such redemptions are remitted by
check to the shareholder's address of record. Telephone
redemption by check is not available with respect to shares (i)
for which certificates have been issued, (ii) held in nominee or
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"street name" accounts, (iii) purchased within 15 calendar days
prior to the redemption request, (iv) held by a shareholder who
has changed his or her address of record within the preceding 30
calendar days or (v) held in any retirement plan account. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc. or by checking the appropriate box on the
Subscription Application found in the Prospectus.
GENERAL. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. None of the Fund, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or fraudulent
telephone instructions. Selected dealers or agents may charge a
commission for handling telephone requests for redemptions.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
certificate or certificates, endorsed in blank or with blank stock
powers attached, to the Fund with the request that the shares
represented thereby, or a specified portion thereof, be redeemed.
The stock assignment form on the reverse side of each share
certificate surrendered to the Fund for redemption must be signed
by the registered owner or owners exactly as the registered name
appears on the face of the certificate or, alternatively, a stock
power signed in the same manner may be attached to the share
certificate or certificates or, where tender is made by mail,
separately mailed to the Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
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Underwriter receives the request, except that requests placed
through selected dealers or agents before the close of regular
trading on the Exchange on any day will be executed at the net
asset value determined as of such close of regular trading on that
day if received by the Principal Underwriter prior to its close of
business on that day (normally 5:00 p.m. New York time). The
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the selected
dealer or agent fails to do so, the shareholder's right to receive
that day's closing price must be settled between the shareholder
and the dealer or agent. A shareholder may offer shares of the
Fund to the Principal Underwriter either directly or through a
selected dealer or agent. Neither the Fund nor the Principal
Underwriter charges a fee or commission in connection with the
repurchase of shares of the Fund. Normally, if shares of the Fund
are offered through a selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and the
Fund may suspend or terminate this practice at any time.
GENERAL
The Fund has minimums of $10,000 for initial investments,
$1,000 for subsequent investments and $5,000 for account balances.
A shareholder subject to the minimum account balance requirement
must increase his or her account balance to at least $5,000 within
sixty days after notice has been mailed by the Fund of a deficient
balance, or the Fund will close the account and mail a check for
the proceeds to the shareholder. The Fund intends at least once
each six months to review its shareholder balances in regard to
the $5,000 minimum and to send appropriate notices to shareholders
with deficient accounts. The Fund imposes no minimums for
redemptions by mail or for redemptions made on an account's behalf
by brokerage firms or other financial institutions. However, such
firms may have internal procedures that include minimums. The
minimum account balance requirement is not applicable to
Retirement Plans.
In the case of 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.
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<PAGE>
- -----------------------------------------------------------------
SHAREHOLDER SERVICES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares-
- -Shareholder Services."
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
mutual funds managed by the Adviser. Persons desiring information
concerning these plans should contact Alliance Fund Services, Inc.
at the "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 PROFIT-SHARING AND MONEY PURCHASE PENSION.
Sole proprietors, partnerships and corporations may sponsor
qualified money purchase pension and profit-sharing plans under
which annual tax-deductible contributions are made within
prescribed limits based on compensation paid to participating
individuals.
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.
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<PAGE>
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance Fund
Services, Inc. as compensation for its services to the retirement
plan accounts maintained with the Fund.
Distributions from retirement plans are subject to certain
Internal Revenue Code of 1986, as amended, (the "Code")
requirements in addition to normal redemption procedures. For
additional information please contact Alliance Fund Services, Inc.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Fund
having a current net asset value of at least $10,000 may establish
a systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less than
$50 on a selected date. Systematic withdrawal plan participants
must elect to have their dividends and distributions from the Fund
automatically reinvested in additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions. 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 shareholder 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
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<PAGE>
plan in conjunction with their initial investment in shares of the
Fund should complete the appropriate portion of the Subscription
Application found in the Prospectus, while current Fund
shareholders desiring to do so can obtain an application form by
contacting Alliance Fund Services, Inc. at the address or the
"Literature" telephone number shown on the cover of this Statement
of Additional Information.
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 Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
- -----------------------------------------------------------------
NET ASSET VALUE
- -----------------------------------------------------------------
Portfolio securities that are actively traded in the over-the-
counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by
the principal market makers. Any security for which the primary
market is on an exchange is valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such
day, the last bid price quoted on such day. Options will be
valued at market value or fair market value if no market exists.
Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recently quoted asked price. Securities and assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund. However, readily marketable
fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed by the
Adviser to reflect the fair market value of such securities. The
prices provided by a pricing service take into account
institutional size trading in similar groups of securities and any
developments related to specific securities. U.S. Government
Securities and other debt instruments having 60 days or less
remaining until maturity are stated at amortized cost if their
original maturity was 60 days or less, or by amortizing their fair
value as of the 61st day prior to maturity if their original term
to maturity exceeded 60 days (unless in either case the Fund's
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<PAGE>
Board of Directors determines that this method does not represent
fair value).
For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the
bid and asked prices of such currencies against the U.S. Dollar
last quoted by a major bank which is a regular participant in the
institutional foreign exchange markets or on the basis of a
pricing service which takes into account the quotes provided by a
number of such major banks.
- -----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS AND
DISTRIBUTIONS
GENERAL
The Fund qualified for the fiscal year ended October 31, 1994
and intends to qualify in the future for each taxable year for tax
treatment as a "regulated investment company" under the Code.
Qualification relieves the Fund of Federal income tax liability on
that part of its investment company taxable income and net capital
gains which it timely distributes to its shareholders. Such
qualification does not, of course, involve governmental
supervision of management or investment practices or policies.
Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify
for such treatment.
The information set forth in the Prospectus and the following
discussion relate solely to the United States Federal income taxes
on dividends and distributions by the Fund and assumes that the
Fund qualifies as a regulated investment company. Investors
should consult their own tax counsel with respect to the specific
tax consequences of their being shareholders of the Fund,
including the affect and applicability of Federal, state, local
and foreign tax laws to their own particular situation and the
possible effects of changes therein.
The Fund intends to declare and distribute dividends in the
amounts and at the times necessary to avoid the application of the
4% Federal excise tax imposed on certain undistributed income of
regulated investment companies. The Fund will be required to pay
the 4% excise tax to the extent it does not distribute to its
shareholders during any calendar year an amount equal to the sum
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<PAGE>
of (i) 98% of its ordinary income for the calendar year, (ii) 98%
of its capital gain net income and foreign currency gains for the
twelve months ended October 31 of such year and (iii) any ordinary
income or capital gain net income from the preceding calendar year
that was not distributed during such year. For this purpose,
income or gain retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by the Fund
by year-end. For Federal income and excise tax purposes,
dividends declared and payable to shareholders of record as of a
date in October, November or December but actually paid during the
following January will be treated as having been distributed by
the Fund and will be taxable to these shareholders in the year
declared and not in the subsequent calendar year in which the
shareholders actually receive the dividend.
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. Since the Fund expects to derive
substantially all of its gross income (exclusive of capital gains)
from sources other than dividends, it is expected that none of the
Fund's dividends or distributions will qualify for the dividends-
received deduction for corporations.
The excess of net long-term capital gains over the net short-
term capital losses realized and distributed by the Fund to its
shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his or her Fund shares. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital to
that particular shareholder, would be taxable to him or her as
described above. If a shareholder has held shares in the Fund for
six months or less and during that period has received a
distribution taxable to the shareholder as a long-term capital
gain, any loss recognized by the shareholder on the sale of those
shares during the six-month period will be treated as a long-term
capital loss to the extent of the distribution.
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.
The Fund generally will be required to withhold tax at the
rate of 31% with respect to dividends of net ordinary income and
net realized capital gains payable to a noncorporate shareholder
unless the shareholder certifies on his or her subscription
application that the social security or taxpayer identification
number provided is correct and that the shareholder has not been
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<PAGE>
notified by the Internal Revenue Service that he or she is subject
to backup withholding.
FOREIGN TAX CREDIT
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 individual shareholders may be subject to rules
which limit or reduce their availability to fully deduct their pro
rata share of the foreign taxes paid by the Fund. Each
shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund
will pass through for that year and, if so, such notification will
designate (i) the shareholder's portion of the foreign taxes paid
to each such country and (ii) the portion of dividends that
represents income derived from sources within each such country.
Generally, a credit for foreign taxes may not exceed the
shareholder's United States tax attributable to the shareholder's
total foreign source taxable income. Generally, the source of the
Fund's income flows through to its shareholders. The overall
limitation on a foreign tax credit is also applied separately to
specific categories of foreign source income, including foreign source
"passive income," including dividends, interest and capital
gains. Further, the foreign tax credit is allowed to offset only
90% of any alternative minimum tax to which a shareholder may be
subject. As a result of these rules, certain shareholders may be
unable to claim a credit for the full amount of their
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<PAGE>
proportionate share of the foreign taxes paid by the Fund. If a
shareholder could not credit his full share of the foreign tax
paid, double taxation of such income could be mitigated only by
deducting the foreign tax paid, which may be subject to limitation
as described above.
The federal income tax status of each year's distributions by
the Fund will be reported to shareholders and to the Internal
Revenue Service. The foregoing is only a general description of
the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax credit
or deduction will depend on the particular circumstances of each
shareholder, potential investors are advised to consult their own
tax advisers.
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND
The following discussion relates to certain significant United
States federal income tax consequences to the Fund with respect to
the determination of its "investment company taxable income" each
year. This discussion assumes that the Fund will be taxed as a
regulated investment company for each of its taxable years.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains
or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency,
or from the disposition of a forward contract denominated in a
foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of
the asset and the date of disposition also are treated as ordinary
gain or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital
gain. Because section 988 losses reduce the amount of ordinary
dividends the Fund will be allowed to distribute for a taxable
year, such section 988 losses may result in all or a portion of
prior dividend distributions for such year being recharacterized
as a non-taxable return of capital to shareholders, rather than as
an ordinary dividend, reducing each shareholder's basis in his
Fund shares. To the extent that such distributions exceed such
shareholder's basis, each will be treated as a gain from the sale
of shares.
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OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN CURRENCY
CONTRACTS.
Certain listed options, regulated futures contracts and
forward foreign currency contracts are considered "section 1256
contracts" for Federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will be
"marked to market" and treated for Federal income tax purposes as
though sold for fair market value on the last business day of such
taxable year. Gain or loss realized by the Fund on section 1256
contracts other than forward foreign currency contracts will be
considered 60% long-term and 40% short-term capital gain or loss.
Gain or loss realized by the Fund on forward foreign currency
contracts will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to holders as ordinary income,
as described above. The Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described
below) from the application of section 1256.
The Treasury Department has the authority to issue regulations
that would permit or require the Fund either to integrate a
foreign currency hedging transaction with the investment that is
hedged and treat the two as a single transaction, or otherwise to
treat the hedging transaction in a manner that is consistent with
the hedged investment. Recently issued regulations under this
authority generally should not apply to the type of hedging
transactions in which the Fund intends to engage.
With respect to over-the-counter put and call options, 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 shall be determined by subtracting the amount
43
<PAGE>
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.
TAX STRADDLES
Any option, futures contract, forward foreign currency
contract or other position entered into or held by the Fund in
conjunction with any other position held by the Fund may
constitute a "straddle" for Federal income tax purposes. A
straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle". In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions by requiring, among other things,
that (i) loss realized on disposition of one position of a
straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term
capital gain); (iii) losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non-section 1256 positions be treated as 60% long-term and 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.
44
<PAGE>
TAXATION OF FOREIGN SHAREHOLDERS
The foregoing discussion relates only to United States Federal
income tax law as it affects shareholders who are United States
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 consult their counsel for
further information as to the U.S. tax consequences of receipt of
income from the Fund.
- -----------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- -----------------------------------------------------------------
Subject to the general supervision of the Board of Directors
of the Fund, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio transactions
for the Fund. The Fund's portfolio transactions occur primarily
with issuers, underwriters or major dealers acting as principals.
Such transactions are normally on a net basis which do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid
by the issuer to the underwriters; transactions with dealers
normally reflect the spread between bid and asked prices.
Premiums are paid with respect to options purchased by the Fund
and brokerage commissions are payable with respect to transactions
in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or other
entity. In placing orders, it is the policy of the Fund to obtain
the best price and execution for its transactions. Where best
price and execution may be obtained from more than one dealer, the
Adviser may, in its discretion, purchase and sell securities
through dealers who provide research, statistical and other
information to the Adviser. Such services may be used by the
Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Portfolio securities
will not be purchased from or sold to Donaldson, Lufkin & Jenrette
Securities Corportion, an affiliate of the Adviser, or any other
subsidiary or affiliate of Equitable.
45
<PAGE>
- -----------------------------------------------------------------
GENERAL INFORMATION
- -----------------------------------------------------------------
CAPITALIZATION
The Fund's shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they
choose to do so, and in such event the holders of the remaining
less than 50% of the shares voting for such election of Directors
will not be able to elect any person or persons to the Board of
Directors.
The Board of Directors is authorized to reclassify and issue
any unissued shares to any number of additional series without
shareholder approval. Accordingly, the Board in the future, for
reasons such as the desire to establish one or more additional
portfolios of the Fund with different investment objectives,
policies or restrictions, may create additional series of shares.
Any issuance of shares of another series would be governed by the
1940 Act and the laws 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 for the election of
Directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as separate series.
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, are available to shareholders of the Fund.
Meetings of shareholders may be called by 10% of the Fund's
outstanding shareholders.
The outstanding voting shares of the Fund as of February 3,
1995 consisted of 43,436,728.659 shares of common stock. Set
forth below is certain information as to all persons who owned of
record or beneficially 5% or more of the Fund's outstanding shares
at February 3, 1995:
46
<PAGE>
% of
Name and Address No. of Shares Fund
- ---------------- ------------- ----
Teachers Retirement System 10,101,010.101 23%
of Louisiana
8401 United Plaza Blvd., 3rd fl.
Baton Rouge, LA. 70809-7017
CUSTODIAN
Brown Brothers Harriman & Co. acts as custodian for the
securities and cash of the Fund, but plays no part in deciding on
the purchase or sale of portfolio securities. Subject to the
supervision of the Fund's Directors, Brown Brothers Harriman &
Co. may enter into sub-custodial agreements for the holding of
the Fund's foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement the Fund has agreed to indemnify the 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
of common stock offered hereby are passed upon by Seward &
Kissel, One Battery Park Plaza, New York, New York 10004. Seward
& Kissel has relied upon the opinion of Venable, Baetjer and
Howard, 1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201, for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, has been appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield," "actual
distribution rate" and "total return." The Fund's yield for any
30-day (or one month) period is computed by dividing the net
investment income per share earned during such period by the
47
<PAGE>
Fund's net asset value per share on the last day of the period,
and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Fund may
also advertise in items of sales literature an actual
distribution rate which is computed in the same manner as yield
except that actual income dividends declared per share during the
period in question are substituted for net investment income per
share. Advertisements of the Fund's total return disclose its
average annual compounded total return for its most recently
completed one-, five- and ten-year periods (or the period since
the Fund's inception). The Fund's total return for 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 received.
The Fund's yield for the month ended October 31, 1994 was
3.61%. The Fund's actual distribution rate for such period was
5.00%. The Fund's total return for the fiscal year ended October
31, 1994 was 3.27%. For the period from December 3, 1990
(commencement of distribution) through October 31, 1994, the
Fund's average annual total return was 4.13%.
Yield and total return are not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities in the Fund's portfolio, the
Fund's average portfolio maturity and its expenses. Quotations
of yield and total return do not include any provision for the
effect of individual income taxes. An investor's principal
invested in the Fund is not fixed and will fluctuate in response
to prevailing market conditions.
Advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
and advertisements presenting yield, total return and net asset
value volatility may also from time to time be sent to investors
or placed in newspapers and magazines such as The Wall Street
Journal, The New York Times, Barrons, Investor's Daily, Money
Magazine, Changing Times, Business Week and Forbes or other media
on behalf of the Fund. In addition, the Fund may also compare
its performance to other short-term investments including money
market funds which, unlike the Fund, seek to maintain a stable
net asset value per share. In this regard, the Fund may present
quotations of money market fund performance as provided by
48
<PAGE>
independent organizations such as Donoghue, Inc. or another
similar organization.
The Fund also anticipates quoting its net asset value
volatility performance which is measured by analyzing the Fund's
net asset value per share over certain periods of time. Since
the Fund's commencement of operations on December 3, 1990, events
throughout the world, in Eastern Europe, the Far East, the Middle
East, North America and South America, have resulted in a certain
amount of economic and geopolitical instability. During this
period, the Fund has had fluctuations in net asset value per
share as follows:
Net Asset Value
Date Per Share
- ----------------- ----------------
December 3, 1990 $2.00
December 31, 1990 $1.99
January 31, 1991 $1.99
February 28, 1991 $1.99
March 31, 1991 $1.99
April 30, 1991 $1.99
May 31, 1991 $1.99
June 30, 1991 $1.98
July 31, 1991 $1.98
August 31, 1991 $1.98
September 30, 1991 $1.98
October 31, 1991 $1.98
November 30, 1991 $1.96
December 31, 1991 $1.95
January 31, 1992 $1.96
February 29, 1992 $1.96
March 31, 1992 $1.95
April 30, 1992 $1.96
May 31, 1992 $1.96
June 30, 1992 $1.96
July 31, 1992 $1.95
August 31, 1992 $1.94
September 30, 1992 $1.90
October 31, 1992 $1.91
November 30, 1992 $1.90
December 31, 1992 $1.90
January 31, 1993 $1.90
February 28, 1993 $1.90
March 31, 1993 $1.91
April 30, 1993 $1.91
May 31, 1993 $1.91
June 30, 1993 $1.91
July 31, 1993 $1.92
49
<PAGE>
August 31, 1993 $1.91
September 30, 1993 $1.90
October 31, 1993 $1.90
November 30, 1993 $1.90
December 31, 1993 $1.90
January 31, 1994 $1.90
February 28, 1994 $1.89
March 31, 1994 $1.87
April 30, 1994 $1.87
May 31, 1994 $1.88
June 30, 1994 $1.87
July 31, 1994 $1.88
August 31, 1994 $1.88
September 30, 1994 $1.88
October 31, 1994 $1.88
November 30, 1994 $1.88
December 31, 1994 $1.74
January 31, 1995 $1.69
The Fund seeks to provide investors with higher current
yields than available solely from investments in U.S. dollar-
denominated securities. For example, currently, interest rates
abroad on twelve-month deposits are higher than rates in the U.S.
As of January 31, 1994, twelve-month deposit rates were:
7.06% (U.S.), 8.56% (Canada), 5.56% (Germany), 9.50% (Australia),
7.68% (U.K.) and 10.10% (Spain). The Fund invests in high-
quality debt securities having remaining maturities of not more
than one year and its average maturity as of certain dates may
also be quoted in advertisements. The Fund has been ranked by
Lipper in the category known as "Short World Multi-Market Income
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
Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the
Registration Statement filed by the Fund with the Commission.
Copies of the Registration Statement may be obtained at a
reasonable charge from the Commission or may be examined, without
charge, at the offices of the Commission in Washington, D.C.
50
<PAGE>
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994 ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CANADA-1.2%
GOVERNMENT OBLIGATION-1.2%
Canadian Treasury Bill
Zero coupon, 6/29/95
(cost $1,163,312).............. CA$ 1,695 (a) $ 1,203,312
------------
MEXICO-7.0%
GOVERNMENT OBLIGATIONS-7.0%
Mexican Treasury Bills
Zero coupon, 11/30/94.......... MXP 14,500 (a) 4,170,279
Zero coupon, 2/16/95........... 10,908 (a) 3,043,916
------------
Total Mexican Securities
(cost $8,008,502).............. 7,214,195
------------
NEW ZEALAND-12.2%
GOVERNMENT OBLIGATIONS-10.7%
Government of New Zealand
10.00%, 2/15/95................ NZD $6,000 (a) 3,709,989
New Zealand Treasury Bill
Zero coupon, 2/08/95........... 12,250 (a) 7,387,571
------------
11,097,560
------------
DEBT OBLIGATION-1.5%
Exportfinans
8.125%, 2/24/95................ 2,500 (a) 1,536,596
Total New Zealand Securities
(cost $12,379,517)............. 12,634,156
------------
UNITED STATES-80.3%
DEBT OBLIGATIONS-20.5%
Credit Agricole
de La Brie
Grand Cayman
5.50%, 2/01/95................. US$ 4,000 (a) 4,000,000
Credit Suisse
Grand Cayman
5.3125%, 1/03/95............... 4,000 (a) 4,000,000
Dresdner Bank AG
Grand Cayman
5.35%, 1/03/95................. 4,000 (a) 4,000,000
Mexus Co., Ltd.
Peso Linked Medium
Term Secured Notes
7.4375%, 12/16/94.............. 1,200 (b) 1,200,000
Peso Linked U.S. Dollar
Secured Notes Capital
Co., Ltd. II
5.625%, 12/07/94............... US$ 8,000 (b) $ 8,000,000
------------
21,200,000
------------
GOVERNMENT OBLIGATIONS-14.0%
Mexican Tesobonos
Zero coupon, 11/10/94.......... 4,000 (a) 3,992,400
Zero coupon, 5/04/95........... 5,473 (a) 5,259,006
Zero coupon, 7/13/95........... 5,550 (a) 5,243,085
------------
14,494,491
------------
CERTIFICATES OF DEPOSIT-9.0%
Bayerische Landesbank
Peso Linked
Zero coupon, 4/12/95........... 4,000 (a) 3,852,400
Morgan Guaranty Trust Co.
Nassau Peso Linked
Zero coupon, 1/19/95........... 5,500 (a) 5,405,950
------------
9,258,350
------------
COMMERCIAL PAPER-13.4%
Bankers Trust Co.
Peso Linked
Zero coupon, 12/01/94.......... 4,000 (a) 3,974,800
Zero coupon, 12/16/94.......... 10,000 (a) 9,903,000
------------
13,877,800
------------
TIME DEPOSIT-23.4%
Mitsubishi Bank
Grand Cayman
4.8125%, 11/01/94.............. 24,200 24,200,000
Total United States Securities
(cost $83,084,453)............. 83,030,641
------------
TOTAL INVESTMENTS-100.7%
(cost $104,635,784) 104,082,304
Other assets less liabilities-(0.7%) (772,408)
------------
NET ASSETS-100%................. $103,309,896
============
</TABLE>
- --------------------------------------------------------------------------------
(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of approximately $70,682,304.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1994 these securities amounted to $9,200,000 or 8.9% of net assets.
See notes to financial statements.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994 ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $104,635,784) .............................................. $104,082,304
Interest receivable .................................................................................. 596,267
Unrealized appreciation of forward exchange currency contracts ....................................... 116,258
Deferred organization expense and other assets ....................................................... 104,045
------------
Total assets.......................................................................................... 104,898,874
------------
LIABILITIES
Dividend payable ..................................................................................... 436,029
Payable for capital stock redeemed ................................................................... 383,170
Distribution fee payable ............................................................................. 53,098
Advisory fee payable ................................................................................. 43,555
Accrued expenses and other liabilities ............................................................... 673,126
------------
Total liabilities..................................................................................... 1,588,978
------------
NET ASSETS (equivalent to $1.88 per share, based on 54,959,488 shares outstanding)...................... $103,309,896
============
COMPOSITION OF NET ASSETS
Capital stock, at par ................................................................................ $ 109,919
Additional paid-in capital ........................................................................... 106,594,046
Accumulated net realized loss on investments, options and foreign currency transactions............... (2,958,517)
Net unrealized depreciation of investments and foreign currency denominated assets and liabilities.... (435,552)
------------
$103,309,896
============
NET ASSET VALUE PER SHARE............................................................................... $ 1.88
======
</TABLE>
6
- --------------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994 ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 6,728,325
EXPENSES
Advisory fee ................................................... $ 582,660
Distribution fee ............................................... 808,588
Administrative ................................................. 182,488
Custodian ...................................................... 112,036
Transfer agency ................................................ 109,948
Audit and legal ................................................ 82,919
Printing ....................................................... 43,935
Registration ................................................... 37,887
Amortization of organization expenses .......................... 30,739
Directors' fees ................................................ 24,087
Miscellaneous .................................................. 8,334
----------
Total expenses ................................................. 2,023,621
-----------
Net investment income .......................................... 4,704,704
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized loss on investment transactions ................... (240,553)
Net realized loss on options and foreign currency
transactions.................................................. (1,631,037)
Net change in unrealized appreciation (depreciation) of:
Investments .................................................. (797,916)
Options and foreign currency denominated assets and
liabilities................................................... 1,365,627
------------
Net loss on investments ........................................ (1,303,879)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................... $ 3,400,825
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1994 1993
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ............................................ $ 4,704,704 $ 10,532,334
Net realized loss on investments, options and
foreign currency transactions .................................. (1,871,590) (2,452,297)
Net change in unrealized depreciation of investments, options and
foreign currency denominated assets and liabilities ............. 567,711 (1,402,113)
------------ ------------
Net increase in net assets from operations ....................... 3,400,825 6,677,924
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and other sources .......................... (3,536,509) (8,039,637)
Return of capital ................................................ (1,463,462) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease ..................................................... (44,713,749) (167,731,684)
------------ ------------
Total decrease ................................................... (46,312,895) (169,093,397)
NET ASSETS
Beginning of year ................................................ 149,622,791 318,716,188
------------ ------------
End of year (including undistributed net investment income of
$19,621,481 for the year ended October 31, 1993) ................ $ 103,309,896 $ 149,622,791
============ ============
</TABLE>
7
- --------------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994 ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance World Income Trust, Inc. (the "Fund"), was incorporated in the State
of Maryland on October 29, 1990 as a non-diversified, open-end investment
company. The following is a summary of significant accounting policies
followed by the Fund.
1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on day of valuation.
Securities for which market quotations are not readily available are valued
in good faith at fair value using methods determined by the Board of
Directors. Securities which mature in 60 days or less are valued at
amortized cost, which approximates market value, unless this method does not
represent fair value. Restricted securities are valued at fair value as
determined by the Board of Directors. In determining fair value,
consideration is given to cost, operating and other financial data.
2. OPTION WRITING
When the Fund writes an option, an amount equal to the premium received by
the Fund is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from writing
options which expire unexercised are recorded by the Fund on the expiration
date as realized gains. The difference between the premium and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also recorded as a realized gain, or if the premium is less
than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium is added to the proceeds
from the sale of the underlying security or currency in determining whether
the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the security or currency purchased by the
Fund. In writing an option, the Fund bears the market risk of unfavorable
changes in the price of the security or currency underlying the written
option. Exercise of an option written by the Fund could result in the Fund
selling or buying a security or currency at a price different from the
current market value.
3. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments
under forward exchange currency contracts are translated into U.S. dollars at
the mean of the quoted bid and asked price of such currencies against the
U.S. dollar. Purchases and sales of portfolio securities are translated at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at rates of exchange prevailing when
accrued.
Net foreign exchange losses of $1,631,037 represent foreign exchange gains
and losses from sales and maturities of securities, holdings of foreign
currencies, options on foreign currencies, exchange gains and losses realized
between the trade and settlement dates on security transactions, and the
difference between the amounts of interest recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
currency gains and losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of
unrealized depreciation of investments and foreign currency denominated
assets and liabilities.
4. ORGANIZATION EXPENSES
Organization expenses of approximately $153,000 have been deferred and are
being amortized on a straight-line basis through December 1995.
5. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes
are required.
8
<PAGE>
ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
6. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
8. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS
Effective November 1, 1993, the Fund adopted Statement of Position 93-2:
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with income tax
regulations. Accordingly, permanent book and tax basis differences relating
to shareholder distributions and the accounting for certain investment
transactions have been reclassified to paid-in-capital. As of the current
period the cumulative effect of such differences totalling $19,326,214 and
$45,070,161 were reclassified from undistributed net investment income and
accumulated net realized loss to additional paid-in-capital, respectively.
Net investment income, net realized gains and net assets were not affected by
this change.
- --------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management, L.P. (the"Adviser"), an advisory fee at an annual rate of
0.65 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly. For the year ended October 31, 1994, the Adviser
agreed to waive a portion of its advisory fee. The amount of such fee waiver
was $190,256.
The Adviser has agreed under the terms of the advisory agreement, to
reimburse the Fund to the extent that its aggregate expenses (exclusive of
interest, taxes, brokerage, distribution fee, and extraordinary expenses)
exceed the limits prescribed by any state in which the Fund's shares are
qualified for sale. The Fund believes that the most restrictive expense ratio
limitation currently imposed by any state is 2 1/2% of the first $30 million
of the Fund's average daily net assets, 2% of the next $70 million of its
average daily net assets and 1 1/2% of its average daily net assets in excess
of $100 million. No reimbursement was required by the Adviser for the year
ended October 31, 1994. Pursuant to the advisory agreement, the Fund also
paid $182,488 to the Adviser representing the cost of certain legal and
accounting services provided to the Fund by the Adviser for the year ended
October 31, 1994.
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 $82,975 for the year ended October 31, 1994.
- --------------------------------------------------------------------------------
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 0.90 of 1% of the average daily net assets. Such fee is accrued
daily and paid monthly. For the year ended October 31, 1994, the Distributor
agreed to waive a portion of its distribution fee. The amount of such fee
waiver was $261,691. The Agreement provides that the Distributor will use
such payments in their entirety for distribution assistance and promotional
activities. The Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Fund's shares.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. A forward exchange currency contract is a commitment to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original contracts and the
closing of such contracts is included in realized gains or losses from foreign
currency transactions. Fluctuations in the value of forward exchange currency
contracts are recorded for financial reporting purposes as unrealized gains or
losses by the Fund. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
At October 31, 1994, the Fund had outstanding forward exchange currency
contracts as follows:
<TABLE>
<CAPTION>
CONTRACT COST ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY BUY CONTRACTS (000) DATE VALUE (DEPRECIATION)
- ------------------------------ -------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
British Pounds,
expiring 11/23/94................ 6,461 $10,052,947 $10,561,037 $508,090
Canadian Dollars,
expiring 11/25/94-11/30/94....... 33,135 24,421,138 24,481,723 60,585
Deutsche Marks,
expiring 11/18/94-11/23/94....... 32,281 20,876,316 21,462,816 586,500
Indonesian Rupiah,
expiring 3/07/95................. 3,456 1,536,172 1,555,766 19,594
Italian Lira,
expiring 3/20/95................. 3,489 2,015,901 2,240,951 225,050
New Zealand Dollars,
expiring 1/24/95................. 3,936 2,393,359 2,410,465 17,106
Swiss Francs,
expiring 11/18/94................ 1,800 1,400,778 1,434,185 33,407
FOREIGN CURRENCY SALE CONTRACTS
- -------------------------------
Australian Dollars,
expiring 12/05/94................ 5,000 3,706,000 3,707,500 (1,500)
Belgium Francs,
expiring 1/11/95-1/26/95......... 211,870 6,704,253 6,843,711 (139,458)
British Pounds,
expiring 11/18/94-11/23/94....... 4,129 6,532,102 6,749,012 (216,910)
Canadian Dollars,
expiring 11/25/94-11/30/94....... 25,685 18,584,182 18,969,965 (385,783)
Deutsche Marks,
expiring 11/18/94-11/23/94....... 16,392 10,698,818 10,898,867 (200,049)
French Francs,
expiring 1/31/95................. 14,518 2,831,230 2,819,692 11,538
Swedish Krona,
expiring 11/23/94-11/30/94....... 61,183 8,093,656 8,495,568 (401,912)
-------
$116,258
=======
</TABLE>
10
<PAGE>
ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
Transactions in currency call and put options written for the year ended
October 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Options outstanding at
beginning of year ............. -0- $ -0-
Options written ................. 4 62,411
Options expired ................. (4) (62,411)
--- --------
Options outstanding at
October 31, 1994 .............. -0- $ -0-
=== ========
</TABLE>
At October 31, 1994, the cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $294,872 and gross unrealized
depreciation of investments was $848,352, resulting in net unrealized
depreciation of $553,480 (excluding foreign currency transactions).
For federal income tax purposes, the Fund had a capital loss carryforward at
October 31, 1994 of $1,495,055 of which $23,238 expires in 1998, $293,011 in
1999, $104,550 in 2000, $833,703 in 2001 and $240,553 in the year 2002.
- --------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 3,000,000,000 shares of $.002 par value capital stock authorized.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1994 1993 1994 1993
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold ..................................... 2,858,942 10,227,028 $ 5,387,971 $ 19,492,283
Shares issued in reinvestment of
dividends and distributions.................... 1,480,493 2,810,417 2,789,287 5,350,170
Shares issued in connection with the acquisition
of Alliance Multi-Market Income Trust, Inc. ... 6,394,561 -0- 12,128,360 -0-
Shares redeemed ................................. (34,551,165) (101,276,731) (65,019,367) (192,574,137)
------------ ------------- ------------- --------------
Net decrease .................................... (23,817,169) (88,239,286) $ (44,713,749) $ (167,731,684)
============ ============= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
NOTE F: ACQUISITION OF THE ALLIANCE MULTI-MARKET INCOME TRUST, INC.
On September 1, 1994, the Fund acquired all the net assets of the Alliance
Multi-Market Income Trust, Inc, ("AMIT") pursuant to a plan of reorganization
approved by AMIT's shareholders on August 26, 1994. The acquisition was
accomplished by a tax-free exchange of 6,394,561 shares of the Fund for
6,522,868 shares of AMIT on September 1, 1994. The aggregate net assets of
the Fund and AMIT immediately before the acquisition were $98,723,196 and
$11,362,742 (including unrealized depreciation of $765,618), respectively.
Immediately after the acquisition the combined net assets of the fund
amounted to $110,752,410.
NOTE G: SUBSEQUENT EVENT(Unaudited)
MEXICAN DEVALUATION
Subsequent to November 30, 1994 and through February 17, 1995, the Fund's net
assets value per share declined by approximately 10.1%, primarily due to the
devaluation of the Mexican peso.
11
<PAGE>
FINANCIAL HIGHLIGHTS ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
--------------------
YEAR ENDED OCTOBER 31, DECEMBER 3, 1990(A)
--------------------------------------- TO
1994 1993 1992 OCTOBER 31, 1991
---------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $1.90 $1.91 $1.98 $2.00
----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income ....................... .18 .22 .19 .14
Net realized and unrealized loss on
investments and foreign currency
transactions ............................... (.12) (.16) (.17) (.03)
----- ----- ----- -----
Net increase in net asset value
from operations ............................ .06 .06 .02 .11
----- ----- ----- -----
LESS: DISTRIBUTIONS
- -------------------
Dividends from net investment
income and other sources .................. (.05) (.07) (.09) (.13)
Return of capital ........................... (.03) -0- -0- -0-
----- ----- ----- -----
Total dividends and distributions ........... (.08) (.07) (.09) (.13)
----- ----- ----- -----
Net asset value, end of period .............. $1.88 $1.90 $1.91 $1.98
===== ===== ===== =====
TOTAL RETURN:
- -------------
Total investment return based on
net asset value (b) ....................... 3.27% 3.51% 1.26% 6.08%
===== ===== ===== =====
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (000's omitted) ... $103,310 $149,623 $318,716 $1,059,222
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements .......................... 1.70% 1.54% 1.59% 1.85%(c)
Expense, before waivers/
reimbursements .......................... 2.08% 1.92% 1.87% 1.85%(c)
Net investment income ..................... 3.96% 5.14% 7.21% 7.29%(c)
</TABLE>
- --------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(c) Annualized.
12
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE WORLD INCOME TRUST, INC.
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE WORLD INCOME TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance World Income Trust, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 1994, 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, 1994, 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 World Income Trust, Inc. at October 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
December 27, 1994
13
APPENDIX A
DESCRIPTION OF OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued
by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.
MARITIME ADMINISTRATION BONDS--are bonds issued and provided
by the Department of Transportation of the U.S. Government and
are guaranteed by the U.S. Government.
FHA DEBENTURES--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the
U.S. Government.
GNMA CERTIFICATES--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Each mortgage loan
included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
FHLMC BONDS--are bonds issued and guaranteed by the Federal
Home Loan Mortgage Corporation.
FNMA BONDS--are bonds issued and guaranteed by the Federal
National Mortgage Association.
FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds
issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.
STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND
BONDS--are notes and bonds issued by the Student Loan Marketing
Association.
Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which the Fund intends to invest, the Fund may invest in
obligations of U.S. Government agencies or instrumentalities
other than those listed above.
A-1
APPENDIX B
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. Debt
rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
a debt of a higher rated category.
The ratings from "AA" and "A" may be modified by the addition
of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
B-1
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA. Securities in this group are of safety virtually beyond
question, and as a class are readily salable while many are
highly active. Their merits are not greatly unlike those of the
AAA class, but a security so rated may be of junior though strong
lien--in many cases directly following an AAA security--or the
margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as
to ratings by the lesser financial power of the enterprise and
more local type of market.
A. A securities are strong investments and in many cases of
highly active market, but are not so heavily protected as the two
upper classes or possibly are of similar security but less
quickly salable. As a class they are more sensitive in standing
and market to material changes in current earnings of the
company. With favoring conditions such securities are likely to
work into a high rating, but in occasional instances changes
cause the rating to be lowered.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by
S&P, which uses the number 1+, l, 2 and 3 to denote relative
strength within its A classification. Commercial paper issues
rated A by S&P have the following characteristics: Liquidity
ratios are better than industry average. Long-term debt rating
is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an
upward trend. Typically, the issuer is a strong company in a
well-established industry and has superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: Leading market
positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions)
have a strong capacity for repayment of short- term promissory
obligations. This will normally be evidenced by many of the
B-2
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions)
have an acceptable capacity for repayment of short-term
promissory obligations. The effect of industry characteristics
and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is
maintained.
FITCH-1, FITCH-2, DUFF 1 AND DUFF 2
COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc.
have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.
B-3
APPENDIX C
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES
FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or sale
for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, foreign government
securities or corporate debt securities. U.S. futures contracts
have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange. The Fund will enter into futures
contracts which are based on debt securities that are backed by
the full faith and credit of the U.S. Government, such as long-
term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. The Fund may
also enter into futures contracts which are based on bonds issued
by entities other than the U.S. government.
At the same time a futures contract is purchased or sold, the
Fund must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial, deposit
would be approximately 1 1/2%-5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment
of "variation margin" may be required, since each day the Fund
would provide or receive cash that reflects any decline or
increase in the contracts value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
C-1
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract,
in the case of a portfolio, such as the portfolio of the Fund,
which holds or intends to acquire fixed-income securities, is to
attempt to protect the Fund from fluctuations in interest or
foreign exchange rates without actually buying or selling fixed-
income securities or foreign currency. For example, if interest
rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of
the debt securities owned by the Fund. If interest rates did
increase, the value of the debt securities in the portfolio would
decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Fund could
take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect
to such futures contracts will consist of cash, cash equivalents
or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the
initial and variation margin payments made by the Fund with
respect to such futures contracts.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
C-2
subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although the
Fund believes, that use of such contracts will benefit the Fund,
if the Adviser's investment judgment about the general direction
of interest rates is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Fund intends to purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on
a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying
debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Fund is not fully
invested it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates.
C-3
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call
option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes
in the value of portfolio securities.
The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on
portfolio securities. For example, the Fund may purchase a put
option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign currencies
for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated
will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund
will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.
C-4
Conversely, where a rise in the dollar value of a currency in
which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Fund may
purchase call options thereon. The purchase of such options
could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund deriving from purchases
of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the
extent anticipated the Fund could sustain losses on transactions
in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on foreign currencies for the same
types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction.
If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the
Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
C-5
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and
other high quality liquid debt securities in a segregated account
with its Custodian.
The Fund also intends to write call options on foreign
currencies that are not covered for cross-hedging purposes. A
call option on a foreign currency is for cross- hedging purposes
if it is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or U.S. government securities or other high
quality liquid debt securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked
to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC.
To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on currencies may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on such exchanges. As a result, many of the
protections provided to traders on organized exchanges will be
C-6
available with respect to such transactions. In particular, all
foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of
a liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts,
forward contracts and options on foreign currencies may be traded
on foreign exchanges. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of
foreign currencies or securities. The value of such positions
also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in
the United States of data, on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
C-7
APPENDIX D
ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES
Territory and Population
The United Mexican States ("Mexico") occupies a territory of
1.96 million square kilometers (756 thousand square miles). To
the north, Mexico shares a border with the United States of
America, and to the south it has borders with Guatemala and
Belize. Its coastline is along both the Gulf of Mexico and the
Pacific Ocean. Mexico comprises 31 states and a Federal District
(Mexico City). It is the second most populous nation in Latin
America, with an estimated population of 91 million.
Mexico's three largest cities are Mexico City, Guadalajara
and Monterrey, with estimated populations in 1990 of 14.9
million, 2.8 million and 2.5 million, respectively. Due to
improved economic and social conditions and better medical care,
the annual rate of population growth averaged 3.5% in the 1960s
and 1970s and 2.2% in the 1980s. In recent years, Government
efforts concerning family planning and birth control, together
with declining birth rates among women under 35 and those living
in urban areas (where approximately 70% of the population lives)
have resulted in a reduction of such rate to an estimated 2.1% at
December 31, 1990.
Government
The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
established Mexico as a Federal Republic and provides for the
separation of the executive, legislative and judicial branches.
The President and the members of Congress are elected by popular
vote of Mexican citizens over 18 years of age.
Executive authority is vested in the President, who is
elected for a single six-year term. The executive branch
consists of 18 Ministries, the Attorney General, the Federal
District Department and the Attorney General of Mexico City.
Legislative authority is vested in the Congress, which is
composed of the Senate and the Chamber of Deputies. Senators
serve a six-year term. Deputies serve a three-year term, and
neither Senators nor Deputies may serve consecutive terms in the
same chamber. The Senate has 128 members, two for each state and
two for the Federal District. The Chamber of Deputies has 500
members, of whom 300 are elected by direct vote from the
electoral districts, and 200 are selected by a system of
D-1
proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber. Judicial
authority is vested in the Supreme Court of Justice, circuit and
district courts. The Supreme Court has 21 members who, subject
to ratification by the Senate, are appointed for life by the
President.
Politics
The Partido Revolucionario Instituctional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and has held a majority in General
Congress. Until 1989 it had also won all of the state
governorships. The oldest opposition party in Mexico is the
Partido Accion Nacional ("PAN"). The third major party in Mexico
is the Partido de la Revolucion Democratica ("PRD").
On August 21, 1994, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
1994. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PRI, Ernesto Zedillo Ponce de Leon, won the Presidential election
with 50.2% of the votes, the candidate of the PAN was second with
26.7% of the votes and the PRD candidate was third with 17.1% of
the votes. With respect to the Congressional elections, the PRI
maintained its majority in both chambers, with 93 seats in the
Senate and 300 seats in the Chamber of Deputies. The PAN has the
second largest representation with 25 seats in the Senate and 119
seats in the Chamber of Deputies and the PRD the third largest
representation with 10 seats in the Senate and 71 seats in the
Chamber of Deputies.
In January 1994, an area in the southern state of Chiapas
experienced civil unrest, including armed attacks on several
villages. The Federal Government responded immediately by
providing support to the local authorities, agreeing to
accelerate the disbursement of expenditures in connection with
social programs that were provided for in the 1994 budget and
publicly offering to negotiate a peaceful resolution that would
address the underlying concerns of the local population. Despite
the Federal Government's attempt to resolve the situation,
sporadic attacks have continued and the area of conflict expanded
in December 1994. In addition, in December 1994, the PRI
candidate, Mr. Eduardo Robledo Rincon, became the Governor of
Chiapas amid speculations of election fraud. His election and
subsequent actions, before his resignation in February 1995, led
to more tension between the rebels and the Government. The
Mexican military, in early February 1995, conducted an operation
to restore order in Chiapas. After restoring order, President
Zedillo ordered the military to halt its offensive, offered
D-2
amnesty to the rebels and urged them to return to negotiating a
peaceful settlement.
In addition to the civil unrest in Chiapas, certain national
developments have led to disillusionment among the electorate
with the institutions of government. These events were the
assassination of Luis Donaldo Colosio, the likely successor to
former President Salinas and the murder of Mr. Jose Francisco
Ruiz Massieu, a high-ranking PRI official. The government's
initial response to investigations into these deaths resulted in
the resignation ultimately of a special prosecutor in one case,
and the resignation of a citizens commission in the other case.
Continuing the reform of the political system, and in
response to the civil unrest in Chiapas and the economic turmoil
facing Mexico resulting from the devaluation of the Peso (as
described below), the Mexican Government and leaders of the PRI
signed an agreement with the opposition parties on January 17,
1995, to continue to democratize the country's political system.
Changes would include controls on fund-raising and campaign
spending, full access to the media for the opposition parties and
the complete independence of the federal elections agency. This
pact may also lead to new elections in Tabasco and Chiapas, where
disputed elections were held last year.
On February 13, 1995, the PRI suffered its worst election
defeat in sixty years when the PAN won almost every major
elective office in the state of Jalisco. It is only the third
time in the PRI's history that it has accepted a defeat in a
state-wide election. Additional state-wide elections are
scheduled throughout 1995, the effect of this recent election
result on the upcoming elections is not clear.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank of
Mexico. It is the Federal Governments' primary instrument for
the execution of monetary policy and the regulation of currency
and credit. It is authorized by law to regulate interest rates
payable on time deposits, to establish minimum reserve
requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of
Mexico is the Peso. Mexico repealed its exchange control rules
in 1991 and now maintains only a market exchange rate.
A constitutional amendment relating to Banco de Mexico's
activities and role within the Mexican economy became effective
on August 23, 1993. The amendment's purpose was to reinforce the
independence of Banco de Mexico, which may in the future act as a
counterbalance to the executive and legislative branches in
fiscal policy matters. The amendment significantly strengthens
D-3
Banco de Mexico's authority with respect to monetary policy,
foreign exchange and related activities and the regulation of the
financial services industry. On April 1, 1994, a new law
governing the activities of Banco de Mexico became effective.
The new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional
amendment described above and also established a Foreign Exchange
Commission charged with determining the nation's exchange rate
policies.
Trade Reform
Mexico has been a member of the General Agreement on Tariffs
and Trade ("GATT") since 1986. Mexico has also entered into
NAFTA with the United States and Canada. In addition, Mexico
signed a framework for a free trade agreement in 1992 with Costa
Rica, El Salvador, Guatemala, Honduras and Nicaragua and entered
into a definitive free trade agreement with Costa Rica in April
1994. A free trade agreement between Mexico and Chile went into
effect on January 1, 1992. A free trade agreement with Colombia
and Venezuela was signed in June 1994 and a similar agreement
with Bolivia was signed in September 1994; both agreements
entered into force in January 1995. In connection with the
implementation of NAFTA, amendments to several laws relating to
financial services (including the Banking Law and the Securities
Market Law) became effective on January 1, 1994. These measures
permit non-Mexican financial groups and financial intermediaries,
through Mexican subsidiaries, to engage in various activities in
the Mexican financial system, including banking and securities
activities.
Economic Information Regarding Mexico
During the period from World War II through the mid-1970's,
Mexico experienced sustained economic growth. During the mid
1970's, Mexico experienced high inflation and, as a result, the
government embarked on a high-growth strategy based on oil
exports and external borrowing. The economy suffered a set back
in 1981 because of a severe drop in oil prices and high interest
rates that substantially increased the country's external debt
service obligations. With no new lending from international
creditors, the Peso was devalued and inflation again rose
sharply. Through much of the 1980's, the Mexican economy
continued to experience high inflation and large foreign
indebtedness. In February 1990, Mexico became the first Latin
American country to reach an agreement with external creditor
banks and multi-national agencies under the U.S. Treasury's
approach to debt reduction known as the "Brady Plan." As part of
the Brady Plan, commercial banks and Mexico agreed to debt
reduction and new financing in a set of agreements comprising the
1989-1992 Financing Package. The implementation of this package
D-4
resulted in a substantial reduction in Mexico's foreign debt and
debt service obligations.
The value of Peso has been central to the performance of the
Mexican economy. From late 1982 until November 11, 1991, Mexico
maintained a dual foreign exchange rate system, with a
"controlled" rate and a "free market" rate. The controlled
exchange rate applied to certain imports and exports of goods,
advances and payments of registered foreign debt and funds used
in connection with the in-bond industry (the industry is
comprised of companies which import raw materials without paying
a duty) funds used for payments of royalties and technical
assistance under registered agreements requiring such payments.
The free market rate was used for all other types of
transactions. The dual system assisted in controlling the value
of the Mexican Peso, particularly from 1983 to 1985. In later
years the difference between the two rates was not significant.
Mexico has since repealed the controlled rate.
Under economic policy initiatives implemented since December
1987, the Mexican government introduced a schedule of gradual
devaluations of the Mexican Peso that initially amounted to an
average depreciation of the Mexican Peso against the U.S. Dollar
of one Mexican Peso per day. On May 28, 1990, the Mexican Peso
began devaluing by an average of .80 Mexican Pesos per day
instead of one Mexican Peso per day. On November 12, 1990 this
average was decreased to .40 Mexican Pesos per day and on
November 11, 1991 the daily devaluation rate was lowered to .20
Mexican Pesos per day.
On January 1, 1993, the Mexican Government introduced a new
currency, the New Peso. Each New Peso is worth 1,000 old Mexican
Pesos. The New Pesos and old Mexican Pesos were to continue to
be circulated for at least a year with Mexican businesses being
required to post prices in both pesos. At that time, the Mexican
government stated that the New Peso (hereinafter, the "Peso") was
not a devaluation but a move to simplify the Mexican currency.
Throughout 1993 and most of 1994, the U.S. Dollar exchange
rate was allowed to fluctuate within a band that widened daily.
The ceiling of the band, which is the maximum selling rate,
depreciated at a daily rate of 0.0004 Pesos (equal to
approximately 4.5% per year), while the minimum buying rate
remained fixed.
RECENT DEVELOPMENTS. On December 20, 1994, the Mexican
Government announced a new policy that would allow a more
substantial yet still controlled devaluation of the Mexican Peso.
On December 22, 1994 the Mexican Government announced that it
would not continue with the policy announced two days earlier and
it would instead permit the Peso to float against other
D-5
currencies, resulting in a continued decline against the U.S.
Dollar. On December 23, 1994 the exchange rate was 4.67 Pesos to
the U.S. Dollar, and on January 4, 1995 it had fallen further to
5.57 to the U.S. Dollar.
On January 12, 1995, President Clinton proposed a plan to
help stabilize the Mexican economy. Under terms of the proposal,
the United States would guarantee $40 billion in new loans to
Mexico to be used in the event of a default on outstanding bonds
or loans. In response to President Clinton's plan, the Peso
gained approximately 8% in one day against the U.S. Dollar.
During the next two weeks as it appeared the plan would not be
approved by Congress, the Peso fell again, reaching a new low on
January 31, 1995 of 6.35 Pesos to the U.S. Dollar or an effective
devaluation of approximately 40% since December 20, 1994.
With foreign exchange reserves down from an estimated $30
billion in February 1994 to $6 billion in December 1994 and $3.5
billion at the end of January 1995, there existed significant
concern about the possibility of a Mexican government default on
the approximately $11 billion in Tesobonos maturing from February
to April 1995. Tesobonos are U.S. dollar-denominated Mexican
Government bonds with a face value of $1,000. The purchase price
of a Tesobono is the Peso equivalent of $1,000 on the day the
bond is acquired. On the date the bond matures, an amount equal
to the principal plus interest will be paid in Pesos at the
exchange rate in effect on the date the bond matures.
During January 1995, with foreign investors estimated to be
holding 70% of outstanding Cetes and 80% of outstanding
Tesobonos, it became imperative that Mexico restore foreign
investor confidence. The obligation to repay the Tesobonos was a
significant cause of Mexico's economic turmoil, both because of
the size of the debt and the continuing devaluation of the Peso.
On January 24, 1995, demand for Tesobonos fell dramatically from
the previous week, with interest rates rising to more than 26%.
During this same time, the prices of Mexican Brady Bonds had
decreased by approximately 23%.
On January 31, 1995, President Clinton announced a new plan
that would not require Congressional approval in order to be
implemented. Under the plan, the United States will exchange up
to $20 billion in foreign exchange reserves for Dollars, which,
in turn, will be swapped for Pesos. Mexico has an obligation to
return the Dollars within three to five years. The Federal
Reserve will make available to Mexico up to $6 billion in short-
term loans. The International Monetary Fund will provide $17.8
billion in five-year loans and the Bank for International
Settlements will provide $10 billion in credit to Mexico. In
addition, Canada pledged $1 billion and Latin American nations
pledged $1 billion in credit to Mexico. Under the terms of the
D-6
plan, Mexico has an obligation to pay fees for the use of the
loan guarantees and has pledged oil revenues as collateral for
loan guarantees from the United States. In addition, Mexico will
be required to adhere to a program of economic reform, which will
include a reduction in government spending, slowing the growth of
the money-supply and the privatization of more industries.
It is unclear what effect, if any, these recent developments
will have on the value of the Peso or on the Mexican economy.
Statistical and Related Information
Concerning Mexico
The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning
inflation rates, historical information regarding the Mexican
gross domestic product and information concerning interest rates
on certain Mexican Government Securities. Historical information
is not necessarily indicative of future fluctuations or exchange
rates. In 1982, Mexico imposed strict foreign exchange controls
which shortly thereafter were relaxed and were eliminated in
1991.
CURRENCY EXCHANGE RATES. There is no assurance that future
regulatory actions in Mexico would not affect the Fund's ability
to obtain U.S. Dollars in exchange for Mexican Pesos.
The following table sets forth the exchange rates of the
Mexican Peso to the U.S. Dollar with respect to each year from
1981 to 1994 and the months of January and February 1995.
D-7
Free Market Rate Controlled Rate
________________ _______________
End of End of
Period Average Period Average
______ ________ _______ _______
1981 26 24 -- --
1982 148 57 96 57
1983 161 150 143 120
1984 210 185 192 167
1985 447 310 371 256
1986 915 637 923 611
1987 2.209 1.378 2.198 1.366
1988 2.281 2.273 2.257 2.250
1989 2.681 2.483 2.637 2.453
1990 2.943 2.838 2.939 2.807
1991 3.075 3.016 3.065* 3.007*
1992 3.119 3.094 -- --
1993 3.192 3.155 -- --
1994 5.325 5.075 -- --
January 1995 . 5.695
February 1995
* Through November 10, 1991.
Source: Banco de Mexico.
INFLATION AND CONSUMER PRICES. Through much of the 1980's,
the Mexican economy continued to be affected by high inflation,
low growth and high levels of domestic and foreign indebtedness.
The annual inflation rate, as measured by the consumer price
index, rose from 28.7% in December 1981 to 159.2% in December
1987. In December 1987, the Mexican Government agreed with labor
and business to curb the economy's inflationary pressures by
freezing the surge in wages and prices. The Pacto de Solidaridad
Economica (Pact for Economic Solidarity, the "PSE") was announced
in December 1987 and included the implementation of restrictive
fiscal and monetary policies, the elimination of trade barriers
and the reduction of import tariffs. The PSE was renamed the
Pacto para las Estabilidad y el Crecimiento Economica (Pact for
Stability and Economic Growth, the "PECE") in November 1988. The
PECE has been extended on five occasions. After substantive
increases in public sector prices and utility rates, price
controls were introduced. These policies lowered the consumer
inflation rate from 159.2% in 1987, to 19.7% in 1989, 29.9% in
1990, 18.8% in 1991, 11.9% in 1992, and 8.0% in 1993.
Under the PECE, the prices of certain goods and services
provided by the public sector (particularly gasoline, energy for
industrial use and utility services) were increased. The private
D-8
sector agreed to accept the increases without increasing private
sector prices. Furthermore, the government committed itself to
implementing measures to reduce agricultural sector costs.
On October 3, 1993, the 1993-94 PECE went into effect. The
purposes of that PECE, which was effective through December 31,
1994, were essentially the same as those of its predecessor
pacts. The Government promised to maintain fiscal discipline and
a balanced budget. Mexico's foreign exchange policy remains
unchanged. The 1993-94 PECE set an inflation target of 5% for
1994. In addition, the Government agreed to reduce the highest
income tax rate from 35% to 34% and to reduce (for the next two
years) the withholding tax applicable to interest payments on
external debt payable to certain financial institutions and on
publicly issued external debt from 15% to 4.9%. In order to
assure industry of stable prices for certain factors of
production, the government has agreed to limit annual increases
in the price of gasoline (except in the border region with the
United States) to a maximum of 5% annually. Commercial and
residential electricity rate increases were also limited to 5%.
As the Mexican economy stabilized, there has been a gradual
reduction in the number of goods and services whose prices are
covered by the original PECE, the 1992-93 PECE and the 1993-94
PECE.
On September 24, 1994, the government, together with the
business and labor sectors, entered into a new agreement that
extends the 1993-94 PECE for 1995. That agreement became
effective on January 1, 1995. Its main points are as follows:
(i) an inflation target of 4% for 1995; (ii) a 4% GDP growth
target for 1995; (iii) an increase in salaries by 4%, together
with a productivity increase, the terms of which are yet to be
determined; (iv) the maintenance of the current foreign exchange
policy; (v) the creation of an investment fund to be financed
with the proceeds of privatizations in order to encourage the
participation of the private sector in infrastructure projects;
(vi) gradual increases in the prices of gasoline and electricity,
in amounts not to exceed a 4% increase in 1995; (vii) the
creation of tax benefits for workers receiving certain minimum
salaries; and (viii) a reduction of asset taxes to 1.8% (together
with other benefits relating to asset taxes).
On January 3, 1995, in response to the economic turmoil
following the devaluation of the Peso, President Zedillo
announced an emergency economic plan. The plan reiterates most
of the projections contained in the 1993-94 PECE, but modifies
the inflation projection (increased to 20%) and lowers GDP growth
target (to approximately 1%) for 1995. In addition, President
Zedillo reiterated that taxes would not be increased, Government
spending would decrease by approximately 1.3% of GDP, wages would
be allowed to increase by no more than 7% and a Fiscal Advisory
D-9
Committee would be created to examine Mexico's fiscal
legislation. It is unclear what effect, if any, these policies
will have on the Mexican economy.
CONSUMER PRICE INDEX. The following table sets forth the
changes in the Mexican consumer price index for each of the
thirteen years ended December 31, 1994.
Annual
Increases in
National Consumer
Price Index
_____________________
1981 28.7%
1982 98.9
1983 80.8
1984 59.2
1985 63.7
1986 105.7
1987 159.2
1988 51.7
1989 19.7
1990 29.9
1991 18.8
1992 11.9
1993 8.0
1994 7.1
Source: Banco de Mexico.
MEXICAN GROSS DOMESTIC PRODUCT. The following table sets
forth certain information concerning Mexico's GDP for the years
1981 through 1993 at historical and constant prices.
D-10
Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1985 Prices Constant Prices
________________ _______________ _______________
(billions of Mexican Old Pesos) (percentage)
1981 6,128 46,795 7.9%
1982 9,798 46,538 (0.5)
1983 17,879 44,548 (4.3)
1984 29,472 46,195 3.7
1985 47,392 47,392 2.6
1986 79,191 45,613 (3.8)
1987 193,312 46,460 1.9
1988 390,451 47,039 1.2
1989 507,618 48,613 3.3
1990 686,406 50,774 4.4
1991 865,166 52,615 3.6
1992 1,019,156 54,010 2.6
1993 1,122,928 54,337 0.4
Source: Banco de Mexico.
D-11
INTEREST RATES. The following table sets forth the average
yield as of the date of issuance on 28-day and 91-day Cetes and
Tesobonos for the periods listed below:
Average Cetes and Tesobonos Rates
---------------------------------
28-Day 91-Day 28-Day 91-Day
Cetes Cetes Tesobonos Tesobonos
----- ----- --------- ---------
1989:
Jan.-June 51.1% 51.5% --- ---
July-Dec. 38.9 38.0 --- 15.1%
1990:
Jan.-June 41.2 40.7 --- ---
July-Dec. 28.3 29.4 12.0% ---
1991:
Jan.-June 21.2 21.7 --- ---
July-Dec. 17.3 18.0 9.1 ---
1992:
Jan.-June 13.8 13.8 7.5 ---
July-Dec. 17.4 18.0 4.9 4.0
1993:
Jan.-June 16.4 17.3 4.1 5.8
July-Dec. 13.4 13.6 4.0
5.1
1994:
Jan.-Oct. 14.7 15.1 7.0
6.6
November 13.9 14.8 ---
7.3
December 31.0 32.0 ---
10.5
1995:
January 37.0 38.0 --- 25.0
Source: Banco de Mexico
D-12
00250109.AG2
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Registrant's Prospectus filed herewith:
Financial Highlights
Included in Registrant's Statement of Additional
Information:
Portfolio of Investments, October 31, 1994
Statement of Assets and Liabilities, October 31,
1994
Statement of Operations, year ended October 31, 1994
Statement of Changes in Net Assets, years ended
October 31, 1994 and October 31, 1993
Notes to Financial Statements, October 31, 1994
Financial Highlights - for the years ended October
31, 1994, October 31, 1993 and October 31, 1992 and
the period December 3, 1990 (commencement of
operations) through October 31, 1991
Report of Independent Auditors
All other schedules are either omitted because they are
not required under the related instructions, they are
inapplicable, or the required information is presented
in the financial statements or notes which are included
in the Statement of Additional Information of the
Registration Statement.
(b) Exhibits
(1) Copy of amended and restated Articles of
Incorporation of the Registrant - Incorporated herein by
reference from Exhibit 1 to Pre-Effective Amendment No.
1 of Registrant's Registration Statement on Form N-1A
(File Nos. 33-37512 and 811-6263), filed on November 16,
1990.
(2) Copy of existing By-Laws of the Registrant -
Incorporated herein by reference from Exhibit 2 to
Registrant's Registration Statement on Form N-1A (File
Nos. 33-37512 and 811-6263), filed on October 31, 1990.
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(3) Not applicable.
(4) Specimen of Stock Certificate - Incorporated
herein by reference from Exhibit 4 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-37512
and 811-6263), filed on October 31, 1990.
(5) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference to Other Exhibits to Registrant's Registration
Statement on Form N-1A (File Nos. 33-37512 and 811-6263)
filed with the Securities and Exchange Commission on
December 30, 1992.
(6) (a) Distribution Services Agreement between
the Registrant and Alliance Fund Distributors, Inc. -
Incorporated by reference to Other Exhibits to
Registrant's Registration Statement on Form N-1A (file
Nos. 33-37512 and 811-6263) filed with the Securities
and Exchange Commission on December 30, 1993.
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers
offering shares of Registrant - Incorporated by
reference to Other Exhibits to Registrant's Registration
Statement on Form N-1A (File Nos. 33-37512 and 811-6263)
filed with the Securities and Exchange Commission on
December 30, 1992.
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected agents
making available shares of Registrant - Incorporated by
reference to Other Exhibits to Registrant's Registration
Statement on Form N-1A (File Nos. 33-37512 and 811-6263)
filed with the Securities and Exchange Commission on
December 30, 1992.
(7) Not applicable.
(8) Copy of Custodian Contract between the
Registrant and Brown Brothers Harriman & Co. -
Incorporated by reference from Exhibit 8 to Post-
Effective Amendment No. 1 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-37512 and 811-
6263), filed on June 18, 1991.
(9) Copy of Transfer Agency Agreement between the
Registrant and Alliance Fund Services. Inc. -
Incorporated herein by reference from Exhibit 9 to
Registrant's Registration Statement on Form N-1A (File
Nos. 33-37512 and 811-6263), filed on June 18, 1991.
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(10) Not applicable.
(11) Consent of Independent Auditors - filed
herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Schedule for computation of performance
quotations - Incorporated by reference from Exhibit 16
to Registrant's Registration Statement on Form N-1A
(File Nos. 33-37512 and 811-6263) filed on October 31,
1990.
(27) Financial Data Schedule - Filed herewith.
Other Exhibits: Powers of attorney of Messrs.
Dievler, Carifa, Foulk and White - Incorporated herein
by reference from Post-Effective Amendment No. 1 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-37512 and 811-6263) filed on June 18, 1991.
Powers of Attorney of Messrs. Dobkin, Michel, Hester and
Ms. Block - Incorporated by reference to Other Exhibits
to Registrant's Registration Statement on Form N-1A
(File Nos. 33-37512 and 811-6263) filed with the
Securities and Exchange Commission on December 30, 1992.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
Registrant had as of February 3, 1995, 3,310 record
holders of shares of Common Stock.
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
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Corporation Law of the State of Maryland and as set
forth in Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 in response to Item
24, Article VII and Article VIII of the Registrant's By-
laws filed as Exhibit 2 in response to Item 24 and
Section 7 of the proposed Distribution Services
Agreement filed as Exhibit 6(a) in response to Item 24,
all as set forth below. The liability of the
Registrant's directors and officers is dealt with in
Article EIGHTH of Registrant's Articles of
Incorporation, and Article VII, Section 7 and Article
VIII, Section 1 through Section 6 of the Registrant's
By-laws, as set forth below. The Investment Adviser's
liability for any loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the proposed
Advisory Agreement filed as Exhibit 5 in response to
Item 24, as set forth below.
Section 2-418 of the Maryland General Corporation Law
reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meaning indicated.
(1) "Director" means any person who is or was a
director of a corporation and any person who, while a
director of a corporation, is or was serving at the
request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger,
consolidation, or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director,
the office of director in the corporation; and
(ii) When used with respect to a person
other than a director as contemplated in subsection (j),
the elective or appointive office in the corporation
held by the officer, or the employment or agency
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relationship undertaken by the employee or agent in
behalf of the corporation.
(iii) "Official capacity" does not include
service for any other foreign or domestic corporation or
any partnership, joint venture, trust, other enterprise,
or employee benefit plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in
a proceeding.
(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative.
(b)(1) A corporation may indemnify any
director made a party to any proceeding by reason of
service in that capacity unless it is established that:
(i) The act or omission of the director
was material to the matter giving rise to the
proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an
improper personal benefit in money, property, or
services; or
(iii) In the case of any criminal
proceeding, the director had reasonable cause to believe
that the act or omission was unlawful.
(2) (i) Indemnification may be against
judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by the director in connection
with the proceeding.
(ii) However, if the proceeding was one by
or in the right of the corporation, indemnification may
not be made in respect of any proceeding in which the
director shall have been adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding by
judgment, order or settlement does not create a
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presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the
director did not meet that standard of conduct.
(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to the
director, whether or not involving action in the
director's official capacity, in which the director was
adjudged to be liable on the basis that personal benefit
was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful,
on the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this section
shall be indemnified against reasonable expenses
incurred by the director in connection with the
proceeding.
(2) A court of appropriate jurisdiction
upon application of a director and such notice as the
court shall require, may order indemnification in the
following circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph (1) of this
subsection, the court shall order indemnification, in
which case the director shall be entitled to recover the
expenses of securing such reimbursement; or
(ii) If it determines that the director is
fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not
the director has met the standards of conduct set forth
in subsection (b) of this section or has been adjudged
liable under the circumstances described in subsection
(c) of this section, the court may order such
indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding
by or in the right of the corporation or in which
liability shall have been adjudged in the circumstances
described in subsection (c) shall be limited to
expenses.
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(3) A court of appropriate jurisdiction may be
the same court in which the proceeding involving the
director's liability took place.
(e)(1) Indemnification under subsection (b) of
this section may not be made by the corporation unless
authorized for a specific proceeding after a
determination has been made that indemnification of the
director is permissible in the circumstances because the
director has met the standard of conduct set forth in
subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a
majority vote of a quorum consisting of directors not,
at the time, parties to the proceeding, or, if such a
quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two or more
directors not, at the time, parties to such proceeding
and who were duly designated to act in the matter by a
majority vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel selected by
the board or a committee of the board by vote as set
forth in subparagraph (i) of this paragraph, or, if the
requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a
majority vote of the full board in which director who
are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses shall be
made in the same manner as the determination that
indemnification is permissible. However, if the
determination that indemnification is permissible is
made by special legal counsel, authorization of
indemnification and determination as to reasonableness
of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection
for selection of such counsel.
(4) Shares held by directors who are parties
to the proceeding may not be voted on the subject matter
under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may be paid or
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reimbursed by the corporation in advance of the final
disposition of the proceeding, upon receipt by the
corporation of:
(i) A written affirmation by the director
of the director's good faith belief that the standard of
conduct necessary for indemnification by the corporation
as authorized in this section has been met; and
(ii) A written undertaking by or on behalf
of the director to repay the amount if it shall
ultimately be determined that the standard of conduct
has not been met.
(2) The undertaking required by subparagraph
(ii) of paragraph (1) of this subsection shall be an
unlimited general obligation of the director but need
not be secured and may be accepted without reference to
financial ability to make the repayment.
(3) Payments under this subsection shall be
made as provided by the charter, bylaws, or contract or
as specified in subsection (e) of this section.
(g) The indemnification and advancement of
expenses provided or authorized by this section may not
be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be
entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise,
both as to action in an official capacity and as to
action in another capacity while holding such office.
(h) This section does not limit the
corporation's power to pay or reimburse expenses
incurred by a director in connection with an appearance
as a witness in a proceeding at a time when the director
has not been made a named defendant or respondent in the
proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit plan
where the performance of the director's duties to the
corporation also imposes duties on, or otherwise
involves services by, the director to the plan or
participants or beneficiaries of the plan:
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(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the
performance of the director's duties for a purpose
reasonably believed by the director to be in the
interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be
indemnified as and to the extent provided in subsection
(d) of this section for a director and shall be
entitled, to the same extent as a director, to seek
indemnification pursuant to the provisions of subsection
(d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or agent of the
corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify
and advance expenses to an officer, employee, or agent
who is not a director to such further extent, consistent
with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or
contract.
(k)(1) A corporation may purchase and maintain
insurance on behalf of any person who is or was a
director, officer, employee, or agent of the
corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving
at the request, of the corporation as a director,
officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit
plan against any liability asserted against and incurred
by such person in any such capacity or arising out of
such person's position, whether or not the corporation
would have the power to indemnify against liability
under the provisions of this section.
(2) A corporation may provide similar
protection, including a trust fund, letter of credit, or
surety bond, not inconsistent with this section.
C-9
(3) The insurance or similar protection may be
provided by a subsidiary or an affiliate of the
corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with this section,
if arising out of a proceeding by or in the right of the
corporation, shall be reported in writing to the
stockholders with the notice of the next stockholders'
meeting or prior to the meeting."
Article EIGHTH of the Registrant's Articles of Incorporation reads
as follows:
"(1) To the full extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer
of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at
the time a person serves as a director or officer of the
Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability
is asserted.
"(2) The Corporation shall indemnify and
advance expenses to its currently acting and its former
directors to the full extent that indemnification of
directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as
its directors and to such further extent as is
consistent with law. The Board of Directors may by By-
Law, resolution or agreement make further provisions for
indemnification of directors, officers, employees and
agents to the full extent permitted by the Maryland
General Corporation Law.
"(3) No provision of this Article shall be
effective to protect or purport to protect any director
or officer of the Corporation against any liability to
the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
"(4) References to the Maryland General
Corporation Law in this Article are to the law as from
time to time amended. No amendment to the Articles of
Incorporation of the Corporation shall affect any right
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of any person under this Article based on any event,
omission or proceeding prior to such amendment."
The Advisory Agreement between Registrant and Alliance
Capital Management L.P. provides that Alliance Capital
Management L.P. will not be liable under such agreements
for any mistake of judgment or in any event whatsoever
except for lack of good faith and that nothing therein
shall be deemed to protect Alliance Capital Management
L.P. against any liability to Registrant or its security
holders to which it would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in
the performance of its duties thereunder, or by reason
of reckless disregard of its duties and obligations
thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. provides
that the Registrant will indemnify, defend and hold
Alliance Fund Distributors, Inc., and any person who
controls it within the meaning of Section 15 of the
Investment Company Act of 1940, free and harmless from
and against any and all claims, demands, liabilities and
expenses which Alliance Fund Distributors, Inc. or any
controlling person may incur arising out of or based
upon any alleged untrue statement of a material fact
contained in Registrant's Registration Statement,
Prospectus or Statement of Additional Information or
arising out of, or based upon any alleged omission to
state a material fact required to be stated in any one
of the foregoing or necessary to make the statements in
any one of the foregoing not misleading.
The foregoing summaries are qualified by the entire text
of Registrant's Articles of Incorporation, the Advisory
Agreement between Registrant and Alliance Capital
Management L.P. and the Distribution Services Agreement
between Registrant and Alliance Fund Distributors, Inc.
filed herewith as Exhibits 1, 5 and 6(a), respectively,
in response to Item 24 and each of which are
incorporated by reference herein.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be
permitted to directors, officer and controlling persons
of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
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indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance, (1)
the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or (3)
a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
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Article VII, Section 7 of the Registrant's By-laws reads as
follows:
"Section 7. Insurance Against Certain Liabilities. The
Corporation shall not bear the cost of insurance that
protects or purports to protect directors and officers
of the Corporation against any liabilities to the
Corporation or its security holders to which any such
director or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct
of his office."
ARTICLE VIII, Section 1 through Section 6 of the Registrant's By-
laws reads as follows:
"Section 1. Indemnification of Directors and Officers.
The Corporation shall indemnify its directors to the
fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify its officers to the same
extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify
its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan to the fullest extent consistent
with law. The indemnification and other rights provided
by this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators
of such a person. This Article shall not protect any
such person against any liability to the Corporation or
any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office ("disabling
conduct").
"Section 2. Advances. Any current or former director
or officer of the Corporation seeking indemnification
within the scope of this Article shall be entitled to
advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with
the matter as to which he is seeking indemnification in
the manner and to the fullest extent permissible under
the Maryland General Corporation Law. The person
seeking indemnification shall provide to the Corporation
a written affirmation of his good faith belief that the
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standard of conduct necessary for indemnification by the
Corporation has been met and a written undertaking to
repay any such advance if it should ultimately be
determined that the standard of conduct has not been
met. In addition, at least one of the following
additional conditions shall be met: (a) the person
seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his
undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who
are neither "interested persons" as defined in Section
2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the proceeding ("disinterested
non-party directors"), or independent legal counsel, in
a written opinion, shall have determined, based on a
review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there
is reason to believe that the person seeking
indemnification will ultimately be found to be entitled
to indemnification.
"Section 3. Procedure. At the request of any person
claiming indemnification under this Article, the Board
of Directors shall determine, or cause to be determined,
in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this
Article have been met. Indemnification shall be made
only following: (a) a final decision on the merits by a
court or other body before whom the proceeding was
brought that the person to be indemnified was not liable
by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified
was not liable by reason of disabling conduct by (i) the
vote of a majority of a quorum of disinterested non-
party directors or (ii) an independent legal counsel in
a written opinion.
"Section 4. Indemnification of Employees and Agents.
Employees and agents who are not officers or directors
of the Corporation may be indemnified, and reasonable
expenses may be advanced to such employees or agents, as
may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the
Investment Company Act of 1940.
"Section 5. Other Rights. The Board of Directors may
make further provision consistent with law for
indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement
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or otherwise. The indemnification provided by this
Article shall not be deemed exclusive of any other
right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise.
The rights provided to any person by this Article shall
be enforceable against the Corporation by such person
who shall be presumed to have relied upon it in serving
or continuing to serve as a director, officer, employee,
or agent as provided above.
"Section 6. Amendments. References in this Article are
to the Maryland General Corporation Law and to the
Investment Company Act of 1940 as from time to time
amended. No amendment of these By-laws shall effect any
right of any person under this Article based on any
event, omission or proceeding prior to the amendment."
The Registrant participates in a joint directors and
officers liability insurance policy issued by the ICI
Mutual Insurance Company. Coverage under this policy
has been extended to directors, trustees and officers of
the investment companies managed by Alliance Capital
Management L.P. Under this policy, outside trustees and
directors would be covered up to the limits specified
for any claim against them for acts committed in their
capacities as trustee or director. A pro rata share of
the premium for this coverage is charged to each
investment company and to the Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Mangement L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference herein.
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ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's Principal
Underwriter in connection with the sale of shares of the
Registrant, also acts as Principal Underwriter or
Distributor for the following investment companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Fund
Alliance Global Small Cap Fund, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Stategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund, Inc. II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government
Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Hudson River Trust
The Alliance Portfolios
(b) The following are the Directors and Officers of Alliance
Fund Distributors, Inc. the principal place of business of
which is 1345 Avenue of the Americas, New York, New York,
10105.
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Position and Offices Positions and Offices
Name With Underwriter With Registrant
- ---- -------------------- ---------------------
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark D. Gersten Senior Vice President Treasurer and Chief
Financial Officer
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumseik Senior Vice President
William F. O'Grady Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
James P. Syrett Senior Vice President
Peter J. Szabo Senior Vice President
Richard A. Winge Senior Vice President
Jim A. Yockey Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President Secretary
Robert H. Joseph Vice President &
Controller
Michael T. Anderson Vice President
Kenneth F. Barkoff Vice President
Kevin T. Cannon Vice President
C-17
Mark J. Dunbar Vice President
Linda A. Finnerty Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President
Troy L. Glawe Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Steven P. Hecht Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Mark H. Huston Vice President
Marek E. Lakotko Vice President
Sheila F. Lamb Vice President
Stephen R. Laut Vice President
Thomas Leavitt, III Vice President
Christopher
J. MacDonald Vice President
George O. Martinez Vice President &
Associate General Counsel
John A. McClain Vice President
Gregory T. McCombs Vice President
Daniel D. McGinley Vice President
Matthew P. Mintzer Vice President
Nicole M. Nolan Vice President
Robert T. Pigozzi Vice President
C-18
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Joseph F. Sumanski Vice President
Richard E. Tambourine Vice President
Nicholas K. Willett Vice President
Warren W. Babcock III Assistant Vice President
Benji A. Baer Assistant Vice President
Angela F. Bisagna Assistant Vice President
Casimir F. Bolanowski Assistant Vice President
Maria L. Carreras Assistant Vice President
Leo H. Cook Assistant Vice President
John W. Cronin Assistant Vice President
Richard W. Dabney Assistant Vice President
Gerard P. DiSalvo Assistant Vice President
Sohaila S. Farsheed Assistant Vice President
Leon M. Fern Assistant Vice President
William C. Fisher Assistant Vice President
Joseph W. Gibson Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
Daniel M. Hazard Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Kenneth R. Hill Assistant Vice President
C-19
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Donna M. Lamback Assistant Vice President
David P. Lambert Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Michael F. Mahoney Assistant Vice President
Renate S. Mars Assistant Vice President
Daniel G. McCabe Assistant Vice President
Shawn P. McClain Assistant Vice President
Maura A. McGrath Assistant Vice President
Paul J. McIntyre Assistant Vice President
Charles R. Mechler Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Joanna D. Murray Assistant Vice President
Jeanette M. Nardella Assistant Vice President
William E. Noe Assistant Vice President
Marilyn I. Noonan Assistant Vice President
Robert E. Powers Assistant Vice President
Patrick J. Pung Assistant Vice President
Carol H. Rappa Assistant Vice President
Karen C. Satterberg Assistant Vice President
Raymond S. Scalfani Assistant Vice President
Rodney J. Shull Assistant Vice President
Robert M. Smith Assistant Vice President
William J. Strott Assistant Vice President
Joseph T. Tocyloski Assistant Vice President
C-20
Neil B. Wood Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not Applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other
documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the Rules
thereunder are maintained as follows: journals,
ledgers, securities records and other original records
are maintained principally at the offices of Alliance
Fund Services, Inc., 500 Plaza Drive, Secaucus, New
Jersey 07094 and at the offices of Brown Brothers
Harriman & Co., the Registrant's Custodian, 40 Water
Street, Boston, Massachusetts 02109. All other
records so required to be maintained are maintained at
the offices of Alliance Capital Management L.P., 1345
Avenue of the Americas, New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal
of any Director of the Fund in accordance with Section
16 of the Investment Company Act of 1940.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
C-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all the requirements for
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City and the State of New York, on the 28th
day of February, 1995.
ALLIANCE WORLD INCOME TRUST, INC.
John D. Carifa
By: ___________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
1. Principal
Executive Officer:
Chairman and February 28, 1995
John D. Carifa President
--------------
John D. Carifa
2. Principal Financial and
Accounting Officer: Treasurer and February 28, 1995
Mark D. Gersten Chief Financial
--------------- Officer
Mark D. Gersten
3. All of the Directors:
Ruth Block
John D. Carifa
C-22
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James Hester
Clifford L. Michel
Robert C. White
Edmund P. Bergan, Jr.
By: ---------------------
Edmund P. Bergan, Jr.
(Attorney-in-Fact) February 28, 1995
C-23
INDEX TO EXHIBITS
(11) Consent of Independent Auditors
(27) Financial Data Scheudle
C-24
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the
captions "Financial Highlights" in the Prospectus and
"Shareholder Services - Statements and Reports" and "General
Information - Independent Auditors" in the Statement of
Additional Information and to the use of our report dated
December 27, 1994 in this Registration Statement (Form N-1A
No. 33-37512) of Alliance World Income Trust, Inc.
ERNST & YOUNG LLP
New York, New York
February 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 104,635,784
<INVESTMENTS-AT-VALUE> 104,082,304
<RECEIVABLES> 596,267
<ASSETS-OTHER> 220,303
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,898,874
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,588,978
<TOTAL-LIABILITIES> 1,588,978
<SENIOR-EQUITY> 109,919
<PAID-IN-CAPITAL-COMMON> 132,337,993
<SHARES-COMMON-STOCK> 54,959,488
<SHARES-COMMON-PRIOR> 78,776,657
<ACCUMULATED-NII-CURRENT> 19,326,214
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 48,028,678
<ACCUM-APPREC-OR-DEPREC> (435,552)
<NET-ASSETS> 103,309,896
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,728,325
<OTHER-INCOME> 0
<EXPENSES-NET> 2,023,621
<NET-INVESTMENT-INCOME> 4,704,704
<REALIZED-GAINS-CURRENT> (1,871,590)
<APPREC-INCREASE-CURRENT> 567,711
<NET-CHANGE-FROM-OPS> 3,400,825
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,999,971
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,516,331
<NUMBER-OF-SHARES-REDEEMED> 65,019,367
<SHARES-REINVESTED> 2,789,287
<NET-CHANGE-IN-ASSETS> (46,312,895)
<ACCUMULATED-NII-PRIOR> 19,621,481
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 46,157,088
<GROSS-ADVISORY-FEES> 582,660
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,023,621
<AVERAGE-NET-ASSETS> 118,909,957
<PER-SHARE-NAV-BEGIN> 0
<PAGE>
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
