<PAGE>
As filed with the Securities and Exchange Commission on
July 29, 1998 File Nos. 333-
811-00134
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.
______________________________
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (800) 221-5672
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
______________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management Corporation
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
______________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective
date of this Registration Statement.
It is proposed that this filing will become effective on
August 28, 1998 pursuant to Rule 488 under the Securities Act of
1933.
<PAGE>
CROSS REFERENCE SHEET
Item of Part A Location in
of Form N-14 Prospectus
______________ ___________
1. .............. Cross Reference Sheet; Front Cover Page.
2. .............. Back Cover Page.
3. .............. Fee Table; Synopsis; Risk Factors.
4. .............. Reasons for the Transactions; Information
About the Transactions.
5. .............. Management's Discussion of Performance of
Multi-Market Strategy; Comparison of
Investment Objectives and Policies; Certain
Comparative Information; Additional
Information About the Funds.
6. .............. Comparison of Investment Objectives and
Policies; Certain Comparative Information;
Additional Information About the Funds.
7. .............. Voting Information.
8. .............. Inapplicable.
9. .............. Inapplicable.
Item of Part B Location in Statement
of Form N-14 of Additional Information
______________ _________________________
10................ Cover Page.
11................ Cover Page.
12................ Statement of Additional Information of
Alliance Multi-Market Strategy Trust, Inc.
("Multi-Market Strategy") dated March 2,
1998; See Item 14 below.
13................ Statements of Additional Information, each
dated March 2, 1998, of Alliance World
Income Trust, Inc. ("World Income") and
Alliance Short-Term Multi-Market Trust,
Inc. ("Short-Term Multi-Market"); See
Item 14 below.
<PAGE>
14................ Report of Independent Auditors and
financial statements of Multi-Market
Strategy as of and for the fiscal year
ended October 31, 1997; unaudited financial
statements of Multi-Market Strategy as of
and for the six months ended April 30,
1998; Report of Independent Auditors and
financial statements of World Income as of
and for the fiscal year ended October 31,
1997; unaudited financial statements of
World Income as of and for the six months
ended April 30, 1998; Report of Independent
Auditors and financial statements of Short-
Term Multi-Market as of and for the fiscal
year ended October 31, 1997; unaudited
financial statements of Short-Term Multi-
Market as of and for the six months ended
April 30, 1998; unaudited pro forma
combined financial information as of and
for the twelve months ended June 30, 1998.
<PAGE>
[LOGO OF ALLIANCE CAPITAL]
ALLIANCE WORLD INCOME TRUST, INC.
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
________________________________________________________________
1345 Avenue of the Americas
New York, New York 10105
Toll Free (800) 733-8481
________________________________________________________________
August [ ], 1998
To the Shareholders of
Alliance World Income Trust, Inc. ("World Income") and
Alliance Short-Term Multi-Market Trust, Inc. ("Short-Term
Multi-Market"):
The accompanying Notice of Special Meetings of
Shareholders and Prospectus/Proxy Statement present to the
shareholders of each of World Income and Short-Term Multi-Market
a proposal, to be considered at the Special Meetings of
Shareholders of World Income on October 12, 1998 and of Short-
Term Multi-Market on October 12, 1998, for the assets of each of
World Income and Short-Term Multi-Market to be acquired by
Alliance Multi-Market Strategy Trust, Inc. ("Multi-Market
Strategy"), an open-end investment company also managed by
Alliance Capital Management L.P. ("Alliance"). As the
Prospectus/Proxy Statement is long and detailed, your Board of
Directors thought it desirable to summarize the proposal that
your fund's Directors are recommending for your approval.
It is anticipated that the proposed transactions will
result in substantial benefits to the shareholders of World
Income and Short-Term Multi-Market in that they will enable them
to acquire an investment in a fund with an investment objective
that is similar and that has better historical performance than
either World Income or Short-Term Multi-Market. The Boards of
Directors of World Income and Short-Term Multi-Market have given
full and careful consideration to the proposed acquisitions and
have concluded that the acquisitions are in the best interests of
the funds and their shareholders. The Boards urge the
shareholders of each fund to approve the appropriate proposed
transaction.
If the acquisitions of the assets of World Income and
Short-Term Multi-Market by Multi-Market Strategy are approved by
the shareholders of the respective funds at the October 12, 1998
meetings, the acquisitions are expected to occur shortly
thereafter. At that time, each shareholder of World Income will
receive, in exchange for his or her shares of that fund, Class C
shares of Multi-Market Strategy equal in net asset value at the
close of business on the date of the exchange to the total net
<PAGE>
asset value of the shareholder's shares of World Income. In the
case of Short-Term Multi-Market, each shareholder will receive,
in exchange for his or her Class A, Class B and Class C shares of
that Fund, shares of the same class of Multi-Market Strategy
equal in net asset value at the close of business on the date of
the exchange to the total net asset value of the shareholder's
shares of Short-Term Multi-Market.
Shareholders will not be assessed any sales charge or
other fee in connection with the proposed acquisitions. No gain
or loss will be recognized by shareholders of World Income or
Short-Term Multi-Market as a result of the transfer of assets to
Multi-Market Strategy and the subsequent distribution of shares
of Multi-Market Strategy to shareholders in exchange for their
shares of the respective fund. The closing of one acquisition is
not contingent upon the closing of the other acquisition.
We welcome your attendance at the Special Meetings of
Shareholders. If you are unable to attend, please sign, date and
return the enclosed proxy card promptly in order to spare
additional proxy solicitation expenses.
Sincerely,
2
<PAGE>
[LOGO OF ALLIANCE CAPITAL]
ALLIANCE WORLD INCOME TRUST, INC.
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
____________________________________________________________
1345 Avenue of the Americas
New York, New York 10105
Toll Free (800) 733-8481
____________________________________________________________
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
OF ALLIANCE WORLD INCOME TRUST, INC. AND
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
OCTOBER 12, 1998
To the Shareholders of
Alliance World Income Trust, Inc. ("World Income") and
Alliance Short-Term Multi-Market Trust, Inc. ("Short-
Term Multi-Market"):
Special Meetings of the Shareholders of World Income and
Short-Term Multi-Market (individually, a "Fund" and collectively,
the "Funds") will be held at 1345 Avenue of the Americas, 33rd
Floor, New York, New York 10105 on October 12, 1998 at [ ]
Eastern time (the "Meetings"), for the following purposes:
1. To approve, as to each Fund, an Agreement and Plan of
Reorganization and Liquidation providing for the transfer of all
the assets and all the liabilities of World Income and Short-Term
Multi-Market, respectively, in exchange for shares of Alliance
Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy"), the
distribution of such shares to shareholders of the Funds in
liquidation of the Funds and the subsequent dissolution of Short-
Term Multi-Market and World Income; and
2. To transact such other business as may properly come
before the Meetings or any adjournments thereof.
The Boards of Directors of World Income and Short-Term
Multi-Market have fixed the close of business on August 14, 1998
as the record date for determination of those shareholders
entitled to notice of, and to vote at, the Meetings or any
adjournments thereof. The enclosed proxy is being solicited on
behalf of the Boards of Directors of the Funds. Each shareholder
who does not expect to attend in person is requested to complete,
date, sign and promptly return the enclosed proxy card.
By Order of the
Boards of Directors,
<PAGE>
Edmund P. Bergan, Jr.
Secretary
New York, New York
August [ ], 1998
THE BOARDS OF DIRECTORS OF WORLD INCOME AND SHORT-TERM MULTI-
MARKET RECOMMEND APPROVAL OF THE RELEVANT AGREEMENT AND PLAN OF
REORGANIZATION AND LIQUIDATION
____________________________________________________________
YOUR VOTE IS IMPORTANT
Please indicate your voting instructions on the enclosed
Proxy Card, sign and date it, and return it in the envelope
provided, which needs no postage if mailed in the United States.
In order to save any additional expense of further solicitation,
please mail your proxy promptly.
____________________________________________________________
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
2
<PAGE>
PROSPECTUS/PROXY STATEMENT
ACQUISITION OF THE ASSETS
OF ALLIANCE WORLD INCOME TRUST, INC. and
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
1345 Avenue of the Americas,
New York, New York 10105,
1-800-733-8481
__________________
BY AND IN EXCHANGE FOR SHARES
OF ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
1345 Avenue of the Americas,
New York, New York 10105,
1-800-221-5672
August [ ], 1998
__________________
INTRODUCTION
This Prospectus/Proxy Statement relates to the
solicitation of separate shareholder approvals for the proposed
transfer of all the assets and all the liabilities of Alliance
World Income Trust, Inc. ("World Income") and Alliance Short-Term
Multi-Market Trust, Inc. ("Short-Term Multi-Market") to Alliance
Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy")
(individually, a "Fund" and collectively, the "Funds") in
exchange for shares of Class A, Class B and Class C Common Stock
of Multi-Market Strategy, in the case of Short-Term Multi-Market,
and shares of Class C Common Stock of Multi-Market Strategy in
the case of World Income. Following each exchange, Class A,
Class B and Class C shares of Multi-Market Strategy will be
distributed to the shareholders of Short-Term Multi-Market and
Class C shares of Multi-Market Strategy will be distributed to
shareholders of World Income in liquidation of World Income and
Short-Term Multi-Market. As a result of the proposed
transactions, (i) each holder of Short-Term Multi-Market Class A,
Class B or Class C shares will receive that number of full and
fractional shares of the corresponding class (i.e., Class A,
Class B or Class C, as the case may be) of Multi-Market Strategy
equal in net asset value at the close of business on the date of
the exchange to the net asset value of the holder's Class A,
Class B or Class C shares of Short-Term Multi-Market; and
(ii) each holder of World Income shares of Common Stock will
receive that number of full and fractional Class C shares of
<PAGE>
Multi-Market Strategy equal in net asset value at the close of
business on the date of the exchange to the net asset value of
the holder's World Income shares. Shareholder approval of one
acquisition is independent of shareholder approval of the other
acquisition. Accordingly, the closing of one acquisition is not
contingent upon the closing of the other acquisition.
It is anticipated that the proposed transactions will
result in substantial benefits to the shareholders of World
Income and Short-Term Multi-Market in that the transactions will
enable them to acquire an investment in a fund with an investment
objective that is similar and that has better historical
performance than either World Income or Short-Term Multi-Market.
Like the Class A shares of Short-Term Multi-Market, the Class A
shares of Multi-Market Strategy are sold subject to an initial
sales charge and, in some cases, a contingent deferred sales
charge upon redemption. The Class B shares of Multi-Market
Strategy and Short-Term Multi-Market are sold subject to a
contingent deferred sales charge upon most redemptions within
three years of purchase. The Class C shares of Multi-Market
Strategy and Short-Term Multi-Market are sold without the
imposition of a sales charge either at the time of purchase or,
as long as the shares are held for one year or more, upon
redemption. World Income has only one class of shares, with
properties similar to those of Class C shares of Multi-Market
Strategy, except that World Income offers its shares without any
contingent deferred sales charge. The proposed transactions will
be effected at net asset value without the imposition of any
sales charges or other fees. Class B shares of Multi-Market
Strategy distributed in a transaction will automatically convert
to Class A shares of Multi-Market Strategy in accordance with the
conversion schedule applicable at the time of the original
purchase of the Class B shares surrendered in the transaction.
In addition, the contingent deferred sales charge schedule
applicable to the original purchases of the Class A, Class B and
Class C shares of Short-Term Multi-Market surrendered in the
transaction would be applied to the shares of Multi-Market
Strategy distributed.
Because shareholders of World Income and Short-Term
Multi-Market are being asked to approve transactions that will
result in their receiving shares of Multi-Market Strategy, this
Proxy Statement also serves as a Prospectus for Multi-Market
Strategy. Multi-Market Strategy is a non-diversified open-end
management investment company organized as a Maryland
corporation. The investment objective of Multi-Market Strategy,
which is similar to the investment objectives of World Income and
Short-Term Multi-Market, is to 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
2
<PAGE>
than five years. Multi-Market Strategy pursues its investment
objective by investing in a portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies.
World Income and Short-Term Multi-Market intend to sell
securities prior to the proposed acquisitions to the extent
desirable from the perspective of Multi-Market Strategy's
portfolio. Purchases of portfolio securities by each of World
Income and Short-Term Multi-Market prior to the proposed
acquisitions will be consistent with the investment objectives
and policies of World Income or Short-Term Multi Market and of
Multi-Market Strategy.
THE BOARDS OF DIRECTORS OF WORLD INCOME AND SHORT-TERM
MULTI-MARKET RECOMMEND APPROVAL OF THE RELEVANT
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
This Prospectus/Proxy Statement, which should be
retained for future reference, sets forth concisely the
information about Multi-Market Strategy that a prospective
investor should know before returning the enclosed proxy card.
The Prospectus of The Alliance Bond Funds dated March 2, 1998
(the "Bond Funds Prospectus"), which includes information
concerning Multi-Market Strategy, World Income and Short-Term
Multi-Market, may be obtained without charge by writing to
Alliance Fund Services, Inc., the transfer agent of each of the
Funds, at P.O. Box 1520, Secaucus, New Jersey 07096, or by
calling the transfer agent toll-free at 1-800-221-5672. The
information in the Bond Funds Prospectus pertaining to Multi-
Market Strategy, World Income and Short-Term Multi-Market is
incorporated herein by reference. A Statement of Additional
Information dated August [ ], 1998 (the "Supplementary
Information"), which contains Statements of Additional
Information of Multi-Market Strategy, World Income and Short-Term
Multi-Market, each dated March 2, 1998, has been filed with the
Securities and Exchange Commission (the "Commission") as part of
the Supplementary Information and is incorporated by reference
herein. Copies of the Supplementary Information may be obtained
without charge.
[For bottom of cover page: 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/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.]
3
<PAGE>
FEE TABLE
The tables below set forth information with respect to
shares of Multi-Market Strategy, World Income and Short-Term
Multi-Market and pro forma information for shares of Multi-Market
Strategy after giving effect to the proposed transactions. The
tables were prepared by Alliance Capital Management L.P.
("Alliance"), the investment adviser to the Funds, based on the
net asset, fee and expense levels of the Funds as of June 30,
1998. Because certain of the expenses of Multi-Market Strategy
are relatively fixed, the percentage amounts of "Other Expenses"
and "Total Fund Operating Expenses" for Multi-Market Strategy
following the transactions would be greater than those shown
below to the extent its assets were less than those shown under
"Information About the Transactions - Capitalization" below.
<TABLE>
<CAPTION>
Shares of
Pro Forma
Combined Fund
Shares of (Multi-Market
Multi- Shares of Shares of Strategy Following
Market World Short-Term Either One or Both
Strategy Income Multi-Market of the Transactions)
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
Class A................................ 4.25%(a) ... 4.25%(a) 4.25%(a)
Class B and Class C.................... None ... None None
Common Stock........................... None
Sales charge imposed on
dividend reinvestment.................. None None None None
Deferred sales charge (as
percentage of original purchase
price or redemption proceeds,
whichever is lower)
Class A................................ None(a) ... None(a) None(a)
Class B................................ 3.0% ... 3.0% 3.0%
during the during the during the
first year, first year, first year,
decreasing decreasing decreasing
1.0% 1.0% 1.0
annually to annually to annually to
0% after 0% after 0% after
the third the third the third
year (b) year (b) year (b)
4
<PAGE>
Class C................................ 1.0% during ... 1.0% during 1.0% during
the first the first the first
year, 0% year, 0% year, 0%
thereafter thereafter thereafter
Common Stock........................... None
Redemption fees (as percentage of
amount redeemed)..................... None None None None
Exchange Fee........................... None None None None
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combined Fund
(Multi-Market Strategy Following
Actual Transactions With)
World
Multi- Income and
Market World Short-Term World Short-Term Short Term
Strategy Income Multi-Market Income Multi-Market Multi-Market
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
Management Fees
Class A................ .60% .55% .60% .60% .60%
Class B................ .60% .55% .60% .60% .60%
Class C................ .60% .55% .60% .60% .60%
.65%(c)
12b-1 Fees
Class A................ .30% .30% .30% .30% .30%
Class B................ 1.00% 1.00% 1.00% 1.00% 1.00%
Class C................ 1.00% 1.00% 1.00% 1.00% 1.00%
.90%(c)
Other Expenses(d)
Class A................ .77% .50% .68% .44% .44%
Class B................ .77% .50% .68% .44% .44%
Class C................ .77% .50% .68% .44% .44%
2.11%
Total Fund Operating Expenses
Class A................ 1.67% 1.35% 1.58% 1.34% 1.34%
Class B................ 2.37% 2.05% 2.28% 2.04% 2.04%
Class C................ 2.37% 2.05% 2.28% 2.04% 2.04%
3.66%
</TABLE>
5
<PAGE>
(a) Purchases of Class A shares of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a
1% deferred sales charge on redemptions made within one year
of purchase. See "Purchase and Sale of Shares - How to Buy
Shares" in the Bond Funds Prospectus.
(b) Class B shares automatically convert to Class A shares after
six years. Class B shares of Multi-Market Strategy
distributed in the Transaction will automatically convert to
Class A shares six years following the respective dates of
the original purchases of the Class B shares of each Fund
exchanged in the Transactions.
(c) As stated in the "Synopsis" below, Alliance has agreed to
waive certain fees otherwise payable by World Income. For
the fiscal year ended October 31, 1997, World Income paid
management fees of .49% and Rule 12b-1 fees of .68%.
(d) These expenses include a transfer agency fee payable to
Alliance Fund Services, Inc., an affiliate of Alliance. The
expenses shown do not reflect the application of credits
that reduce Fund expenses.
6
<PAGE>
EXAMPLES
The Examples below show the cumulative expenses
attributable to a $1,000 investment in shares of Multi-
Market Strategy, shares of World Income, shares of Short-
Term Multi-Market and shares of the pro forma combined fund
for the periods specified.
1 year 3 years 5 years 10 years
Multi-Market Strategy
(Actual)
Class A...................... $59 $93 $129 $232
Class B(a)................... $54 $84 $127 $237
Class B(b)................... $24 $74 $127 $237
Class C(a)................... $34 $74 $127 $271
Class C(b)................... $24 $74 $127 $271
Short-Term Multi-Market
(Actual)
Class A.................... $56 $83 $113 $198
Class B(a)................. $51 $74 $110 $204
Class B(b)................. $21 $64 $110 $204
Class C(a)................. $31 $64 $110 $238
Class C(b)................. $21 $64 $110 $238
World Income (Actual).......... $33 $101 $171 $358
Pro Forma Combined Fund
(Multi-Market Strategy
Following Transaction
With World Income)
Class A...................... $58 $90 $125 $222
Class B(a)................... $53 $81 $122 $228
Class B(b)................... $23 $71 $122 $228
Class C(a)................... $33 $71 $122 $262
Class C(b)................... $23 $71 $122 $262
Pro Forma Combined Fund
(Multi-Market Strategy
Following Transaction
With Short-Term Multi-Market)
Class A...................... $56 $83 $113 $197
Class B(a)................... $51 $74 $110 $202
Class B(b)................... $21 $64 $110 $202
Class C(a)................... $31 $64 $110 $237
Class C(b)................... $21 $64 $110 $237
7
<PAGE>
Pro Forma Combined Fund
(Multi-Market Strategy
Following Both Transactions)
Class A...................... $56 $83 $113 $197
Class B(a)................... $51 $74 $110 $202
Class B(b)................... $21 $64 $110 $202
Class C(a)................... $31 $64 $110 $237
Class C(b)................... $21 $64 $110 $237
_____________________________________
(a) 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.
(b) 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.
The purpose of the foregoing table is to assist the
investor in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Long-term
holders of shares may pay aggregate sales charges totaling more
than the economic equivalent of the maximum initial sales charges
permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. The Examples above assume reinvestment
of all dividends and distributions and utilize a 5% annual rate
of return as mandated by Commission regulations. THE EXAMPLES
ARE NOT TO BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. Except as noted in the Examples, the cumulative expenses
attributable to the hypothetical investment are the same whether
or not redemption at the end of the respective periods is
assumed.
SYNOPSIS
This synopsis is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy
Statement, the Bond Funds Prospectus, and the form of Agreement
and Plan of Reorganization and Liquidation attached hereto as
Exhibit A.
Proposed Transactions. At regular meetings held on July
15, 1998, each of the Boards of Directors of World Income and
Short-Term Multi-Market, including the Directors who are not
"interested persons" of each Fund (the "Independent Directors")
within the meaning of the Investment Company Act of 1940 (the
"1940 Act"), approved an Agreement and Plan of Reorganization and
Liquidation (individually, a "Plan", and collectively, the
"Plans") between the relevant Fund and Multi-Market Strategy
providing for the transfer of all the assets of the relevant Fund
to Multi-Market Strategy and the assumption by Multi-Market
Strategy of all the liabilities of the relevant Fund in exchange
8
<PAGE>
for Class A, Class B and Class C shares of Multi-Market Strategy
in the case of Short-Term Multi-Market and Class C shares in the
case of World Income, and the distribution of such shares to
shareholders of the relevant Fund in liquidation of the Fund
(individually a "Transaction" and collectively, the
"Transactions").
As a result of each Transaction, each holder of Class A,
Class B or Class C shares of Short-Term Multi-Market will receive
that number of full and fractional Class A, Class B or Class C
shares of Multi-Market Strategy equal in net asset value at the
close of business on the date of the exchange to the net asset
value of such holder's Class A, Class B or Class C shares of
Short-Term Multi-Market, while holders of shares of World Income
will receive that number of full and fractional Class C shares of
Multi-Market Strategy equal in net asset value at the close of
business on the date of the exchange to the net asset value of
such holder's shares of World Income. Each Transaction will be
effected at net asset value without the imposition of any sales
charges or other fees.
The Boards of Directors of World Income and Short-Term
Multi-Market have determined that the interests of existing
shareholders of World Income and Short-Term Multi-Market,
respectively, would not be diluted as a result of the relevant
Transaction, concluded that the relevant Transaction would be in
the best interests of such Fund and its shareholders and
recommend approval of the relevant Transaction. Approval of the
relevant Plan will require the affirmative vote of the holders of
a majority of the outstanding shares of each Fund. Shareholder
approval of one Transaction is independent of shareholder
approval of the other Transaction and the closing of one
Transaction is not contingent upon the closing of the other
Transaction. The expenses incurred in connection with the
Transactions, other than the expenses incurred by World Income
and Short-Term Multi-Market through the time of the closing of
the Transactions as a result of portfolio realignment to be made
in anticipation of the Transactions, will be borne by Alliance.
With respect to each Fund, the Transaction is expected
to occur shortly following shareholder approval thereof.
However, each Plan may be terminated at any time prior to the
closing of the Transaction by either party thereto, whether or
not shareholder approval has been obtained, if the conditions
precedent to the obligations of either party under the Plan have
not been satisfied or if the Directors of World Income or Short-
Term Multi-Market, or of Multi-Market Strategy, as the case may
be, determine that proceeding with the Transaction would not be
in the best interests of that Fund's shareholders. As each Plan
is separate from the other, termination of one Plan would not
automatically result in the termination of the other Plan.
9
<PAGE>
Unless the parties agree in writing, the Plans will terminate,
without liability to any party, as of the close of business on
October 31, 1999 if the closing of the Transactions is not held
on or prior to such date.
Prior to the Transactions, World Income and Short-Term
Multi-Market intend to sell portfolio securities to the extent
desirable from the perspective of the portfolio of Multi-Market
Strategy.
Tax Consequences of the Transactions. No gain or loss
will be recognized by Multi-Market Strategy or the shareholders
of World Income or Short-Term Multi-Market as a result of the
Transactions. The aggregate tax basis of the shares of each
class of Multi-Market Strategy received by a shareholder of
either Fund will be the same as the aggregate tax basis of the
shareholder's shares of the corresponding class of Short-Term
Multi-Market or the shares of World Income. The holding period
of the shares of each class of Multi-Market Strategy received by
a shareholder of either Fund will include the holding period of
the shares of the corresponding class of World Income or Short-
Term Multi-Market held by the shareholder, provided that such
shares are held as capital assets by the shareholder of World
Income or Short-Term Multi-Market at the time of the
Transactions. The holding period and tax basis of each asset of
a Fund in the hands of Multi-Market Strategy as a result of the
Transactions will be the same as the holding period and tax basis
of each such asset in the hands of the Fund prior to the
Transactions. The foregoing tax information is based on the
advice of [ ]. It is a condition to the closing of
each Transaction that such advice be confirmed in a written
opinion of the appropriate form. An opinion of counsel is not
binding on the Internal Revenue Service. See "Information about
the Transaction - Federal Income Tax Consequences of the
Transactions" below.
Investment Objectives and Policies. The investment
objectives of Multi-Market Strategy, World Income and Short-Term
Multi-Market are similar in that each Fund seeks the highest
level of current income, consistent with what Alliance considers
to be prudent investment risk, that is available from a portfolio
of high-quality debt securities denominated in the U.S. Dollar
and selected foreign currencies. However, each Fund invests in
slightly different types of securities. Multi-Market Strategy
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. World Income 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. Short-Term Multi-Market
seeks the highest level of current income through investment in a
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portfolio of high-quality debt securities having remaining
maturities of not more than three years. World Income and Short-
Term Multi-Market each maintains at least 35% and 25%,
respectively, of its net assets in U.S. Dollar denominated
securities, while Multi-Market Strategy normally maintains at
least 70% of its assets in debt securities denominated in foreign
currencies.
The investment policies of Multi-Market Strategy differ
from those of the other two Funds; these policies are discussed
in detail below under "Comparison of Investment Objectives and
Policies."
Comparative Investment Performance Data. Set forth
below for the periods indicated is certain investment performance
data for the indicated classes of shares of the Funds.
Average Annual Total Returns
Multi-Market Strategy Class C Shares
and World Income Shares at Net Asset Value
Periods Ended June 30, 1998
Year to Date One Three Five
(unannualized) Year Years Years
Multi-Market
Strategy 2.99% 6.15% 10.40% 3.49%
World Income 2.01% 4.22% 5.15% 2.14%
Average Annual Total Returns
Class A Shares at Net Asset Value
Periods Ended June 30, 1998
Year to Date One Three Five
(unannualized) Year Years Years
Multi-Market
Strategy 3.46% 7.08% 11.31% 4.29%
Short-Term
Multi-Market 2.88% 5.71% 9.18% 3.92%
INVESTORS ARE CAUTIONED THAT PAST PERFORMANCE IS NOT INDICATIVE
OF FUTURE RESULTS.
Advisory and Distribution Fees. Under an investment
advisory agreement with Alliance, Multi-Market Strategy pays
monthly to Alliance a fee at the annualized rate of .60 of 1% of
the average daily adjusted total assets (i.e., the average daily
value of the Fund's total assets, minus the sum of the Fund's
accrued liabilities (other than the principal amount of money
borrowed)). Under an investment advisory agreement with
Alliance, World Income pays monthly to Alliance a fee at the
annualized rate of .65 of 1% of the average daily net assets of
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<PAGE>
World Income. Since [ ], Alliance has waived a portion of
the advisory fees otherwise payable by World Income. Under this
arrangement, since that date World Income has paid an advisory
fee equal to .49 of 1% of its average daily net assets. Under an
investment advisory agreement with Alliance, Short-Term Multi-
Market pays monthly to Alliance a fee at the annualized rate of
.55 of 1% of the average daily value of the net assets of Short-
Term Multi-Market.
Multi-Market Strategy has entered into a Distribution
Services Agreement that incorporates a distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 plan")
with Alliance Fund Distributors, Inc. ("AFD"). AFD is the
principal underwriter of shares of Multi-Market Strategy and an
indirect wholly-owned subsidiary of Alliance. Pursuant to its
Rule 12b-1 plan, Multi-Market Strategy pays AFD a distribution
services fee at an annual rate that may not exceed, on an
annualized basis, .30 of 1% of the aggregate average daily net
assets of Multi-Market Strategy attributable to Class A shares
and 1.00% of the aggregate average daily net assets of Multi-
Market Strategy attributable to each of the Class B and Class C
shares for distribution services. Each of World Income and
Short-Term Multi-Market has also entered into a Distribution
Services Agreement that incorporates a Rule 12b-1 plan with AFD,
each Fund's principal underwriter. Pursuant to its Rule 12b-1
plan, World Income pays AFD a distribution services fee at an
annual rate that may not exceed, on an annualized basis, .90 of
1% of the Fund's aggregate average daily net assets. Under a
voluntary fee waiver arrangement, since [ ] World Income
has paid a distribution services fee at the annualized rate of
.68 of 1% of its aggregate average daily net assets. Short-Term
Multi-Market pays to AFD a Rule 12b-1 distribution services fee
at an annual rate that may not exceed, on an annualized basis,
.30 of 1% of that Fund's aggregate average daily net assets
attributable to Class A shares and 1.00% of the aggregate average
daily net assets of that Fund attributable to each of the Class B
and Class C shares for distribution services. Each Rule 12b-1
plan provides that a portion of the distribution services fee in
an amount not to exceed .25 of 1% of the aggregate average daily
net assets of that Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the
maintenance of shareholder accounts.
Alliance Fund Services, Inc., an affiliate of Alliance,
provides transfer agency and shareholder services to the Funds.
Dividends and Distributions. The dividend and
distribution policies of Multi-Market Strategy, World Income and
Short-Term Multi-Market are the same. It is the intention of
each Fund to distribute each fiscal year all of its net
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<PAGE>
investment income and net realized capital gains, if any, for
such year.
There is no sales or other charge in connection with the
reinvestment of dividends and capital gains distributions of
Multi-Market Strategy, World Income and Short-Term Multi-Market.
Each Fund permits its shareholders to make an election to receive
dividends and distributions in cash or in full and fractional
shares of that Fund.
Purchase Procedures and Exchange Privileges. The
purchase procedures and exchange privileges of each Fund are the
same, except for limitations on World Income due to the Fund
having only one class of shares with properties similar to those
of Class C Shares of Multi-Market Strategy, except that World
Income offers it shares without any contingent deferred sales
charge. Under a multiple pricing structure, each of Multi-Market
Strategy and Short-Term Multi-Market offers investors the choice
of purchasing its shares subject to a front-end sales charge, as
Class A shares, a contingent deferred sales charge, as Class B
shares, without any initial or contingent deferred sales charge,
as long as the shares are held for one year or more, as Class C
shares. The respective sales charges on the Class A, Class B and
Class C shares of Multi-Market Strategy and Short-Term Multi-
Market are identical. No sales charges or other fees will be
assessed to shareholders of World Income or Short-Term Multi-
Market in connection with either Transaction. Multi-Market
Strategy and Short-Term Multi-Market offer identical programs
whereby the sales charge on Class A shares of a Fund may be
eliminated or reduced.
As indicated above, Class B shares of Multi-Market
Strategy and Short-Term Multi-Market are subject to a contingent
deferred sales charge imposed on most redemptions made within
three years of purchase. Class B shares convert into Class A
shares six years after purchase. Class B shares of Multi-Market
Strategy distributed in a Transaction will automatically convert
to Class A shares of Multi-Market Strategy in accordance with the
conversion schedule applicable at time of the original purchase
of the Class B shares surrendered in the Transaction.
The minimum initial investment in Multi-Market Strategy
and in Short-Term Multi-Market is $250 and the minimum for
subsequent investments is $50, except in certain instances as
described in the Bond Funds Prospectus. The minimum initial
investment in World Income is $10,000 and the minimum for
subsequent investments is $1,000. See "Purchase and Sale of
Shares - How to Buy Shares" in the Bond Funds Prospectus.
Shares of Multi-Market Strategy and Short-Term Multi-
Market may be exchanged for shares of the same class, and shares
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<PAGE>
of World Income may be exchanged for Class A shares, of certain
other open-end investment companies managed by Alliance,
including AFD Exchange Reserves, a money market fund managed by
Alliance. Class C shares of Multi-Market Strategy incur higher
distribution fees than Class A shares and are exchangeable for
Class C shares of certain other open-end investment companies
managed by Alliance. Such shares have higher expenses than the
Class A shares that World Income shareholders may currently
acquire through exchanges. See "Purchase and Sale of
Shares - How to Exchange Shares" in the Bond Funds Prospectus.
Exchanges of shares are made at the relative net asset values
next determined, without sales or service charges. Under World
Income's exchange privilege, shareholders intending to acquire
shares of Multi-Market Strategy might consider it advantageous to
exchange their shares of World Income in a taxable transaction
for Class A shares of Multi-Market Strategy rather than to obtain
Class C shares of Multi-Market Strategy in the Transaction, which
will be a non-taxable transaction.
Redemption Procedures. The redemption procedures of
each Fund are the same. Shares of each Fund may be redeemed,
either directly or through a broker-dealer, bank or other
financial intermediary, on any day the New York Stock Exchange is
open for trading. Shares are redeemed at net asset value next
calculated after a Fund receives a redemption request in proper
form, subject to any applicable contingent deferred sales
charges. Proceeds of a redemption generally are sent within
seven days. See "Purchase and Sale of Shares - How to Sell
Shares" in the Bond Funds Prospectus.
RISK FACTORS
The principal risk factors of investing in Multi-Market
Strategy, World Income and Short-Term Multi-Market are
substantially similar. The price of the shares of each Fund will
fluctuate as the daily prices of the individual securities in
which they invest fluctuate. All three Funds are subject to
similar risks due to similarities of their investment objectives,
policies and practices. All three Funds are subject to the risk,
associated with investment in fixed income securities, that
during periods of rising interest rates the values of such
securities will generally decline, while during periods of
falling interest rates the values of such securities will
generally rise. Changes in interest rates generally have a
greater effect on fixed-income securities with longer maturities
than those with shorter maturities. Each Fund has a limit as to
how long the remaining maturities of the securities in its
portfolio may be (Multi-Market Strategy, five years, Short-Term
Multi-Market, three years and World Income, one year).
14
<PAGE>
If the Funds choose to borrow they will be subject to
the risks of leverage, which increases the volatility of the net
asset value of each Fund's shares of Common Stock. Multi-Market
Strategy may borrow to repurchase its shares or to meet
redemption requests and may borrow for temporary purposes
(including the first two purposes in this 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. Multi-Market Strategy may also borrow
through the use of reverse repurchase agreements.
All three Funds, due to their policies of allowing
concentration of investment in the banking industry, have greater
exposure to the risks that 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
development related to the banking industry. In addition, each
of the Funds may invest in foreign securities and they are,
therefore, subject to the same general risks associated with
international investing. These risks include: risks related to
adverse currency fluctuations, potential political and economic
instability of certain countries, limited liquidity and greater
volatility of prices as compared to U.S. securities, investment
and repatriation restrictions, and foreign taxation. As World
Income and Short-Term Multi-Market each must maintain a minimum
level of U.S. securities in its portfolios, and Multi-Market
Strategy does not, Multi-Market Strategy may have higher levels
of risk from holding a high percentage of foreign securities than
the other two Funds.
In addition, all three Funds are non-diversified
investment companies. As a result, each Fund may invest a higher
percentage of its assets in a more limited number of issuers than
diversified investment companies and is subject to certain
additional risks not typically associated with funds that have
more diversified portfolios.
REASONS FOR THE TRANSACTIONS
At regular meetings of the Boards of Directors of World
Income and Short-Term Multi-Market held on July 15, 1998,
Alliance recommended that the Directors approve and recommend to
the shareholders for their approval a combination of those Funds
with Multi-Market Strategy by means of tax-free acquisitions of
the assets and assumptions of the liabilities of those Funds by
Multi-Market Strategy in exchange for shares of Multi-Market
Strategy, which shares would then be distributed to the
shareholders of World Income and Short-Term Multi-Market in
liquidation of those Funds. After careful consideration, the
Boards of Directors accepted Alliance's recommendations,
concluded that the relevant Transaction and Plan would be in the
15
<PAGE>
best interests of the relevant Fund and its shareholders and
recommended that the shareholders of the Fund approve the
proposed Transaction.
Alliance made its recommendations to the Directors in
the context of a general discussion of the tremendous growth of
the Alliance Mutual Funds in recent years. This growth has been
accompanied by an expansion and diversification of Alliance's
mutual fund product line. As the number and types of funds
sponsored by Alliance have increased, it has become increasingly
important that Alliance and AFD continually review the mutual
fund product line to ensure that funds, to the extent they have
similar investment objectives and/or policies, do not compete
with each other for assets. After considerable study, Alliance
and AFD concluded that Multi-Market Strategy, World Income and
Short-Term Multi-Market are no longer sufficiently
distinguishable from a retail marketing perspective to warrant
their continued operation as separate investment vehicles.
Although from a retail sales standpoint equity-oriented
mutual funds have dominated mutual fund sales in recent years,
Alliance believes that among general multi-market funds investing
in high-quality debt, Multi-Market Strategy is more likely to
succeed in the current market environment than are World Income
and Short-Term Multi-Market. In formulating its recommendations
to the Boards of Directors, following careful consideration
Alliance proposed the acquisition of all of the assets and
liabilities of each of World Income and Short-Term Multi-Market
by Multi-Market Strategy, which, Alliance noted, has historically
had a better performance record than either World Income or
Short-Term Multi-Market. Alliance stated that this superior
performance has been achieved primarily because of Multi-Market
Strategy's less restrictive investment policies. Alliance also
noted the investment objectives and policies of the Funds and
that there is a substantial degree of similarity between portions
of the investment portfolios of Multi-Market Strategy and each of
World Income and Short-Term Multi-Market.
In reaching their decisions to recommend shareholder
approval of the respective Transactions, the Boards of Directors
considered the foregoing and a number of other factors.
The Directors of World Income reviewed the expense
ratios of Multi-Market Strategy and World Income annualized as of
May 31, 1998, which, even after fee waivers applicable to World
Income totaling .38% annualized, were lower for Class C shares of
Multi-Market Strategy than for shares of World Income. The
Directors also reviewed a summary of preliminary pro forma
operating expenses annualized as of May 31, 1998 of the Class C
shares of the combined entity resulting from the Transactions.
That summary indicated that, at asset levels on May 31, 1998 and
16
<PAGE>
relative to the then current expense ratio of 3.25% for World
Income shares, the acquisitions would result in projected expense
ratio reductions to a holder of shares of World Income of .92%
annualized if only the Transaction involving World Income is
consummated and 1.18% annualized if both Transactions are
consummated. In addition, the Directors considered certain
comparative investment performance data concerning Multi-Market
Strategy and World Income. (For information concerning the
performance of World Income and the Class C shares of
Multi-Market Strategy, see the "Synopsis" above. Certain
additional information concerning the performance of Multi-Market
Strategy is set forth below under "Management's Discussion of
Performance of Multi-Market Strategy.")
The Directors of Short-Term Multi-Market reviewed
the expense ratios of Multi-Market Strategy and Short-Term
Multi-Market annualized as of May 31, 1998, which were lower
for Short-Term Multi-Market than for Multi-Market Strategy.
The Directors also reviewed a summary of preliminary pro
forma operating expenses for the twelve months ended May 31,
1998 of the Class A shares of the combined entity resulting
from the Transactions. That summary indicated that, at
current asset levels and regardless of whether the
Transaction involving World Income is consummated, an
acquisition by Multi-Market Strategy would result in a
projected expense ratio increase of .02%, to 1.37%
annualized, for holders of Class A shares of Short-Term
Multi-Market. Alliance indicated that Class B and Class C
shareholders would experience similar expense ratio
increases from consummation of the acquisitions. The
increases would result from the .05% higher rate of advisory
fee payable to Alliance by Multi-Market Strategy than by
Short-Term Multi-Market and the .03% decrease in total other
expenses reflected in the pro forma operating expense
summary.
The Directors considered certain comparative
investment performance data concerning Multi-Market Strategy
and Short-Term Multi-Market. In this regard, Alliance
expressed its view that the higher rate of advisory fee and
overall expenses would be appropriate in light of Multi-
Market Strategy's historically better performance than that
of Short-Term Multi-Market. (Certain comparative investment
performance information concerning the Class A shares of
Multi-Market Strategy and Short-Term Multi-Market is set
forth above in the "Synopsis" and certain additional
performance information concerning Multi-Market Strategy is
set forth in the next section of this Prospectus/Proxy
Statement, "Management's Discussion of Performance of
Multi-Market Strategy.") Alliance stated that Multi-Market
Strategy's superior performance has been achieved primarily
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<PAGE>
because of its less restrictive investment policies and
that, consequently, there is a reasonable expectation that
the superior performance would continue. Alliance noted
that Multi-Market Strategy's more flexible investment
policies make it more difficult to manage than Short-Term
Multi-Market in that the management process involves greater
research and utilizes more portfolio management personnel
and other resources. Alliance noted further, based on data
supplied by Lipper Analytical Services, Inc., that Multi-
Market Strategy's advisory fee rate of .60% is exactly at
the median advisory fee rate for so-called "short world
multi-market income funds."
The Board of Directors reviewed the asset levels of
the Funds. At its largest in 1992, Multi-Market Strategy
had total assets of $1.2 billion, whereas as of May 31, 1998
its total net assets stood at $110 million. There have been
net redemptions for four of the last five years and modest
net sales in 1997 continuing into 1998. At its largest, in
November 1991, World Income had total assets of
$1.1 billion, whereas as of May 31, 1998 its total net
assets were $18 million. There have been net redemptions
for five out of the last six years and in 1997 World
Income's asset growth was roughly flat. At its largest in
1992, Short-Term Multi-Market had assets of $6.4 billion,
whereas as of May 31, 1998 its total net assets were $466
million. There have been net redemptions for four of the
last five calendar years and in 1997 its asset growth was
roughly flat.
The Board of Directors of World Income also
considered that a combination of the assets of World Income
and Multi-Market Strategy was projected to result in
economies of scale that could benefit shareholders of World
Income by spreading the fixed expenses of the combined fund
over a larger asset base, thereby reducing the combined
fund's expense ratio.
The Boards of Directors also considered, among
other things: (i) the form of the relevant Plan and the
terms and conditions of the relevant Transaction;
(ii) whether the relevant Transaction would result in the
dilution of shareholders' interests; (iii) the investment
objectives, policies and strategies, and portfolio
management personnel, of each of the Funds; (iv) the effect
of the anticipated realignment of the investment holdings of
World Income and Short-Term Multi-Market, including the
associated brokerage costs and the resulting tax
consequences in connection with disposing of certain
portfolio holdings prior to the closing of the relevant
Transaction; (v) the benefits of the relevant Transaction to
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<PAGE>
persons other than the relevant Fund; (vi) the fact that
Multi-Market Strategy will assume all the liabilities of
each Fund; (vii) the expected federal income tax
consequences of the relevant Transaction; (viii) historical
and pro forma information, including the information set
forth above and information regarding realized and
unrealized gains and losses of the Funds; (ix) the fact that
Alliance has agreed to pay all the expenses of the relevant
Transaction and to indemnify Multi-Market Strategy for a
three-year period against undisclosed liabilities of World
Income and Short-Term Multi-Market to the extent such
liabilities are known by Alliance's senior management at the
time of the Transactions; (x) whether the acquisition of
World Income and Short-Term Multi-Market by Multi-Market
Strategy would be preferable to an acquisition by other
potential acquirers, including funds that are not sponsored
by Alliance; (xi) with respect to Short-Term Multi-Market,
the proposed treatment of unreimbursed distribution expenses
of AFD under the Multi-Market Strategy 12b-1 plan; (xii) the
fact that the relevant Transaction might or might not be
effected together with the other Transaction; and (xiii) the
respective average account sizes of the Funds.
During their consideration of the relevant
Transaction, the Independent Directors consulted separately
with their independent legal counsel. Based on the factors
described above, the Boards of Directors each determined
that the relevant Transaction would be in the best interests
of the relevant Fund and its shareholders and would not
result in dilution of shareholders' interests, and
recommended that the shareholders of the Fund approve the
proposed Transaction.
MANAGEMENT'S DISCUSSION OF PERFORMANCE
OF MULTI-MARKET STRATEGY
This discussion was written for the shareholders of
Multi-Market Strategy and contained in that Fund's annual
report to shareholders for the fiscal year ended October 31,
1997. It relates to market activity and investment results
for Multi-Market Strategy for the period ended October 31,
1997.
Global bond markets posted solid returns over the
six-month period ended October 31, 1997. Lower global bond
yields and a convergence in spreads in European and Dollar
Bloc markets pushed bond prices higher and helped non-core
markets to outperform core markets. Data released
indicating a slowing U.S. economy, together with a favorable
U.S. budget deficit, fueled a rally in U.S. Treasuries. In
October, financial market turmoil, which started in
19
<PAGE>
Southeast Asia, created a ripple effect that spread to other
global bond markets and caused a spike in volatility. Rate
hikes in Europe, budgetary problems in Italy, and potential
European Monetary Union (EMU) participation by the U.K.,
also contributed to increased volatility.
Investment Results. Multi-Market Strategy posted
solid returns over the period. For comparison, shown below
is the performance for the short maturity U.S. Government
bond market, represented by the unmanaged Merrill Lynch 1-3
Year Government Bond Index, and for the Lipper Short World
Multi-Market Income Funds Average, which reflects the
performance of 32 funds for the twelve-month period ended
October 31, 1997. The Lipper peer group has generally
similar investment objectives to Multi-Market Strategy,
although investment policies for the various funds-
- -particularly the average maturities of their portfolios-
- -may differ significantly. Multi-Market Strategy's
outperformance of its benchmarks can be attributed to
investing in higher yielding European countries at a time
when spreads between the core and the non-core countries
tightened as the economies converge in preparation for
European Monetary Union.
INVESTMENT RESULTS*
Period Ended October 31, 1997
TOTAL RETURN
6 MONTHS 12 MONTHS
-------- ---------
MULTI-MARKET STRATEGY
Class A 3.74% 7.82%
Class B 3.29% 6.90%
Class C 3.29% 6.92%
MERRILL LYNCH 1-3 YEAR GOVERNMENT
BOND INDEX 4.13% 6.49%
LIPPER SHORT WORLD MULTI-MARKET
INCOME FUNDS AVERAGE 3.00% 5.02%
* TOTAL RETURNS ARE BASED ON THE NET ASSET VALUE OF EACH
CLASS OF SHARES AS OF OCTOBER 31, 1997. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS.
THE UNMANAGED MERRILL LYNCH 1-3 YEAR GOVERNMENT BOND
INDEX REPRESENTS THE SHORT MATURITY U.S. GOVERNMENT BOND
MARKET. THE UNMANAGED LIPPER SHORT WORLD MULTI-MARKET
INCOME FUNDS AVERAGE REFLECTS THE PERFORMANCE OF 32 FUNDS.
BOTH BENCHMARKS HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES
TO YOUR FUND, ALTHOUGH INVESTMENT POLICIES FOR THE VARIOUS
20
<PAGE>
FUNDS MAY DIFFER. AN INVESTOR CANNOT INVEST DIRECTLY IN THE
INDEX OR AVERAGE.
As of October 31, 1997, Multi-Market Strategy's total
investments based on issuing country were distributed as
follows:
PORTFOLIO DISTRIBUTION BY COUNTRY
COUNTRY PORTFOLIO %
- ------- -----------
Germany 17.48%
United States 14.08%
Italy 12.54%
Australia 9.83%
Sweden 8.82%
Denmark 7.09%
Norway 5.72%
Mexico 5.61%
New Zealand 5.37%
Spain 4.80%
France 4.38%
Poland 4.28%
Economic Review. Throughout the second quarter of
1997, economic growth and inflation were well contained
worldwide. U.S. Gross Domestic Product (GDP) growth slowed
from the 4.9% robust pace of the first quarter to 3.3% in
the second quarter. Weakness in consumer spending was the
catalyst, as retail and auto sales declined, and housing
activity slowed.
The economy continued at a healthy pace during the
third quarter of 1997. Although U.S. growth slowed from its
first half level, the economy remained strong, led by
strength in the labor market. In October, the unemployment
rate dropped to 4.7%, the lowest level in 24 years, as the
economy added a larger-than-expected 284,000 jobs. GDP
growth for the third quarter was 3.5%.
During the period, inflation remained well-behaved
with consumer prices advancing 2.2% between October 1996 and
October 1997. Wholesale inflation, as measured by the
Producer Price Index (PPI), fell for an unprecedented seven
months in a row before finally showing an increase in the
past three months. Overall, producer prices are down 0.2%
on an annual basis through October. The Federal Reserve
Board made no change to monetary policy during the period
despite growth remaining above trend levels. Improving
inflation fundamentals, a strong dollar, and currency
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<PAGE>
devaluations in Southeast Asia, argued against an increase
in official U.S. interest rates.
In Japan, economic problems continued to prevail,
and the latest government plan offered little help for the
ailing Japanese economy. The April consumption tax hike
continues to negatively affect consumer spending as
evidenced by a weak Tankan report on business confidence.
Growth prospects in Japan have been further jeopardized by
over-reliance on an increase in exports to the Southeast and
North Asia region. With the recent economic and financial
crisis in these regions, Asian GDP growth will slow further,
thus negatively impacting Japanese growth rates.
In Canada, strong growth and low budget deficits,
together with stable U.S. monetary policy, allowed Canada to
delay interest rate hikes. In Australia and New Zealand,
high unemployment, lower Asian demand for their exports and
good inflation performance, set the stage for the Reserve
Banks of Australia and New Zealand to lower interest rates.
Stronger growth, and the inflationary impact of
rising import prices in Germany, set the tone for European
markets. The Bundesbank's continued concern about inflation
resulted in the Bundesbank's larger-than-expected rate hike
in October. The Bundesbank raised interest rates 30 basis
points, indicating that it was necessary to move core
European official rates in-line with what is expected to be
the necessary European average rate for EMU. This increase
led to subsequent rate increases throughout the other core
European countries of France, Denmark and the Netherlands.
MULTI-MARKET STRATEGY
GROWTH OF A $10,000 INVESTMENT
5/31/91* TO 10/31/97
$15,000
$14,000
$13,000
$12,000
$11,000
$10,000
$ 9,000
5/31/91 10/31/91 10/31/92 10/31/93 10/31/94
10/31/95 10/31/96 10/31/97
MERRILL LYNCH 1-3 YEAR GOVERNMENT BOND INDEX: $14,935
LIPPER SHORT-WORLD MULTI-MARKET INCOME FUNDS AVERAGE:
$13,053
MULTI-MARKET STRATEGY: $12,024
22
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This chart illustrates the total value of an
assumed $10,000 investment in Alliance Multi-Market Strategy
Class A shares (from 5/31/91 to 10/31/97) as compared to the
performance of an appropriate broad-based index. The chart
reflects the deduction of the maximum 4.25% sales charge
from the initial $10,000 investment in the Fund and assumes
the reinvestment of dividends and capital gains.
Performance for Class B and Class C shares will vary from
the results shown above due to differences in expenses
charged to those classes. Past performance is not
indicative of future results, and is not representative of
future gain or loss in capital value or dividend income.
The Merrill Lynch 1-3 Year Government Bond Index is
composed of U.S. Government agency and Treasury securities
with maturities of one to three years.
The Lipper Short-World Multi-Market Income Funds
Average reflects performance of 33 funds. These funds have
generally similar investment objectives to Multi-Market
Strategy, although the investment policies of some funds
included in the average may vary.
When comparing Multi-Market Strategy to the index
and average shown above, you should note that no charges or
expenses are reflected in the performance of the index.
Lipper results include fees and expenses.
Multi-Market Strategy
Merrill Lynch 1-3 Year Government Bond Index
Lipper Short-World Multi-Market Income Funds Average
* Month-end nearest to Fund's Class A share inception date
of 5/29/91.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of Multi-Market Strategy,
World Income and Short-Term Multi-Market are the same in
that each Fund seeks the highest level of current income,
consistent with what Alliance considers to be prudent
investment risk, that is available from a portfolio of high-
quality debt securities. The Funds' investment objectives
differ in that the Funds seek this objective with respect to
securities having remaining maturities of not more than five
years, in the case of Multi-Market Strategy, three years, in
the case of Short-Term Multi-Market and one year, in the
case of World Income. There can be no assurance that any of
these Funds will achieve its investment objective. The
23
<PAGE>
value of each Fund's shares will fluctuate with the value of
the underlying securities in its portfolio.
Alliance actively manages each Fund's portfolio 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 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 the country's currency. Alliance principally
considers fundamental economic strength, credit quality and
interest rate trends in determining whether to increase or
decrease the emphasis placed upon a particular type of
security or industry sector within a Fund's investment
portfolio.
The Funds are "non-diversified" investment
companies, which means they are not limited in portion of
their assets that may be invested in the securities of a
single issuer. As a consequence, the Funds are subject to
certain additional risks not typically associated with
mutual funds that have more diversified portfolios. The
Funds' investment strategies are identical with respect to
diversification; concentration; foreign currency hedging
techniques; illiquid securities; options, futures and
forward contracts; repurchase agreements; loans of portfolio
securities; defensive positions; and pledging,
hypothecating, mortgaging or otherwise encumbering assets
other than to secure permitted borrowings.
The investment strategies of each Fund differ in
certain respects. The differences in the Funds' investment
policies are described more fully below. Detailed
descriptions of the Funds' investment policies and the
restrictions and the risks associated with investments in
the Funds are contained in the Bond Funds Prospectus and in
each Fund's Statement of Additional Information.
Borrowing. Multi-Market Strategy may not 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. Moreover, Multi-
Market Strategy has a policy of maintaining borrowings of
24
<PAGE>
approximately 25% of its total assets less liabilities
(other than the amount borrowed).
In contrast, World Income and Short-Term Multi-
Market may not: (a) borrow money except from banks for
temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely
disposition of securities; (b) borrow in the aggregate in
excess of 15%; (c) borrow for purposes other than meeting
redemptions in excess of 5% of the value of those Funds'
total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time
the borrowing is made; and (d) purchase securities while
borrowings in excess of 5% of the value of the Fund's total
assets are outstanding.
Currency Denomination of Portfolio Securities.
Each Fund limits its investment in debt securities
denominated in a single currency other than the U.S. Dollar
to 25% of its net assets. The Funds vary, however, as to
what proportion of assets are expected to or will be
invested in U.S. Dollar- or foreign currency-denominated
securities. Multi-Market Strategy expects to maintain at
least 70% of its assets in debt securities denominated in
foreign currencies. 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. World Income will maintain at least
35% of its net assets in U.S. Dollar-denominated securities.
Interest Rate Swaps, Caps and Floors. Multi-Market
Strategy and Short-Term Multi-Market may enter into interest
rate swaps, caps and floors involving payments in the same
currency or in different currencies, but only if (i) for
transactions with maturities under one year, the
counterparty has outstanding prime commercial paper or (ii)
for transactions with maturities greater than one year, the
counterparty has high quality debt securities outstanding.
World Income does not enter into interest rate swaps, caps
and floors.
Other Instruments. Multi-Market Strategy and
Short-Term Multi-Market will invest in obligations issued by
supranational entities and corporate debt securities that
have a high quality rating. World Income, however, will
only invest in such obligations if rated AAA or Aaa.
Multi-Market Strategy and Short-Term Multi-Market
will invest in certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits
25
<PAGE>
maintained at, banks (including foreign branches of foreign
banks) having total assets of more than $500 million and
determined by Alliance to be of high quality. World Income,
however, will only invest in such deposits if issued,
guaranteed by or maintained at banks (including foreign
branches of foreign banks) with total assets of more than $1
billion.
Multi-Market Strategy may invest prime commercial
paper or in unrated commercial paper determined by Alliance
to be of equivalent quality and issued by U.S. or foreign
companies having outstanding high quality debt securities.
World Income and Short-Term Multi-Market also may invest in
prime commercial paper, but may invest in unrated commercial
paper only if determined by Alliance to be equivalent to
prime in quality and issued by U.S. or foreign companies
having high-grade or AAA or Aaa debt securities,
respectively, outstanding.
Additional Investment Policies
For additional information regarding the use, risks
and costs associated with the investment practices and
policies identified below, see "Description of the Funds -
Additional Investment Practices" in the Bond Funds
Prospectus.
INFORMATION ABOUT THE TRANSACTIONS
Agreements and Plans of Reorganization and
Liquidation. The form of each Plan provides that upon the
closing of the relevant Transaction, Multi-Market Strategy
will acquire all of the assets of World Income and Short-
Term Multi-Market and assume all the liabilities of World
Income and Short-Term Multi-Market (whether absolute,
accrued, contingent or otherwise, and whether or not
determinable at the time of the closing of the Transactions)
in exchange for Class A, Class B and Class C shares of
Multi-Market Strategy in the case of Short-Term Multi-Market
and Class C shares in the case of World Income (the
"Closing"). The number of full and fractional Class A,
Class B or Class C shares of Multi-Market Strategy to be
issued to Class A, Class B or Class C shareholders of Short-
Term Multi-Market and Class C shares to be issued to
shareholders of World Income is to be determined on the
basis of the relative net asset values per share of those
classes of shares, such values in each case to be computed
as of the close of regular trading on the New York Stock
Exchange next preceding the Closing. The net asset value
per share for each class of shares of each Fund will be
26
<PAGE>
determined by dividing the assets attributable to that
class, less liabilities, by the total number of the
outstanding shares of that class.
The Boards of Directors of both World Income and
Short-Term Multi-Market have determined that the interests
of the shareholders of each Fund will not be diluted as a
result of the relevant Transaction.
At the Closing, each of World Income and Short-Term
Multi-Market will liquidate and will distribute pro rata to
its shareholders of record the Class A, Class B and Class C
shares of Multi-Market Strategy received by Short-Term
Multi-Market and the Class C shares received by World
Income. Such liquidation and distribution will be
accomplished by the establishment of an open account on the
share records of Multi-Market Strategy in the name of each
shareholder of World Income and Short-Term Multi-Market and
representing the respective number of full and fractional
shares of Multi-Market Strategy due such shareholder.
Fractional Class A, Class B and Class C shares of Multi-
Market Strategy will be carried to the third decimal place.
Simultaneously with crediting Class A, Class B and Class C
shares of Multi-Market Strategy to the respective
shareholders of Short-Term Multi-Market (and Class C shares
to shareholders of World Income), shares of World Income and
Short-Term Multi-Market held by such shareholders will be
canceled. New certificates for shares of Multi-Market
Strategy will be issued only upon written shareholder
request, and any certificate representing shares of Multi-
Market Strategy to be issued in replacement of a certificate
representing shares of Multi-Market Strategy will be issued
only upon the surrender of such latter certificate.
Consummation of each Plan is subject to the
conditions set forth therein. Either Plan may be terminated
and the related Transactions abandoned at any time prior to
the Closing, whether or not shareholder approval has been
obtained, by either Fund that is a party thereto if that
Fund's Directors determine that proceeding with the Plan is
not in the best interests of that Fund's shareholders, or by
either party if a condition set forth in the Plan has not
been fulfilled or waived by the party entitled to its
benefits or if there has been a material default or breach
of the Plan by the other party.
Description of Shares of Multi-Market Strategy.
Full and fractional Class A, Class B and Class C shares of
Multi-Market Strategy will be issued without the imposition
of a sales load or other fee to the shareholders of World
Income and Short-Term Multi-Market in accordance with the
27
<PAGE>
procedures described above. The Class A, Class B and Class
C shares of Multi-Market Strategy to be issued in the
Transactions will be fully paid and nonassessable when
issued and will have no preemptive or conversion rights,
except that the Class B shares will automatically convert to
Class A shares in accordance with the conversion schedule
applicable at the time of the original purchases of the
Class B shares surrendered in the Transactions. See
"Synopsis - Purchase Procedures and Exchange Privileges."
Portfolio Transactions by World Income and Short-
Term Multi-Market. Prior to the Closing, World Income and
Short-Term Multi-Market intend to sell their portfolio
securities to the extent desirable from the perspective of
the portfolio of Multi-Market Strategy. Purchases of
portfolio securities by World Income and Short-Term Multi-
Market prior to the acquisitions will be consistent with the
investment policies and objectives of World Income or Short-
Term Multi-Market and of Multi-Market Strategy.
Federal Income Tax Consequences of the
Transactions. At the Closing, the Funds will each receive
an opinion from Seward & Kissel, counsel to the Funds, to
the effect that, on the basis of then current law and
certain representations and assumptions, and subject to
certain limitations, for federal income tax purposes: (i)
the relevant Transaction will constitute a reorganization
within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and each Fund
will be "a party to a reorganization" within the meaning of
section 368(b) of the Code; (ii) neither World Income or
Short-Term Multi-Market pursuant to sections 361(a) and
357(a) of the Code, nor Multi-Market Strategy pursuant to
section 1032 of the Code, will recognize any gain or loss
upon the transfer of assets of World Income and Short-Term
Multi-Market to Multi-Market Strategy in exchange for Class
A, Class B and Class C shares of Multi-Market Strategy and
the assumption by Multi-Market Strategy of the liabilities
of World Income and Short-Term Multi-Market pursuant to the
Transactions and upon distribution (whether actual or
constructive) of shares of Multi-Market Strategy to World
Income and Short-Term Multi-Market shareholders in exchange
for their shares of World Income and Short-Term Multi-
Market; (iii) the shareholders of World Income and Short-
Term Multi-Market who receive shares of Multi-Market
Strategy pursuant to the Transactions will not recognize any
gain or loss upon the exchange (whether actual or
constructive) of their shares of World Income and Short-Term
Multi-Market for shares of Multi-Market Strategy pursuant to
section 354 of the Code; (iv) the aggregate tax basis of the
shares of Multi-Market Strategy received (whether actually
28
<PAGE>
or constructively) by each shareholder of World Income and
Short-Term Multi-Market will be the same as the aggregate
tax basis of the shares of World Income and Short-Term
Multi-Market surrendered in the exchange pursuant to section
358 of the Code; (v) the holding period of shares of Multi-
Market Strategy received (whether actually or
constructively) by each shareholder of World Income and
Short-Term Multi-Market will include the holding period of
the shares of World Income and Short-Term Multi-Market which
are surrendered in exchange therefor, provided that the
shares of World Income and Short-Term Multi-Market
constitute capital assets of such shareholder at the Closing
pursuant to section 1223(1) of the Code; (vi) the holding
period and tax basis of each asset of World Income and
Short-Term Multi-Market acquired by Multi-Market Strategy
will be the same as the holding period and tax basis which
World Income and Short-Term Multi-Market had in each such
asset immediately prior to the Transactions, pursuant to
sections 362(b) and 1223(2) of the Code; and (vii) Multi-
Market Strategy will succeed to the capital loss carryovers
of World Income and Short-Term Multi-Market, if any,
pursuant to section 381 of the Code, but the use by Multi-
Market Strategy of any such capital loss carryovers may be
subject to limitation under section 383 of the Code. There
is no intention to consult the Internal Revenue Service as
to the foregoing matters.
Capitalization. The following tables show the
capitalization and net asset values per share of the common
stock of each class of Multi-Market Strategy, World Income
and Short-Term Multi-Market as of June 30, 1998 and on a pro
forma basis as of that date after giving effect to the
proposed Transactions.
Actual
Multi-Market World Short-Term
Strategy Income Multi-Market
Net assets........ $107,686,634 $17,837,018 $457,177,302
Net asset value per share
Class A shares....... $6.74 N/A $7.50
Class B shares....... $6.75 N/A $7.51
Class C shares....... $6.75 N/A $7.51
$1.607
Shares outstanding
Class A shares....... 14,715,065 N/A 56,440,111
Class B shares....... 1,150,613 N/A 3,822,584
29
<PAGE>
Class C shares....... 119,373 N/A 659,886
$11,097,822
30
<PAGE>
Pro Forma Combined Fund
(Multi-Market Strategy Following Transactions With)
World Income and
World Short-Term Short-Term
Income Multi-Market Multi-Market
Net assets........ $125,523,652 $564,863,936 $582,700,954
Net asset value per share
Class A shares....... $6.74
Class B shares....... $6.75
Class C shares....... $6.75
Shares outstanding
Class A shares....... 77,519,343
Class B shares....... 5,403,592
Class C shares....... 3,495,661
Unreimbursed Distribution Expenses. As of May 31, 1998,
AFD had incurred $9,578,970 with respect to Class B shares and
$584,170 with respect to Class C shares in distribution expenses
under Multi-Market Strategy's Rule 12b-1 plan that had not been
reimbursed pursuant to that plan or recovered through contingent
deferred sales charges or otherwise. As of May 31, 1998, AFD had
incurred $25,352,562 with respect to Class B shares and
$1,498,379 with respect to Class C shares in distribution
expenses under Short-Term Multi-Market's Rule 12b-1 plan that had
not been reimbursed pursuant to that plan or recovered through
contingent deferred sales charges or otherwise. The Board of
Directors of Multi-Market Strategy has adopted a resolution
providing that, in connection with the Transaction with Short-
Term Multi-Market, the amount of those distribution expenses
existing on the day the Transaction occurs may be defrayed from
future fees paid to AFD pursuant to the Rule 12b-1 plan with
respect to Class B and Class C shares of Multi-Market Strategy,
subject to the receipt of appropriate assurances that this
treatment is consistent with applicable law. While in the past
the staff of the Commission has suggested that such payments by
an acquiring fund would be inappropriate, more recently the staff
of the Commission has indicated that it would not object to such
a "carry-forward" arrangement if it is implemented in accordance
with Rule 12b-1 requirements. No final determination has been
made as to whether or when to seek these assurances, and, if
sought, there can be no guarantee that they would be obtained.
Capital Loss Carryforwards. As of October 31, 1997, the
the most recent fiscal year end of each of the Funds,
Multi-Market Strategy, World Income and Short-Term Multi-Market
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<PAGE>
had capital loss carryforwards of $ ,
$ and $ , respectively.
CERTAIN COMPARATIVE INFORMATION
The following information provides only a summary of the
major similarities and differences between the organizational
structure and governing documents of Multi-Market Strategy, World
Income and Short-Term Multi-Market. All three Funds are
organized as Maryland corporations. Accordingly, unless noted
below, there are no significant differences between the Funds in
terms of their respective corporate organizational structure.
Copies of the Charter and By-laws of Multi-Market Strategy, World
Income and Short-Term Multi-Market are a part of each Fund's
respective Registration Statement filed with the Commission and
may be obtained as provided below. See "Information About the
Funds."
General. Multi-Market Strategy, World Income and Short-
Term Multi-Market are organized as Maryland corporations and are
governed by each of their Charters, By-Laws and Maryland law.
The Funds are not required to hold annual meetings of
shareholders and each will do so only under certain specified
circumstances or when required under Federal law. Each Fund has
procedures available to its respective shareholders for calling
shareholders' meetings for the removal of Directors.
Pursuant to Maryland Law, any Director of a Fund may be
removed, either with or without cause, at any meeting of
shareholders duly called and at which a quorum is present by the
affirmative vote of the majority of the votes entitled to be
cast.
The Directors of a Fund are required to promptly call a
meeting of shareholders for the purpose of voting upon the
question of removal when requested to do so in writing by the
record holders of not less than 10% of the outstanding shares.
In addition, special meetings of shareholders for any other
purpose shall be called by a Fund's Secretary upon the written
request of holders of shares entitled to cast not less than 25%
of all the votes entitled to be cast at the meeting.
Except as otherwise required by law, the presence in
person or by proxy of the holders of one-third of the shares
entitled to be cast constitutes a quorum at any meeting of
shareholders of each Fund. Pursuant to each Charter, in
instances involving extraordinary corporate action, such as in a
merger or in making amendments to its Charter, the vote of a
majority of the aggregate number of votes entitled to be cast on
a matter is required in order to take or authorize any such
32
<PAGE>
action for which approval of the shareholders is sought. With
respect to other matters, the By-Laws of each Fund provide that
when a quorum is present at any meeting, the affirmative vote of
a majority of the votes (or with respect to the election of
Directors, a plurality of votes) cast shall decide any question
brought before such meeting.
Shares. Multi-Market Strategy has authorized capital
stock of 3,000,000,000 shares of Class A Common Stock,
3,000,000,000 shares of Class B Common Stock and 3,000,000,000
shares of Class C Common Stock, each having a par value of $.001
per share. Short-Term Multi-Market has authorized capital stock
of 1,200,000,000 shares of Class A Common Stock, 1,200,000,000
shares of Class B Common Stock and 1,200,000,000 shares of
Class C Common Stock, each having a par value of $.01 per share.
World Income has authorized capital stock of 3,000,000,000 shares
of Common Stock, par value $.002.
Liability of Directors and Officers. Each of the Funds
indemnifies its officers and Directors, as applicable, to the
full extent permitted by law. This indemnification does not
protect any such person against any liability to a Fund or any
shareholder 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
satisfaction of such person's office.
ADDITIONAL INFORMATION ABOUT THE FUNDS
A copy of the Bond Funds Prospectus, a Fund's most-
recent annual report to shareholders and any subsequent semi-
annual report to shareholders, and the Supplementary Information
may be obtained without charge by writing to Alliance Fund
Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096, or by
calling Alliance Fund Services, Inc. toll-free at 1-800-221-5672.
The Funds file registration statements, reports, proxy statements
and other information with the Commission. These documents and
other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material
may also be obtained from the Public Reference Branch, Office of
Filings and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION
Proxies of the shareholders of World Income and Short-
Term Multi-Market are being solicited by the Directors of both
Funds, respectively, for the Meetings of Shareholders to be held
on October 12, 1998, at 1345 Avenue of the Americas, 33rd Floor,
New York, New York 10105 at [ ] Eastern time and at all
33
<PAGE>
adjournments thereof. A proxy may be revoked any time at or
before the relevant Meeting by giving notice to the Secretary of
World Income or Short-Term Multi-Market, as appropriate, 1345
Avenue of the Americas, New York, New York 10105, by signing
another proxy of a later date or by personally voting at that
Meeting. Unless revoked, all valid proxies will be voted in
accordance with the specification thereon, or in the absence of a
specification, for approval of the relevant Plan. Approval of a
Plan by the shareholders of World Income or Short-Term Multi-
Market will be deemed to constitute approval by the shareholders
of such Fund of a temporary amendment to any investment
objective, policy or restriction that would otherwise be
inconsistent with or violated upon the consummation of the
relevant Transaction.
Approval of the relevant Plan requires the affirmative
vote of the holders of a majority of the outstanding shares of
each of World Income and Short-Term Multi-Market. The approval
and closing of one Transaction is not contingent upon the
approval and closing of the other Transaction.
Shareholders of record of each Fund at the close of
business on August 14, 1998 (the "Record Date") will be entitled
to vote at the relevant Meeting or any adjournments thereof. The
holders of one-third of the shares of World Income and Short-Term
Multi-Market outstanding at the close of business on the Record
Date present in person or represented by proxy will constitute a
quorum for the Meetings. Votes cast by proxy or in person at the
Meetings will be counted by the election inspectors for the
Meetings. The election inspectors will count the total number of
votes cast "for" approval of a proposal for purposes of
determining whether sufficient affirmative votes have been cast.
The election inspectors will count shares represented by proxies
that reflect abstentions as shares that are present and entitled
to vote on the matter for purposes of determining the presence of
a quorum. However, an abstention has the effect of a negative
vote on the proposal. Shares that are not voted and for which no
proxy has been given will not be counted as present at the
relevant Meeting. Dissenting shareholders do not have any
appraisal rights in connection with the relevant Transaction.
Shareholders are entitled to one vote for each share
held, and each fractional share is entitled to a proportionate
fractional vote. As of August 14, 1998, as shown on the books of
World Income, there were issued and outstanding [ ] shares
common stock. As of August 14, 1998, as shown on the books of
Short-Term Multi-Market, there were issued and outstanding
[ ] shares of common stock.
In the event that sufficient votes in favor of the
proposal set forth in the Notice of Special Meetings are not
34
<PAGE>
received by the time scheduled for the Meeting for a Fund, the
persons named as proxies may authorize one or more adjournments
of the relevant Meeting with no other notice than announcement at
such Meeting for a period or periods not extending past December
12, 1998 to permit further solicitation of proxies with respect
to the proposal. Any such adjournment will require the
affirmative vote of a majority of the votes cast on the question
in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of
the adjournment those proxies which they are entitled to vote in
favor of the relevant Transaction. They will vote against any
such adjournment those proxies required to be voted against the
relevant Transaction.
Votes of the shareholders of Multi-Market Strategy are
not being solicited in connection with the Transactions, since
their approval or consent is not necessary for the consummation
of the Transactions.
In addition to the solicitation of proxies by mail or
expedited delivery service, employees and agents of Alliance may
solicit proxies in person or by telephone. Persons holding
shares as nominees will upon request be reimbursed for their
reasonable expenses in sending soliciting material to their
principals. Each Fund has engaged the proxy solicitation firm of
Shareholder Communications Corporation, 17 State Street, New
York, New York 10004, to assist the Fund in soliciting proxies
for the Meetings. Shareholder Communications Corporation will
receive a fee from Alliance estimated at $[ ] and reimbursement
of out-of-pocket expenses.
Share Ownership. As of August 14, 1998, the officers
and Directors of Multi-Market Strategy as a group beneficially
owned less than 1% of the outstanding shares of each class of
common stock of Multi-Market Strategy and, to the knowledge of
Multi-Market Strategy, the following persons owned of record, and
no person owned beneficially, 5% or more of the outstanding
shares of each class of Multi-Market Strategy:
% Ownership
Name and Address of Holder
of Record of Shares of Class Class Class
Multi-Market Strategy A B C
As of August 14, 1998, the officers and Directors
of World Income as a group beneficially owned less than 1%
of the outstanding shares of World Income and, to the
35
<PAGE>
knowledge of World Income, the following persons owned of
record, and no person owned beneficially, 5% or more of the
outstanding shares of World Income:
Name and Address of Holder
of Record of Shares of
World Income % Ownership
As of August 14, 1998, the officers and Directors
of Short-Term Multi-Market as a group beneficially owned
less than 1% of the outstanding shares of each class of
common stock of Short-Term Multi-Market and to the knowledge
of Short-Term Multi-Market, the following persons owned of
record, and no person owned beneficially, 5% or more of the
outstanding shares of Short-Term Multi-Market:
Name and Address of Holder
of Record of Shares of
Short-Term Multi-Market % Ownership
THE BOARDS OF DIRECTORS OF WORLD INCOME AND SHORT-TERM
MULTI-MARKET RECOMMEND APPROVAL OF THE RELEVANT PLAN
36
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND
LIQUIDATION dated as of [ ], 1998 between Alliance
Multi-Market Strategy Trust, Inc., a Maryland corporation
("Multi-Market Strategy"), and Alliance Short-Term Multi-
Market Trust, Inc.,1 a Maryland corporation ("Short-Term
Multi-Market").
In consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Shareholder Approval
A meeting of the shareholders of Short-Term Multi-
Market shall be called and held for the purpose of acting
upon this Agreement and the transactions contemplated
herein. Multi-Market Strategy shall furnish to Short-Term
Multi-Market such data and information relating to Multi-
Market Strategy as shall be reasonably requested by Short-
Term Multi-Market for inclusion in the information to be
furnished to shareholders of Short-Term Multi-Market in
connection with the meeting for the purpose of acting upon
this Agreement and the transactions contemplated herein.
Approval by the shareholders of Short-Term Multi-Market of
this Agreement and the transactions contemplated herein
shall, to the extent necessary to permit the consummation of
the transactions contemplated herein without violating any
investment objective, policy or restriction of Short-Term
Multi-Market, be deemed to constitute approval by the
shareholders of a temporary amendment of any investment
objective, policy or restriction that would otherwise be
inconsistent with or violated upon the consummation of such
transactions solely for the purpose of consummating such
transactions.
____________________
1. The terms and provisions of the Agreement and Plan of
Reorganization and Liquidation between Multi-Market
Strategy and Alliance World Income Trust, Inc. ("World
Income") are substantially identical to the terms and
provisions of this agreement and plan, except as regards
the provisions governing the exchange of shares of
common stock. World Income has only one class of common
stock, which, as is discussed elsewhere in this
Prospectus/Proxy Statement, will be exchanged at the
Closing for shares of Class C Common Stock of Multi-
Market Strategy.
<PAGE>
2. Reorganization
The transactions described in this section are
hereinafter collectively referred to as the
"Reorganization."
(a) Plan of Reorganization and Liquidation.
(i) Short-Term Multi-Market agrees to and
will grant, bargain, sell, convey, assign, transfer and
deliver to Multi-Market Strategy at the closing provided for
in Section 2(b) (the "Closing") all of the assets, rights,
claims and businesses of every kind, character and
description (whether tangible or intangible, whether real,
personal or mixed, whether absolute, accrued, contingent or
otherwise, whether or not determinable at the time of the
Closing, and wherever located) of Short-Term Multi-Market to
the extent they exist on or after the Closing. In
consideration thereof, at the Closing, Multi-Market Strategy
agrees to and will (A) assume and pay, to the extent that
they exist on the Closing, all liabilities of Short-Term
Multi-Market and (B) deliver to Short-Term Multi-Market the
number of full and fractional Class A Shares, Class B Shares
and Class C Shares of Multi-Market Strategy, par value $.001
per share (the "Multi-Market Strategy Shares"), equal to
that number of full and fractional Class A Shares, Class B
Shares and Class C Shares of Short-Term Multi-Market, par
value $.01 per share (the "Short-Term Multi-Market Shares"),
determined by multiplying the number of Short-Term Multi-
Market Shares of that class by the exchange ratio as
computed as set forth below, the product of such
multiplication to be carried to the third decimal place.
For purposes of this section, Class A, Class B and Class C
Short-Term Multi-Market Shares will correspond to Class A,
Class B and Class C, respectively, Multi-Market Strategy
Shares. The exchange ratio for any class of Short-Term
Multi-Market Shares shall be the number determined by
dividing the net asset value per share of that class of
Short-Term Multi-Market Shares by the net asset value per
share of the corresponding class of the Multi-Market
Strategy Shares. In each case such net asset values are to
be determined on a consistent basis by the appropriate
officers of Short-Term Multi-Market or Multi-Market
Strategy, as the case may be, as of the close of regular
trading on the New York Stock Exchange, Inc. (the
"Exchange") next preceding the Closing. The exchange ratio
shall be carried to the fourth decimal place.
(ii) At the Closing, Short-Term Multi-Market
will liquidate and distribute pro rata to the holders of
record of each class of Short-Term Multi-Market Shares as of
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the Closing the Multi-Market Strategy Shares of the
corresponding class received by Short-Term Multi-Market
pursuant to this Section 2(a). Such liquidation and
distribution will be accompanied by the establishment of an
open account on the share records of Multi-Market Strategy
in the name of each holder of a class of Short-Term Multi-
Market Shares and representing the number of Multi-Market
Strategy Shares of the corresponding class due such
shareholder. Fractional Multi-Market Strategy Shares will
be carried to the third decimal place. Simultaneously with
such crediting of the Multi-Market Strategy Shares to the
shareholders, the Short-Term Multi-Market Shares held by
such shareholders shall be canceled. Certificates
representing Multi-Market Strategy Shares will be issued in
accordance with the then-current Multi-Market Strategy
prospectus; provided, however, that any certificate
representing Multi-Market Strategy Shares to be issued in
replacement of a certificate representing Short-Term Multi-
Market Shares shall be issued only upon the surrender of
such latter certificate.
(iii) Following the Closing, Short-Term
Multi-Market will dissolve.
(b) Closing. The Closing shall occur at the later of
(i) the final adjournment of the meeting of the holders of Short-
Term Multi-Market Shares at which this Agreement and the
transactions contemplated hereby will be considered and (ii) such
later time or times as may be agreed.
3. Articles of Incorporation; By-Laws; Board of Directors;
Officers
Multi-Market Strategy hereby covenants and agrees as
follows:
(a) Charter. The Charter of Multi-Market Strategy in
effect at the Closing shall continue to be the Charter of Multi-
Market Strategy until altered, amended or repealed as provided by
law.
(b) By-Laws. The By-laws of Multi-Market Strategy in
effect at the Closing shall continue to be the By-laws of Multi-
Market Strategy until the same shall thereafter be altered,
amended or repealed in accordance with the Articles of
Incorporation or By-laws of Multi-Market Strategy.
(c) Directors. The directors of Multi-Market Strategy
at the Closing shall continue to be the directors of Multi-Market
Strategy until they resign or their successors shall have been
elected and qualified.
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(d) Officers. Subject to the provisions of the By-laws
of Multi-Market Strategy, the officers of Multi-Market Strategy
at the Closing shall continue to be the officers of Multi-Market
Strategy until they resign or their successors shall have been
elected and qualified.
(e) Vacancies. If at the Closing a vacancy shall exist
on the Board of Directors or in any of the offices of Multi-
Market Strategy, such vacancy may thereafter be filled in the
manner provided by the By-laws of Multi-Market Strategy,
consistent with the provisions of Section 16 of the Investment
Company Act of 1940, as amended (the "Act").
4. Representations, Warranties and Covenants of
Multi-Market Strategy
Multi-Market Strategy represents and warrants to, and
covenants with, Short-Term Multi-Market as follows:
(a) Organization, Existence, Etc. Multi-Market
Strategy is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has the
power to carry on its business as it is now being conducted and
as described in its currently effective Registration Statement on
Form N-1A. Multi-Market Strategy is qualified to do business
under the laws of every jurisdiction in which such qualification
is required, except where the failure to so qualify would not
have a material adverse effect on Multi-Market Strategy. Multi-
Market Strategy has all necessary federal, state and local
authorizations to own all of its properties and assets and to
carry on its business as now being conducted and as described in
its currently effective Registration Statement on Form N-1A.
(b) Registration as Investment Company. Multi-Market
Strategy is registered under the Act as an open-end investment
company of the management type; such registration has not been
revoked or rescinded and is in full force and effect.
(c) Capitalization. The authorized capital stock of
Multi-Market Strategy consists of 3,000,000,000 shares of Class A
Common Stock, 3,000,000,000 shares of Class B Common Stock and
3,000,000,000 shares of Class C Common Stock, each having a par
value $.001 per share. As of [ ], 1998, there were
outstanding [ ] shares of Class A Common Stock, [ ]
shares of Class B Common Stock and [ ] shares of Class C
Common Stock. All of the outstanding shares of common stock of
Multi-Market Strategy have been duly authorized and are validly
issued, fully paid and nonassessable. Because Multi-Market
Strategy is an open-end investment company engaged in the
continuous offering and redemption of its shares, the number of
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outstanding Multi-Market Strategy Shares may change prior to the
Closing.
(d) Financial Statements. The financial statements of
Multi-Market Strategy for the year ended October 31, 1997, which
are audited, and for the six months ended April 30, 1998, which
are unaudited (the "Multi-Market Strategy Financial Statements"),
previously delivered to Short-Term Multi-Market, fairly present
the financial position of Multi-Market Strategy as of the dates
thereof and the results of its operations and changes in its net
assets for the periods indicated.
(e) Shares to be Issued Upon Reorganization. The
Multi-Market Strategy Shares to be issued in connection with the
Reorganization have been duly authorized and upon consummation of
the Reorganization will be validly issued, fully paid and
nonassessable, and no shareholder of Multi-Market Strategy has
any preemptive right to subscribe or purchase in respect thereof.
(f) Authority Relative to this Agreement. Multi-Market
Strategy has the power to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by Multi-Market
Strategy's Board of Directors and no other action by Multi-Market
Strategy is necessary to authorize its officers to effectuate
this Agreement and the transactions contemplated hereby. Multi-
Market Strategy is not subject to any provision of its Charter or
By-laws, nor is Multi-Market Strategy a party to or obligated
under any charter, by-law, indenture or contract provision or any
other commitment or obligation, or subject to any order or
decree, that would be violated by its executing and carrying out
this Agreement and the transactions contemplated hereby.
(g) Liabilities. There are no liabilities of Multi-
Market Strategy, whether or not determined or determinable, other
than liabilities disclosed or provided for in the Multi-Market
Strategy Financial Statements and liabilities incurred in the
ordinary course of business or otherwise previously disclosed in
writing to Short-Term Multi-Market.
(h) Litigation. To the knowledge of Multi-Market
Strategy, there are no claims, actions, suits or proceedings
pending against Multi-Market Strategy. In addition, to the
knowledge of Multi-Market Strategy, there are no claims, actions,
suits or proceedings threatened against Multi-Market Strategy
that would materially adversely affect Multi-Market Strategy or
its assets or business or which would prevent or hinder
consummation of the transactions contemplated hereby.
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(i) Contracts. Except for contracts, agreements,
franchises, licenses or permits entered into or granted in the
ordinary course of its business or disclosed in its current
Registration Statement on Form N-1A filed under the Act, in each
case under which no default exists, Multi-Market Strategy is not
a party to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit of any
kind or nature whatsoever.
(j) Taxes. The federal income tax returns of Multi-
Market Strategy have been filed for all taxable years to and
including the taxable year ended October 31, 1997 and all taxes
payable pursuant to such returns have been paid. The federal
income tax return of Multi-Market Strategy for the taxable year
ending October 31, 1998 will be filed, and any taxes payable
pursuant thereto will be paid, prior to their due date. Multi-
Market Strategy has qualified as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"),
in respect of each taxable year since the commencement of its
operations and has no reason to believe that it will not so
qualify in respect of its current fiscal year.
(k) Registration Statement. Multi-Market Strategy
shall file with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-14 (the
"Registration Statement") under the Securities Act of 1933 (the
"Securities Act") relating to the Multi-Market Strategy shares
issuable hereunder. At the time it becomes effective, the
Registration Statement (i) will comply in all material respects
with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder (the "Regulations") and
(ii) will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at
the time the Registration Statement becomes effective, at the
time of the shareholders' meeting referred to in Section 1 hereof
and at the Closing, the prospectus (the "Prospectus") and
statement of additional information included therein (the
"Statement of Additional Information"), as amended or
supplemented by any amendments or supplements filed with the
Commission by Multi-Market Strategy and delivered to Short-Term
Multi-Market, will not contain an untrue statement of a material
fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that none of
the representations and warranties in this subsection (k) shall
apply to statements in or omissions from the Registration
Statement, Prospectus or Statement of Additional Information made
in reliance upon and in conformity with information furnished by
Short-Term Multi-Market for use in the Registration Statement,
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Prospectus or Statement of Additional Information as provided in
Section 5(k).
(l) No Material Adverse Change. Since October 31,
1997, there has been no material adverse change in the financial
condition, results of operations, business, properties or assets
of Multi-Market Strategy.
(m) Operations in the Ordinary Course. Except as
otherwise contemplated by this Agreement, Multi-Market Strategy
will conduct its business in the ordinary course.
5. Representations, Warranties and Covenants of Short-Term
Multi-Market
Short-Term Multi-Market represents and warrants to, and
covenants with, Multi-Market Strategy as follows:
(a) Organization, Existence, Etc. Short-Term Multi-
Market is a corporation duly organized and validly existing under
the laws of the State of Maryland and has the power to carry on
its business as it is now being conducted and as described in its
current effective Registration Statement on Form N-1A. Short-
Term Multi-Market is qualified to do business under the laws of
every jurisdiction in which such qualification is required,
except where the failure to so qualify would not have a material
adverse effect on Short-Term Multi-Market. Short-Term Multi-
Market has all necessary federal, state and local authorizations
to own all of its properties and assets and to carry on its
business as now being conducted and as described in its current
effective Registration Statement on Form N-1A.
(b) Registration as Investment Company. Short-Term
Multi-Market is registered under the Act as an open-end
investment company of the management type; such registration has
not been revoked or rescinded and is in full force and effect.
(c) Capitalization. The authorized capital stock of
Short-Term Multi-Market consists of 1,200,000,000 shares of
Class A Common Stock, 1,200,000,000 shares of Class B Common
Stock and 1,200,000,000 shares of Class C Common Stock, par value
$.01. As of [ ], 1998, there were outstanding [ ]
shares of Class A Common Stock, [ ] shares of Class B
Common Stock and [ ] shares of Class C Common Stock. All of
the outstanding shares of common stock of Short-Term Multi-Market
have been duly authorized and are validly issued, fully paid and
nonassessable. Because Short-Term Multi-Market is an open-end
investment company engaged in the continuous offering and
redemption of its shares, the number of outstanding shares of
Short-Term Multi-Market may change prior to the Closing.
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(d) Financial Statements. The financial statements of
Short-Term Multi-Market for the year ended October 31, 1997,
which are audited, and for the six months ended April 30, 1998,
which are unaudited (the "Short-Term Multi-Market Financial
Statements"), and were previously delivered to Multi-Market
Strategy, fairly present the financial position of Short-Term
Multi-Market as of the date thereof and the results of its
operations and changes in its net assets for the periods
indicated.
(e) Authority Relative to this Agreement. Short-Term
Multi-Market has the power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of Short-Term Multi-Market and, except for approval by
the shareholders of Short-Term Multi-Market, no other action by
Short-Term Multi-Market is necessary to authorize its officers to
effectuate this Agreement and the transactions contemplated
hereby. Short-Term Multi-Market is not subject to any provision
of its Articles of Incorporation or its By-laws, nor is Short-
Term Multi-Market a party to or obligated under any charter,
by-law, indenture or contract provision or any other commitment
or obligation, or subject to any order or decree, that would be
violated by its executing and carrying out this Agreement and the
transactions contemplated hereby.
(f) Liabilities. There are no liabilities of Short-
Term Multi-Market, whether or not determined or determinable,
other than liabilities disclosed or provided for in the Short-
Term Multi-Market Financial Statements and liabilities incurred
in the ordinary course of business subsequent to April 30, 1998
or otherwise previously disclosed in writing to Multi-Market
Strategy.
(g) Litigation. To the knowledge of Short-Term Multi-
Market there are no claims, actions, suits or proceedings pending
against Short-Term Multi-Market. In addition, to the knowledge
of Short-Term Multi-Market, there are no claims, actions, suits
or proceedings threatened against Short-Term Multi-Market that
would materially adversely affect Short-Term Multi-Market or its
assets or business or which would prevent or hinder consummation
of the transactions contemplated hereby.
(h) Contracts. Except for contracts, agreements,
franchises, licenses or permits entered into or granted in the
ordinary course of its business, in each case under which no
default exists, Short-Term Multi-Market is not a party to or
subject to any material contract, debt instrument, employee
benefit plan, lease, franchise, license or permit of any kind or
nature whatsoever.
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<PAGE>
(i) Taxes. The federal income tax returns of Short-
Term Multi-Market, previously delivered to Multi-Market Strategy,
have been filed for all taxable years to and including the
taxable year ended October 31, 1997, and all taxes payable
pursuant to such returns have been paid. The federal income tax
returns of Short-Term Multi-Market for the taxable year ending
October 31, l998 will be filed, and any taxes payable pursuant
thereto will be paid, prior to their due date. Short-Term Multi-
Market has qualified as a regulated investment company under the
Code in respect of each taxable year since the commencement of
its operations and has no reason to believe that it will not so
qualify in respect of its current fiscal year.
(j) Portfolio Securities. Short-Term Multi-Market will
prepare and deliver to Multi-Market Strategy at the Closing a
Schedule of Investments (the "Schedule") listing all the assets
owned by Short-Term Multi-Market as of the Closing. All assets
to be listed on the Schedule as of the Closing will be owned by
Short-Term Multi-Market free and clear of any liens, claims,
charges, options and encumbrances, except as indicated in the
Schedule, and, except as so indicated, none of such assets is, or
after the Reorganization as contemplated hereby, will be, subject
to any restrictions, legal or contractual, on the disposition
thereof (including restrictions as to the public offering or sale
thereof under the Securities Act) and, except as so indicated,
all such assets are or will be readily marketable.
(k) Registration Statement. In connection with the
Registration Statement, Short-Term Multi-Market will cooperate
with Multi-Market Strategy and will furnish to Multi-Market
Strategy, as reasonably requested by Multi-Market Strategy, the
information relating to Short-Term Multi-Market required by the
Securities Act and the Regulations to be set forth in the
Registration Statement (including the Prospectus and Statement of
Additional Information). At the time the Registration Statement
becomes effective, the Registration Statement, insofar as it
relates to Short-Term Multi-Market, (i) will comply in all
material respects with the provisions of the Securities Act and
the Regulations and (ii) will not contain an untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and at the time the Registration Statement becomes
effective, at the time of the shareholders' meeting referred to
in Section 1 hereof and at the Closing, the Prospectus and
Statement of Additional Information, as amended or supplemented
by any amendments or supplements filed with the Commission by
Multi-Market Strategy and delivered to Short-Term Multi-Market,
insofar as they relate to Short-Term Multi-Market, will not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
A-9
<PAGE>
misleading; provided, however, that the representations and
warranties in this subsection (k) shall apply only to statements
in or omissions from the Registration Statement, Prospectus or
Statement of Additional Information made in reliance upon and in
conformity with information furnished by Short-Term Multi-Market
for use in the Registration Statement, Prospectus or Statement of
Additional Information as provided in this subsection (k).
(l) No Material Adverse Change. Since October 31, 1997
there has been no material adverse change in the financial
condition, results of operations, business, properties or assets
of Short-Term Multi-Market.
(m) Operations in the Ordinary Course. Except as
otherwise contemplated by this Agreement, Short-Term Multi-Market
will conduct its business in the ordinary course.
6. Conditions to Obligations of Short-Term Multi-Market
The obligations of Short-Term Multi-Market hereunder
with respect to the consummation of the Reorganization as it
relates to Short-Term Multi-Market are subject to the
satisfaction of the following conditions:
(a) Approval by Shareholders. This Agreement and the
transactions contemplated by the Reorganization shall have been
approved by the affirmative vote of a majority of the outstanding
shares of Short-Term Multi-Market entitled to be voted with
respect thereto.
(b) Covenants, Warranties and Representations. Multi-
Market Strategy shall have complied with each of its covenants
contained herein, each of the representations and warranties of
Multi-Market Strategy contained herein shall be true in all
material respects as of the Closing, there shall have been no
material adverse change in the financial condition, results of
operations, business, properties or assets of Multi-Market
Strategy since October 31, 1997 and Short-Term Multi-Market shall
have received a certificate of the President of Multi-Market
Strategy satisfactory in form and substance to Short-Term Multi-
Market so stating.
(c) Regulatory Approval. The Registration Statement
shall have been declared effective by the Commission and no stop
order under the Securities Act pertaining thereto shall have been
issued; all necessary orders or exemptions under the Act with
respect to the transactions contemplated hereby shall have been
granted by the Commission; and all necessary approvals,
registrations, and exemptions under federal and state laws shall
have been obtained.
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<PAGE>
(d) Tax Opinion. Short-Term Multi-Market shall have
received the opinion of Seward & Kissel, dated as of the Closing,
addressed to it and in form and substance satisfactory to Short-
Term Multi-Market, as to certain of the federal income tax
consequences of the Reorganization under the Code to Multi-Market
Strategy, Short-Term Multi-Market and the shareholders of Short-
Term Multi-Market. For purposes of rendering the opinion, Seward
& Kissel may rely exclusively and without independent
verification as to factual matters upon the statements made in
this Agreement and the Registration Statement, and upon such
other written representations as to matters of fact as an
executive officer of each of Short-Term Multi-Market and Multi-
Market Strategy will have verified as of the Closing. The
opinion of Seward & Kissel will be to the effect that, based on
the facts and assumptions stated therein, for federal income tax
purposes: (i) the Reorganization will constitute a reorganization
within the meaning of section 368(a)(1)(C) of the Code and that
Short-Term Multi-Market and Multi-Market Strategy will each be "a
party to a reorganization" within the meaning of section 368(b)
of the Code; (ii) Short-Term Multi-Market or Multi-Market
Strategy will not recognize any gain or loss upon the transfer of
all the assets of Short-Term Multi-Market to Multi-Market
Strategy in exchange for Multi-Market Strategy Shares and the
assumption by Multi-Market Strategy of the liabilities of Short-
Term Multi-Market pursuant to this Agreement and upon
distribution (whether actual or constructive) of Multi-Market
Strategy Shares to shareholders of Short-Term Multi-Market in
exchange for their Short-Term Multi-Market Shares; (iii) the
shareholders of Short-Term Multi-Market who receive Multi-Market
Strategy Shares pursuant to the Reorganization will not recognize
any gain or loss upon the exchange (whether actual or
constructive) of their Short-Term Multi-Market Shares for Multi-
Market Strategy Shares (including any fractional share interests
they are deemed to have received) in the Reorganization; (iv) the
aggregate tax basis of the Multi-Market Strategy Shares received
(whether actually or constructively) by each shareholder of
Short-Term Multi-Market will be the same as the aggregate tax
basis of the Short-Term Multi-Market Shares surrendered in the
exchange; (v) the holding period of Multi-Market Strategy Shares
received (whether actually or constructively) by each shareholder
of Short-Term Multi-Market will include the holding period of the
Short-Term Multi-Market Shares that are surrendered in exchange
therefor, provided that the Short-Term Multi-Market Shares
constitute capital assets of such shareholder at the Closing;
(vi) the holding period and tax basis of the assets of Short-Term
Multi-Market acquired by Multi-Market Strategy will be the same
as the holding period and tax basis that Short-Term Multi-Market
had in such assets immediately prior to the Reorganization; and
(vii) Multi-Market Strategy will succeed to the capital loss
carryovers of Short-Term Multi-Market, if any, pursuant to
section 381 of the Code, but the use by Multi-Market Strategy of
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<PAGE>
any such capital loss carryovers may be subject to limitation
under section 383 of the Code.
(e) Opinion of Counsel. Short-Term Multi-Market shall
have received the opinion of Seward & Kissel, as counsel for
Multi-Market Strategy, dated as of the Closing, addressed to and
in form and substance satisfactory to Short-Term Multi-Market, to
the effect that: (i) Multi-Market Strategy is a corporation duly
organized and validly existing under the laws of the State of
Maryland; (ii) Multi-Market Strategy is a non-diversified,
open-end investment company of the management type registered
under the Act; (iii) this Agreement and the Reorganization
provided for herein and the execution of this Agreement have been
duly authorized and approved by requisite action of Multi-Market
Strategy, and this Agreement has been duly executed and delivered
by Multi-Market Strategy and is a valid and binding obligation of
Multi-Market Strategy, subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally,
and to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity); (iv) the Registration Statement has been declared
effective under the Securities Act and to Seward & Kissel's
knowledge no stop order has been issued or threatened suspending
its effectiveness; (v) to Seward & Kissel's knowledge, no
consent, approval, order or other authorization of any federal or
state court or administrative or regulatory agency, other than
the acceptance of Articles of Transfer by the Maryland State
Department of Assessments and Taxation, is required for Multi-
Market Strategy to enter into this Agreement or carry out its
terms that will not have been obtained by the Closing, other than
as may be required under the securities or "blue sky" laws of any
state and other than where the failure to obtain any such
consent, approval, order or authorization would not have a
material adverse effect on the operations of Multi-Market
Strategy; and (vi) the Class A, Class B and Class C shares of
Multi-Market Strategy to be issued in the Reorganization have
been duly authorized and upon issuance thereof in accordance with
this Agreement will be validly issued, fully paid and
nonassessable, and no shareholder of Multi-Market Strategy has
any preemptive right to subscribe or purchase in respect thereof.
(f) Non-Termination. The parties shall not have
terminated this Agreement pursuant to Section 8(c) hereof.
(g) Further Assurances. Short-Term Multi-Market shall
have received such further assurances, including, but not limited
to, further assurances from Multi-Market Strategy or any other
person, concerning the performance of its obligations hereunder
and the consummation of the Reorganization as it shall deem
necessary, advisable or appropriate.
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<PAGE>
7. Conditions to Obligations of Multi-Market Strategy
The obligations of Multi-Market Strategy hereunder with
respect to the consummation of the Reorganization are subject to
the satisfaction of the following conditions:
(a) Approval by Shareholders. This Agreement and the
transactions contemplated by the Reorganization shall have been
approved by the affirmative vote of a majority of the outstanding
shares of Short-Term Multi-Market entitled to be voted with
respect thereto.
(b) Covenants, Warranties and Representations. Short-
Term Multi-Market shall have complied with each of its covenants
contained herein. Each of the representations and warranties of
Short-Term Multi-Market contained herein shall be true in all
material respects as of the Closing, there shall have been no
material adverse change in the financial condition, results of
operations, business, properties or assets of Short-Term Multi-
Market since October 31, 1997, and Multi-Market Strategy shall
have received a certificate of the President of Short-Term Multi-
Market satisfactory in form and substance to Multi-Market
Strategy so stating.
(c) Portfolio Securities. All securities and other
assets to be acquired by Multi-Market Strategy in the
Reorganization shall have been approved for acquisition by the
investment adviser of Multi-Market Strategy as consistent with
the investment policies of Multi-Market Strategy, and all such
securities and other assets on the books of Short-Term Multi-
Market that are not readily marketable shall be valued on the
basis of an evaluation acceptable to Short-Term Multi-Market and
Multi-Market Strategy at the expense of Short-Term Multi-Market.
(d) Regulatory Approval. The Registration Statement
shall have been declared effective by the Commission and no stop
order under the Securities Act pertaining thereto shall have been
issued; all necessary orders of exemption under the Act with
respect to the transactions contemplated hereby shall have been
granted by the Commission, and all necessary approvals,
registrations, and exemptions under federal and state laws shall
have been obtained.
(e) Tax Opinion. Multi-Market Strategy shall have
received the opinion of Seward & Kissel, counsel to Short-Term
Multi-Market, dated as of the Closing, addressed to and in form
and substance satisfactory to Multi-Market Strategy, as to
certain of the federal income tax consequences of the
Reorganization under the Code to Multi-Market Strategy, Short-
Term Multi-Market and the shareholders of Short-Term Multi-
Market. For purposes of rendering the opinion, Seward & Kissel
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<PAGE>
may rely exclusively and without independent verification as to
factual matters upon the statements made in this Agreement and
the Registration Statement, and upon such other written
representations as to matters of fact as an executive officer of
each of Short-Term Multi-Market and Multi-Market Strategy will
have verified as of the Closing. The opinion of Seward & Kissel
will be to the effect that, based on the facts and assumptions
stated therein, for federal income tax purposes: (i) the
Reorganization will constitute a reorganization within the
meaning of section 368(a)(1)(C) of the Code and that Short-Term
Multi-Market and Multi-Market Strategy will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) Short-Term Multi-Market or Multi-Market Strategy will
recognize any gain or loss upon the transfer of all the assets of
Short-Term Multi-Market to Multi-Market Strategy in exchange for
Multi-Market Strategy Shares and the assumption by Multi-Market
Strategy of the liabilities of Short-Term Multi-Market pursuant
to this Agreement and upon the distribution (whether actual or
constructive) of Multi-Market Strategy Shares to shareholders of
Short-Term Multi-Market in exchange for their respective Short-
Term Multi-Market Shares; (iii) the holding period and tax basis
of the assets of Short-Term Multi-Market acquired by Multi-Market
Strategy will be the same as the holding period and tax basis
that Short-Term Multi-Market had in such assets immediately prior
to the Reorganization; and (iv) Multi-Market Strategy will
succeed to the capital loss carryovers of Short-Term Multi-
Market, if any, pursuant to section 381 of the Code, but the use
by Multi-Market Strategy of any such capital loss carryovers may
be subject to limitation under section 383 of the Code.
(f) Opinion of Counsel. Multi-Market Strategy shall
have received the opinion of Seward & Kissel, as counsel for
Short-Term Multi-Market, dated as of the Closing, addressed to
and in form and substance satisfactory to Multi-Market Strategy,
to the effect that (i) Short-Term Multi-Market is a corporation
duly organized under the laws of the State of Maryland;
(ii) Short-Term Multi-Market is a non-diversified, open-end
investment company of the management type registered under the
Act; (iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been duly
authorized and approved by requisite action of Short-Term Multi-
Market, and this Agreement has been duly executed and delivered
by Short-Term Multi-Market, and is a valid and binding obligation
of Short-Term Multi-Market, subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally,
and to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity); (iv) the Reorganization has been approved by the
requisite vote of the shareholders of Short-Term Multi-Market;
and (v) to Seward & Kissel's knowledge, no consent, approval,
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<PAGE>
order or other authorization of any federal or state court or
administrative or regulatory agency, other than the acceptance of
Articles of Transfer by the Maryland State Department of
Assessments and Taxation, is required for Short-Term Multi-Market
to enter into this Agreement or carry out its terms that will not
have been obtained by the Closing other than where the failure to
obtain any such consent, approval, order or authorization would
not have a material adverse effect on the operations of Short-
Term Multi-Market.
(g) Non-Termination. The parties shall not have
terminated this Agreement pursuant to Section 8(c) hereof.
(h) Further Assurances. Multi-Market Strategy shall
have received such further assurances, including, but not limited
to, further assurances from Short-Term Multi-Market or any other
person, concerning the performance of their obligations hereunder
and the consummation of the Reorganization as it shall deem
necessary, advisable or appropriate.
8. Amendments; Waivers; Termination; Survival; Cooperation
(a) Amendments. Short-Term Multi-Market and Multi-
Market Strategy may, by agreement in writing authorized by their
respective Boards of Directors, amend this Agreement at any time
before or after approval hereof by the shareholders of Short-Term
Multi-Market, but after such approval, no amendment shall be made
that materially alters the obligations of any party hereto.
(b) Waivers. At any time prior to the Closing, any
party may by written instrument signed by it (i) waive the effect
of any inaccuracies in the representations and warranties made to
it contained herein and (ii) waive compliance with any of the
covenants or conditions made for its benefit contained herein.
(c) Termination. Each party may terminate this
Agreement at any time prior to the Closing by notice to the other
party if (i) a material condition to its performance hereunder or
a material covenant of the other party contained herein shall not
be fulfilled on or before the date specified for the fulfillment
thereof or (ii) a material default or material breach of this
Agreement shall be made by the other party. This Agreement may
be terminated at any time prior to the Closing, whether before or
after approval by the shareholders of Short-Term Multi-Market,
without liability on the part of either party hereto or its
respective Board of Directors, officers or shareholders, by any
party on notice to the other party in the event that the Board of
Directors of the party giving such notice determines that
proceeding with this Agreement is not in the best interest of
that party's shareholders. Unless the parties hereto shall
otherwise agree in writing, this Agreement shall terminate,
A-15
<PAGE>
without liability to any party, as of the close of business on
October 31, 1999 if the Closing is not held on or prior to such
date.
(d) Survival. No representations, warranties or
covenants in or pursuant to this Agreement (including
certificates of officers) shall survive the Reorganization.
(e) Cooperation. Each of the parties hereto will
cooperate with the other in fulfilling its obligations under this
Agreement and will provide such information and documentation as
is reasonably requested by the other in carrying out the terms
hereof.
9. Expenses
Alliance Capital Management L.P., the investment adviser
to each party hereto, will bear all expenses incurred in
connection with this Agreement, and all transactions contemplated
hereby, whether or not the Reorganization is consummated;
provided, however, that Short-Term Multi-Market shall bear any
cost or expense incurred through the time of the Closing for
purposes of satisfying the conditions set forth in Section 7(c)
above.
10. General
This Agreement supersedes all prior agreements between
the parties (written or oral), is intended as a complete and
exclusive statement of the terms of the Agreement between the
parties and may not be changed or terminated orally. This
Agreement may be executed in counterparts, which shall be
considered one and the same agreement, and shall become effective
when the counterparts have been executed by Short-Term Multi-
Market and Multi-Market Strategy and delivered to each of the
parties hereto. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Nothing in this
Agreement, expressed or implied, is intended to confer upon any
other person any rights or remedies under or by reason of this
Agreement. This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
A-16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
ALLIANCE SHORT-TERM MULTI-MARKET
TRUST, INC.
By________________________
ALLIANCE MULTI-MARKET STRATEGY
TRUST, INC.
By________________________
Accepted and agreed to as to Section 9:
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation, Its General Partner
By______________________________
A-17
<PAGE>
TABLE OF CONTENTS Page
Introduction...........................
Fee Table..............................
Synopsis...............................
Risk Factors...........................
Reasons for the Transactions...........
Management's Discussion of Performance
of Multi-Market Strategy.............
Comparison of Investment Objectives and
Policies.............................
Information about the Transactions.....
Certain Comparative Information........
Additional Information about
the Funds...........................
Voting Information.....................
Exhibit A: Form of Agreement and Plan of
Reorganization and Liquidation....... A-1
<PAGE>
ALLIANCE WORLD INCOME TRUST, INC.
Proxy for the Special Meeting of Shareholders
October 12, 1998
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE
DIRECTORS RECOMMEND VOTING "FOR" THE PROPOSAL.
The undersigned hereby appoints each of Domenick Pugliese and
Carol H. Rappa as proxies, each with the power to appoint his or
her substitute, and authorizes each of them to represent and to
vote, as designated on the reverse hereof all the Common Stock of
Alliance World Income Trust, Inc. (the "Fund") held of record by
the undersigned on August 14, 1998 at the Special Meeting of
Shareholders of the Fund to be held at [ ], Eastern
Standard Time, on October 12, 1998 at the offices of the Fund,
1345 Avenue of the Americas, 33rd Floor, New York, New York
10105, and at all adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL.
(Continued and to be signed on the reverse side)
Alliance World Income Trust, Inc.
P.O. Box [ ]
New York, N.Y. 10203-0389
<PAGE>
1. To approve an Agreement and Plan of Reorganization and
Liquidation providing for the transfer of all of the assets
and liabilities of the Fund to Alliance Multi-Market Strategy
Trust, Inc. in exchange for Class C shares of Alliance Multi-
Market Strategy Trust, Inc., the distribution of such Class C
shares to shareholders of the Fund in liquidation of the Fund
and the subsequent dissolution of the Fund.
FOR AGAINST ABSTAIN
/ / / / / /
Change of Address or
Comments Mark Here / /
Please sign and date this proxy in the space provided below.
Execution by shareholders who are not individuals must be made by
an authorized signatory.
Dated: , 1998
____________________________________
Name of Shareholder
____________________________________
Signature
Votes must be indicated (x) in black or blue ink.
Please Sign, Date and Return Promptly in the Enclosed Envelope -
No Postage is Required.
2
<PAGE>
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
Proxy for the Special Meeting of Shareholders
October 12, 1998
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE
DIRECTORS RECOMMEND VOTING "FOR" THE PROPOSAL.
The undersigned hereby appoints each of Domenick Pugliese and
Carol H. Rappa as proxies, each with the power to appoint his or
her substitute, and authorizes each of them to represent and to
vote, as designated on the reverse hereof all the Common Stock of
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund") held of
record by the undersigned on August 14, 1998 at the Special
Meeting of Shareholders of the Fund to be held at 11:00 a.m.,
Eastern Standard Time, on October 10, 1998 at the offices of the
Fund, 1345 Avenue of the Americas, 33rd Floor, New York, New York
10105, and at all adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL.
(Continued and to be signed on the reverse side)
Alliance Short-Term Multi-Market Trust, Inc.
P.O. Box [ ]
New York, N.Y. 10203-0389
3
<PAGE>
1. To approve an Agreement and Plan of Reorganization and
Liquidation providing for the transfer of all of the assets
and liabilities of the Fund to Alliance Multi-Market Strategy
Trust, Inc. in exchange for Class A, Class B and Class C
shares of Alliance Multi-Market Strategy Trust, Inc., the
distribution of such Class A, Class B and Class C shares to
shareholders of the Fund in liquidation of the Fund and the
subsequent dissolution of the Fund.
FOR AGAINST ABSTAIN
/ / / / / /
Change of Address or
Comments Mark Here / /
Please sign and date this proxy in the space provided below.
Execution by shareholders who are not individuals must be made by
an authorized signatory.
Dated: , 1998
____________________________________
Name of Shareholder
____________________________________
Signature
Votes must be indicated (x) in black or blue ink.
Please Sign, Date and Return Promptly in the Enclosed Envelope -
No Postage is Required.
2
<PAGE>
This is filed pursuant to Rule 497(e).
ALLIANCE CAPITAL [Logo] THE ALLIANCE BOND FUNDS
_________________________________________________________________
Supplement dated July 15, 1998 to Prospectus dated
March 2, 1998 of The Alliance Bond Funds
Alliance Short-Term Multi-Market Trust, Inc. ("Short-
Term Multi-Market") and Alliance World Income Trust, Inc.,
("World Income") have suspended sales of shares other than sales
to shareholders as of the close of business on July 15, 1998.
This action followed approval by the Boards of Directors of
Short-Term Multi-Market and World Income of separate Agreements
and Plans of Reorganization and Liquidation ("Plans") pursuant to
which the assets and liabilities of Short-Term Multi-Market and
World Income will be exchanged for shares of Alliance Multi-
Market Strategy Trust, Inc. ("Multi-Market Strategy"), a non-
diversified open-end investment company sponsored by Alliance.
The Boards of Directors of Short-Term Multi-Market and
World Income have called meetings of their shareholders to vote
on the Plans to be held on October 12, 1998. Proxy materials
describing Multi-Market Strategy and the terms of the proposed
acquisitions will be mailed prior to the meetings to shareholders
of record of Short-Term Multi-Market and World Income as of the
close of business on August 14, 1998. If approved at the
meetings, it is expected that the acquisitions will occur shortly
thereafter. Shareholder approval of one acquisition is
independent of shareholder approval of the other acquisition.
Accordingly, the closing of one acquisition is not contingent
upon the closing of the other acquisition.
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
3
<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 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUNDS
- -ALLIANCE WORLD INCOME TRUST
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 24
Certain Fundamental Investment Policies 35
Risk Considerations 37
Purchase and Sale of Shares 41
Management of the Funds 44
Dividends, Distributions and Taxes 47
General Information. 48
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
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 Fund invests 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 Funds invest 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, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund (except Alliance World Income Trust) offers three classes of shares
through this Prospectus. These shares may be purchased, at the investor's
choice, at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (four years of purchase for Alliance Global Strategic Income
Trust and Alliance High Yield Fund) (the "Class B shares"), or (iii) without
any initial or contingent deferred sales charge, as long as the shares are held
for one year or more (the "Class C shares"). 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 Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $218
billion in assets under management as of December 31, 1997. Alliance provides
investment management services to employee benefit plans for 31 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.
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
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. The
Fund 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
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.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
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. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. 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 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 (except WORLD INCOME) 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 Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
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,
no deferred sales charge, and no 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(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES-HOW TO BUY SHARES" -PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES-HOW TO BUY SHARES" -PAGE 42.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES-HOW TO BUY
SHARES"-PAGE 42.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 31 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66 $ 66
Other expenses After 5 years $116 $113 $113 $113 $113
Interest expense .01% .01% .01% After 10 years $204 $210 $210 $244 $244
Other operating expenses (a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.11% 1.11% 1.10%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.41% 2.11% 2.11%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .53% .53% .53% After 1 year $ 52 $ 48 $ 18 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54 $ 54
Other expenses(b) .19% .20% .19% After 5 years $ 96 $ 94 $ 94 $ 93 $ 93
Total fund operating expenses 1.02% 1.73% 1.72% After 10 years $162 $168 $168 $203 $203
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
LIMITED MATURITY GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MORTGAGE SECURITIES INCOME ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
WORLD INCOME
Management fees(f)(after waiver) .49% After 1 year $ 23
12b-1 fees(f)(after waiver) .68% After 3 years $ 70
Other expenses(b) 1.08% After 5 years $120
Total fund operating After 10 years $258
expenses(b)(f)(after waiver) 2.25%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM MULTI-MARKET ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .55% .55% .55% After 1 year $ 55 $ 50 $ 20 $ 30 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 81 $ 72 $ 62 $ 62 $ 62
Other expenses(b) .43% .44% .44% After 5 years $110 $107 $107 $107 $107
Total fund operating expenses 1.28% 1.99% 1.99% After 10 years $190 $197 $197 $232 $232
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MULTI-MARKET STRATEGY ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
NORTH AMERICAN GOVERNMENT INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(g) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(h) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL DOLLAR GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .75% .75% .75% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 89 $ 81 $ 71 $ 70 $ 70
Other expenses(b) .50% .51% .50% After 5 years $123 $121 $121 $120 $120
Total fund operatingexpenses 1.55% 2.26% 2.25% After 10 years $219 $225 $225 $258 $258
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL STRATEGIC INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(i)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(i) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(i)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
CORPORATE BOND ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .57% .57% .57% After 1 year $ 53 $ 48 $ 18 $ 29 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 77 $ 67 $ 57 $ 57 $ 57
Other expenses(b) .25% .25% .25% After 5 years $102 $ 99 $ 99 $ 99 $ 99
Total fund operating expenses 1.12% 1.82% 1.82% After 10 years $173 $179 $179 $214 $214
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
HIGH YIELD ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(j)(after waiver) None None None After 1 year $ 59 $ 64 $ 24 $ 34 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 95 $ 75 $ 75 $ 75
Other expenses(b)(j) After 5 years $131 $128 $128 $128 $128
(after reimbursement) 1.40% 1.40% 1.40% After 10 years $235 $256 $256 $274 $274
Total fund operating expenses(j)
(after waiver/reimbursement) 1.70% 2.40% 2.40%
</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 (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ 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
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.57% FOR CLASS A, 1.55% FOR CLASS B AND 1.54% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.42% FOR CLASS A,
3.10% FOR CLASS B AND 3.09% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN DO NOT REFLECT
THE APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C,
2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C,
1.77%.
(F) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED
MANAGEMENT FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE
BEEN .90% AND ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
2.63%.
(G) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL
NET ASSETS.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C,
2.08%.
(I) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B,
AND 3.02% FOR CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN
4.06% FOR CLASS A, 4.76% FOR CLASS B, AND 4.77% FOR
CLASS C.
(J) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 2.10% (ANNUALIZED) FOR
CLASS B, AND 2.09% (ANNUALIZED) FOR CLASS C; AND TOTAL OPERATING EXPENSES WOULD
HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 3.85% (ANNUALIZED) FOR CLASS B, AND
3.84% (ANNUALIZED) FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of 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 Conduct Rules 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 SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "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 "Description of Funds-Risk
Considerations-Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (d), (f), (g), (h)
and (j) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. 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. "Other Expenses" are based on
estimated amounts for HIGH YIELD'S current fiscal year. THE EXAMPLES SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
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 relating to SHORT-TERM U.S. GOVERNMENT has been
audited by Price Waterhouse LLP, the independent accountants for the Fund, and
the information in the tables relating to U.S. GOVERNMENT, LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD has been
audited by Ernst & Young LLP, the independent auditors for these Funds. 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 "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/97 $9.66 $.47(h) $ .03 $.50 $(.46) $0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/97 $9.77 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/97 $9.76 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/97 $7.52 $.57(h) $(.10) $.47 $(.57) $0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
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
CLASS B
Year Ended 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
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 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
Year Ended 11/30/97 $9.45 $.51(h) $ .02 $.53 $(.52) $0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
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 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
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 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ (.07) $(.53) $9.63 5.29% $ 3,901 1.41%(d)(e) 4.90% 65%
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40(d) 3.98 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $ (.07) $(.46) $9.74 4.45% $ 6,458 2.11%(d)(e) 4.13% 65%
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $ (.07) $(.46) $9.73 4.45% $ 5,012 2.11%(d)(e) 4.15% 65%
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $ (.01) $(.58) $7.41 6.49% $354,782 1.02% 7.66% 330%
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
$0.00 $ (.01) $(.53) $7.41 5.69% $471,889 1.73% 6.95% 330%
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $ (.01) $(.53) $7.41 5.69% $115,607 1.72% 6.96% 330%
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $(.02) $(.54) $9.44 5.79% $ 16,197 2.41%(e) 5.52% 249%
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $(.02) $(.47) $9.44 5.04% $ 33,613 3.14%(e) 4.80% 249%
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $(.02) $(.47) $9.44 5.05% $ 28,738 3.13%(e) 4.82% 249%
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<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>
MORTGAGE SECURITIES INCOME
CLASS A
Year Ended 12/31/97 $8.51 $.54(h) $ .15 $ .69 $(.54) $0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
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)
CLASS B
Year Ended 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
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 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
WORLD INCOME
Year Ended 10/31/97 $1.67 $.07(h) $(.01) $ .06 $(.06) $0.00
Year Ended 10/31/96 1.66 .09(h) .02 .11 (.10) 0.00
Year Ended 10/31/95 1.88 .11(h) (.23) (.12) 0.00 0.00
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
SHORT-TERM MULTI-MARKET
CLASS A
Year Ended 10/31/97 $7.73 $.51(h) $(.04) $ .47 $(.56) $0.00
Year Ended 10/31/96 7.47 .60(h) .35 .95 (.69) 0.00
Year Ended 10/31/95 8.71 .46(h) (.98) (.52) 0.00 0.00
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 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .54(h) .35 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .41(h) (.99) (.58) 0.00 0.00
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 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .51(h) .38 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .39(h) (.97) (.58) 0.00 0.00
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 10/31/97 $7.23 $.47(h) $ .08 $ .55 $(.47) $0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
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 10/31/97 $7.23 $.42(h) $ .06 $ .48 $(.42) $0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
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 10/31/97 $7.23 $.42(h) $ .07 $ .49 $(.42) $0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.03) $0.00 $(.57) $8.63 8.04% $372,494 1.41%(e) 6.30% 184%
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
$(.03) $0.00 $(.51) $8.63 7.60% $323,916 2.14%(e) 5.60% 184%
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$(.03) $0.00 $(.51) $8.63 7.60% $27,859 2.12%(e) 5.61% 184%
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$0.00 $(.05) $(.11) $1.62 3.47% $21,529 2.25%(d) 4.35% N/A
0.00 0.00 (.10) 1.67 6.98 44,890 2.10(d) 5.37 N/A
0.00 (.10) (.10) 1.66 (6.35) 55,778 1.97(d) 6.46 N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96 N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54 (d) 5.14 N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21 N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29* N/A
$(.05) $0.00 $(.61) $7.59 6.20% $434,273 1.28%(i) 6.54% 172%
0.00 0.00 (.69) 7.73 13.23 386,545 1.29 7.85 208
0.00 (.72) (.72) 7.47 (5.74) 320,333 1.23 7.39 230
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$(.10) $0.00 $(.55) $7.59 5.42% $86,785 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.34 273,109 2.00 7.14 208
0.00 (.66) (.66) 7.47 (6.50) 523,530 1.95 6.69 230
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$(.10) $0.00 $(.55) $7.59 5.42% $6,004 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.35 10,031 1.98 7.15 208
0.00 (.66) (.66) 7.47 (6.49) 3,416 1.92 6.66 230
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182
$(.20) $0.00 $(.67) $7.11 7.82% $96,133 1.58%(i) 6.50% 173%
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$(.18) $0.00 $(.60) $7.11 6.90% $29,949 2.29%(i) 5.79% 173%
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$(.19) $0.00 $(.61) $7.11 6.92% $1,203 2.28%(i) 5.80% 173%
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<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>
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
Year Ended 11/30/97 $ 8.01 $1.03(h) $ (.05) $ .98 $(..97) $0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
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 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
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 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.76 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/97 $10.01 $ .88(h) $ 1.85 $2.73 $(.95) $(1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/97 $10.01 $ .81(h) $ 1.84 $2.65 $(.87) $(1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/97 $10.01 $ .82(h) $ 1.84 $2.66 $(.88) $(1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
Year Ended 10/31/97 $10.83 $ .74(h) $ 1.02 $1.76 $(.75) $(.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/97 $13.29 $1.15(h) $ .97 $2.12 $(1.22) $0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
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
CLASS B
Year Ended 6/30/97 $13.29 $1.05(h) $ .98 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/97 $13.29 $1.04(h) $ .99 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
4/22/97+ to 8/31/97 $10.00 $ .37(h) $ 1.15 $1.52 $(.35) $0.00
CLASS B
4/22/97+ to 8/31/97 $10.00 $ .31(h) $ 1.19 $1.50 $(.33) $0.00
CLASS C
4/22/97+ to 8/31/97 $10.00 $ .32(h) $ 1.18 $1.50 $(.33) $0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $0.00 $ (.97) $ 8.02 12.85% $ 511,749 2.15%(f) 12.78% 118%
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $1,378,407 2.86%(f) 12.15% 118%
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $ 283,483 2.85%(f) 12.14% 118%
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
$0.00 $0.00 $(2.10) $10.64 30.04% $ 37,416 1.55% 8.49% 314%
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $(2.02) $10.64 29.14% $ 93,377 2.26% 7.81% 314%
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $(2.03) $10.64 29.17% $ 25,130 2.25% 7.82% 314%
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$(.28) $0.00 $(1.13) $11.46 16.83% $ 12,954 1.90%(d) 6.56% 417%
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 18,855 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 4,388 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$0.00 $0.00 $(1.22) $14.19 16.59% $ 370,845 1.12% 8.34% 307%
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
$0.00 $0.00 $(1.13) $14.19 15.80% $ 480,326 1.82% 7.62% 307%
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.13) $14.19 15.80% $ 174,762 1.82% 7.61% 307%
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$0.00 $0.00 $ (.35) $11.17 15.33% $ 5,889 1.70%*(d) 8.04%* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 43,297 2.40*(d) 7.19* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 7,575 2.40*(d) 7.24* 73%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# 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 TO 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, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996 AND 2.42% FOR THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS B
SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR ENDED APRIL 30, 1994,
3.60% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.33% FOR THE YEAR
ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR
THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED
AUGUST 31, 1997. IF LIMITED MATURITY GOVERNMENT 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 FOR LIMITED
MATURITY GOVERNMENT 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, 2.08% FOR 1994, 2.35% FOR 1995, 2.48% FOR
1996 AND 2.63% FOR 1997. 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 FOR
THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE RATIOS WOULD HAVE
BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH RESPECT TO CLASS
B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 2.59%
(ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES FOR THE
RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996 AND ITS FISCAL YEAR
ENDED IN 1997, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 19.20% (ANNUALIZED) AND 4.06% RESPECTIVELY; WITH RESPECT TO CLASS B
SHARES, 19.57% (ANNUALIZED) AND 4.76% RESPECTIVELY; AND WITH RESPECT TO
CLASS C SHARES, 19.49% (ANNUALIZED), AND 4.77% RESPECTIVELY. IF HIGH YIELD HAD
BORNE ALL EXPENSES FOR THE PERIOD APRIL 22, 1997 TO AUGUST 31, 1997, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 3.11%
(ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85% (ANNUALIZED); AND WITH
RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996 AND 1997; WITH RESPECT TO CLASS B SHARES, 2.10% FOR 1996
AND 1997; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996 AND 1997. IF
LIMITED MATURITY GOVERNMENT 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, 1.20% FOR 1994, 1.41% FOR 1995,
1.58% FOR 1996, AND 1.65% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.10%
(ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91% FOR 1994, 2.11% FOR 1995, 2.30%
FOR 1996 AND 2.39% FOR 1997; WITH RESPECT TO CLASS C SHARES, 1.58%
(ANNUALIZED), FOR 1993, 1.89% FOR 1994, 2.10% FOR 1995, 2.29% FOR 1996 AND
2.37% FOR 1997. IF MORTGAGE SECURITIES INCOME FUND HAD NOT BORNE INTEREST
EXPENSE THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES .97% FOR 1994, 1.03% FOR 1995, 1.03% FOR 1996 AND
1.07% FOR 1997; WITH RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995,
1.74% FOR 1996 AND 1.78% FOR 1997; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, AND 1.77% FOR 1997.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. 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, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996 AND
1.38% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992,
2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12% FOR 1996 AND 2.09% FOR
1997; AND WITH RESPECT TO CLASS C SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06%
FOR 1994, 2.21% FOR 1995, 2.12% FOR 1996, AND 2.08% FOR 1997.
(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.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR SHORT-TERM MULTI-MARKET THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.27% FOR 1997, WITH RESPECT TO CLASS B SHARES 1.98% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 1.98% FOR 1997. FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B 2.28% FOR 1997 AND WITH RESPECT TO
CLASS C 2.27% FOR 1997.
14
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 or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes 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 are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
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.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, 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. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
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.
EXCHANGE is the New York Stock Exchange.
15
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. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices-Mortgage-Related 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 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
Arkansas, California, Colorado, Connecticut*, Delaware, Florida, Hawaii*,
Illinois, Indiana, Kansas, Louisiana, Maine, Mississippi, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota*, Texas, Utah and Virginia, (iii)
credit unions chartered under the laws of California, Florida*, Georgia,
Illinois, Kentucky, Maine, Maryland*, Nevada*, New Hampshire, Ohio*, Oregon*,
Pennsylvania*, South Carolina, Utah, Washington and West Virginia, and (iv)
commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Connecticut*, Delaware, Florida, Georgia, Hawaii*, Idaho,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina*, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas,
Utah, Vermont, Virginia, Washington, West Virginia and Wyoming. 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.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ("Limited Maturity Government")
seeks the highest level of current income, consistent with low volatility of
net asset value. As a matter of fundamental policy, the Fund normally has at
least 65% of the value of its total assets invested in U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government
16
securities. For a description of these securities, see "Additional Investment
Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
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.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
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 investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt 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."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that 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.
17
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 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 a 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 Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as "linked" securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such securities
are determined with reference to another currency. 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-U.S. Dollar exchange rate and with the general level of interest rates in
Mexico. For a general description of Mexico, see Appendix B and each
Multi-Market Fund's Statement of Additional Information.
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 fifteen-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
18
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 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 unrated
commercial paper determined by Alliance to be of equivalent quality and issued
by U.S. or foreign companies having outstanding: in the case of WORLD INCOME,
triple-A debt securities; in the case of MULTI-MARKET STRATEGY, high quality
debt securities; and in the case of SHORT-TERM MULTI-MARKET, high grade 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. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. 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 state of the Mexican
economy.
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
19
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. Government of 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 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) Bonds, 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) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
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 practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its 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" and "Risk Considerations-Sovereign Debt
Obligations." 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
20
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, 1997, 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
5% in A and above, 67% in Ba or BB, 9% in B, 2% in CCC and 5% in non-rated. See
"Risk Considerations-Securities Ratings," "-Investment in Fixed-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
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia 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. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. 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, Russia 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."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
21
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in
three countries, one of which may be the United States. No more than 25% of the
value of its total assets, however, will be invested in the securities of any
one foreign government. U.S. Government securities in which the Fund may invest
include mortgage-related securities and zero coupon securities. Fixed-income
securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Risk Considerations-Securities
Ratings" and "-Investment in Lower-Rated Fixed-Income 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. Lower-rated
securities in which the Fund may invest include Brady Bonds and fixed-income
securities of issuers located in emerging markets. There is no minimum rating
requirement applicable to the Fund's investments in lower-rated fixed-income
securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make short sales of securities or
maintain a short position. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices" and
"Risk Considerations." The Fund may borrow in order to purchase
securities or make other investments, although it currently intends to limit
its ability to borrow to an amount not to exceed 25% of its total assets. See
"Risk Considerations-Effects of Borrowing."
CORPORATE BOND FUNDS
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.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
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, 1997, 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 29% in A and above, 41% in Baa or BBB, 14% in
Ba or BB, and 12% 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.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate
22
fixed-income securities and sovereign debt obligations. Not more than 15% of
the Fund's total assets may be invested in sovereign debt obligations in the
form of foreign government loan participations and assignments, which may be
lower rated and considered to be predominantly speculative as regards the
issuer's capacity to pay interest and repay principal. All of the Fund's
investments, whether foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, 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 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
mortgage-related securities. 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."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The
Fund is managed to maximize current income by taking advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. The Fund uses various strategies in attempting to achieve
its objective.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than
BBB by S&P) or unrated but deemed by Alliance to be equivalent to such
lower-rated securities. The Fund will not, however, invest more than 10% of
its total assets in (i) fixed-income securities which are rated lower than B3
or B- or their equivalents by two or more NRSROs or if unrated are of
equivalent quality as determined by Alliance, and (ii) money market
instruments of any entity which has an outstanding issue of unsecured debt
that is rated lower than B3 or B- or their equivalents by two or more NRSROs
or if unrated is of equivalent quality as determined by Alliance.
As of August 31, 1997, 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
12% in A and above, 3% in Ba or BB, 53% in B, 2% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC 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.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations-Foreign Investment" and "-Currency
Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii)
23
certificates of deposit, bankers' acceptances, bank notes, time deposits and
interest bearing savings deposits issued or guaranteed by certain domestic and
foreign banks, (iii) commercial paper (rated at least A-1 by S&P or Prime-1 by
Moody's or, if not rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests in loans
extended by banks to such companies, (iv) corporate debt obligations with
remaining maturities of less than one year rated at least high quality as well
as corporate debt obligations rated at least high grade provided the
corporation also has outstanding an issue of commercial paper rated at least
A-1 by S&P or Prime-1 Moody's, and (v) floating rate or master demand notes.
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
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. 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, HIGH YIELD and GLOBAL
STRATEGIC INCOME, in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging that is
an integral part of their investment strategy. Alliance's use of derivatives is
subject to continuous risk assessment and control from the standpoint of each
Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments-options, futures,
forwards and swaps-from which virtually any type of derivative transaction can
be created.
. OPTIONS-An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset 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
24
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."
Derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in 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 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.
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 on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or
25
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 with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. 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 securities held by a Fund 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.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
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 currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME will not enter into a futures contract or write or purchase an option on
a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50%
of its total assets. MORTGAGE SECURITIES INCOME will not write or purchase
options on futures contracts. Nor will LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter
into a futures contract or, if
26
otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
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.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. 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 (a "transaction hedge"). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount (a "position hedge"). Instead of entering into a position hedge,
a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Fund are denominated (a
"cross-hedge").
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
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
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,
27
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, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME may enter into interest rate swaps involving
payments in the same currency or in different currencies. SHORT-TERM U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME 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 NRSRO. Each of SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
GLOBAL STRATEGIC INCOME will enter into interest rate swap, cap or floor
transactions with its respective custodian, and with other counterparties, but
only if: (i) for transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for transactions
with maturities greater than one year, the counterparty has high quality debt
securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
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. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, 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 receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
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
28
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 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" below.
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" 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.
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. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. Collateralized
mortgage obligations (CMOs) are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral
29
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. In a common
structure, payments of principal, including any principal prepayments, on the
underlying mortgages are applied to the classes of the series of a CMO in the
order of their respective stated maturities or final distribution dates, so
that no payment of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution date have been
paid in full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. Although payment of the
principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
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.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price
and yield volatility than is experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities
at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially
30
possible with fixed-rate mortgage securities. If the yield available on other
investments rises above the yield of the fixed-rate mortgage securities as a
result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
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.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few 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
31
and Taxes-Zero Coupon Treasury Securities" in the Statement of Additional
Information of each Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and 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 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,
GLOBAL STRATEGIC INCOME 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 and GLOBAL STRATEGIC INCOME, 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 GLOBAL STRATEGIC INCOME 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 and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME 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).
32
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady 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 decrease as interest rates rise and increase as
interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. 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, 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.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the broker-dealer
from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box."
The Fund may not make a short sale, if as a result, more than 25% of its total
assets would be held as collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
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
33
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 LIMITED MATURITY GOVERNMENT, 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 advantageous only if the
interest cost to a 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, LIMITED MATURITY GOVERNMENT 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).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. 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 secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, 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
34
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 are different from
or 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 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.
LIMITED MATURITY GOVERNMENT 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
35
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 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, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (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.
GLOBAL STRATEGIC INCOME may not (i) 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, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S.
36
Government securities, or (ii) own more than 10% of the outstanding voting
securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
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 will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
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 securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may require 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 most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
37
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
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 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 and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, 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 Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The 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 Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent
38
with the Funds' investment objectives. The Funds may have limited legal
recourse in the event of a default with respect to certain sovereign debt
obligations it holds. For example, remedies from defaults on certain sovereign
debt obligations, unlike those on private debt, must, in some cases, be pursued
in the courts of the defaulting party itself. Legal recourse therefore may be
significantly diminished. Bankruptcy, moratorium and other similar laws
applicable to issuers of sovereign debt obligations may be substantially
different from those applicable to issuers of private debt obligations. The
political context, expressed as the willingness of an issuer of sovereign debt
obligations to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default under
commercial bank loan agreements.
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 MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation of
such changes, each Fund may increase the percentage of its investment portfolio
invested in U.S. Government securities, which would tend to offset the negative
impact of leverage on Fund shareholders. Each Fund may also reduce the degree
to which it is leveraged by repaying amounts borrowed.
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 and
such sales could cause the Fund to incur related transaction costs and to
realize gains on securities held for less than three months. Until the start of
a Fund's first tax year beginning after August 5, 1997, 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, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may 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, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN
39
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may
also borrow through the use of reverse repurchase agreements, and GLOBAL DOLLAR
GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME 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 businesses such as real estate, energy, agriculture or high
technology-related companies; competition within those industries as well as
with other types of financial institutions; and national and local governmental
regulation. In addition, 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. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. 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,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the risk
to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's objective and policies.
NON-DIVERSIFIED STATUS. Each of WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT and GLOBAL STRATEGIC INCOME 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
40
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 each of WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME is 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, each of GLOBAL STRATEGIC INCOME and 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.
YEAR 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Funds' major service providers fail to process
this type of information properly, that could have a negative impact on the
Funds' operations and the services that are provided to the Funds'
shareholders. Alliance, as well as AFD and AFS (both defined below), have
advised the Funds that they are reviewing all of their computer systems with
the goal of modifying or replacing such systems prior to January 1, 2000, to
the extent necessary to foreclose any such negative impact. In addition,
Alliance has been advised by each Fund's custodian that it is also in the
process of reviewing its systems with the same goal. As of the date of this
prospectus, the Funds and Alliance have no reason to believe that these goals
will not be achieved. Similarly, the values of certain of the portfolio
securities held by the Funds may be adversely affected by the inability of the
securities' issuers or of third parties to process this type of information
properly.
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
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 (except WORLD INCOME)
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.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund (except WORLD INCOME) offers three classes of shares through this
Prospectus, Class A, Class B and Class C. WORLD INCOME offers only one class of
shares, which may be purchased without any initial sales charge or contingent
deferred sales charge ("CDSC"). The Funds may refuse any order to purchase
shares. In this regard, the Funds reserve the right to restrict purchases of
Fund shares (including through exchanges) when they appear to evidence a
pattern of frequent purchases and sales made in response to short-term
considerations.
CLASS A SHARES-INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a 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
41
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. A Fund will thus receive the full amount of your purchase. However,
you may pay a CDSC if you redeem shares within three years (four years in the
case of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of
the CDSC (expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares 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.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
Year Since Purchase CDSC
--------------------------------
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth and thereafter None
ALL OTHER FUNDS:
Year Since Purchase CDSC
--------------------------------
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (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 at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of
the Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than
Class A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the 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 or Trustees believe accurately reflect fair
market value.
EMPLOYEE BENEFIT PLANS
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD FUND offer a fourth class of shares,
Advisor Class shares, by means of separate prospectuses. Advisor Class shares
may be purchased and
42
held solely by (i) accounts established under a fee-based program sponsored
and maintained by a registered broker-dealer or other financial intermediary
and approved by AFD, (ii) a self-directed defined contribution employee
benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants or
$25 million in assets and (iii) certain other categories of investors
described in the prospectuses for the Advisor Class, including investment
advisory clients of, and certain other persons associated with, Alliance and
its affiliates or the Funds. Advisor Class shares are offered without any
initial sales charge or CDSC and without an ongoing distribution fee and are
expected, therefore, to have different performance than Class A, Class B or
Class C shares. You may obtain more information about Advisor Class shares by
contacting AFS at 800-221-5672 or by contacting your financial representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (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) 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
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that day's net asset value (less any applicable CDSC). Your
broker is 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 AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
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 fails to
43
do so. Dealers and agents may charge a commission for handling telephonic
requests. The telephone service may be suspended or terminated at any time
without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of 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. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for 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.
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 or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1997 totaling more than $218 billion
(of which approximately $85 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 58 registered investment companies managed by Alliance
comprising 122 separate investment portfolios currently have over three million
shareholder accounts. As of December 31, 1997, Alliance was retained as an
investment manager for employee benefit plan assets of 31 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-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP 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.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
World Income Douglas J. Peebles Associated with
since inception Alliance.
-Senior Vice President
Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)
Multi-Market Strategy Douglas J. Peebles since (see above)
inception-(see above)
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
44
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice President Alliance.
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.*
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.*
Vice President
* ASSOCIATED WITH EQUITABLE CAPITAL MANAGEMENT CORPORATION ("EQUITABLE
CAPITAL") PRIOR TO JULY 22, 1993. ON THAT DATE ALLIANCE ACQUIRED THE BUSINESS
AND SUBSTANTIALLY ALL THE ASSETS OF EQUITABLE CAPITAL.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital, whose advisory business Alliance acquired on that
date, have served as investment adviser to the Historical Portfolio since its
inception in 1987. Wayne C. Tappe, who together with Nelson Jantzen is
primarily responsible for the day-to-day management of HIGH YIELD, has been the
person principally responsible for the day-to-day management of the Historical
Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of December 31, 1997, the assets in the Historical Portfolio totalled
approximately $421.8 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical
Services, Inc. ("Lipper"), a firm recognized for its reporting of performance
of actively managed funds. According to Lipper, performance data are presented
net of investment management fees, operating expenses and, for funds with
Rule 12b-1 plans, asset-based sales charges.
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 20.42% 15.89% 12.80% 12.04%
Lipper High Current Yield
Mutual Funds Average 12.96 14.17 11.36 10.66 9.78
High Yield 24.23%**
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 74.60% 109.05% 233.48% 249.07%
Lipper High Current Yield
Mutual Funds Average 12.96 48.92 71.52 177.35 181.23
* JANUARY 2, 1987
** RATE OF RETURN IS UNANNUALIZED, FOR CLASS A SHARES, ASSUMING THE
IMPOSITION OF THE MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS
ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a
45
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 Trustees 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 the 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
and Class C 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 and Class C
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:
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 8,593,091 (1.56%) $3,589,130 (2.63%)
Limited Maturity Government $ 356,382 (.86%) $2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.67%) $2,946,979 (9.52%)
Short-Term Multi-Market $25,420,759 (1.87%) $1,475,235 (18.72%)
Multi-Market Strategy $ 9,474,320 (4.13%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.67%) $4,072,381 (1.53%)
Global Dollar Government $ 2,214,590 (2.54%) $ 460,747 (2.29%)
Corporate Bond $ 9,163,392 (2.23%) $2,093,526 (1.77%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield* $ 1,679,237 (8.5%) $ 79,092 (2.36%)
* FOR THE FISCAL PERIOD APRIL 22, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
AUGUST 31, 1997.
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.
46
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 twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares 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 timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
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 or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations imposed by the Code (including a holding-period requirement applied
at both the Fund and shareholder levels imposed by the Taxpayer Relief Act of
1997), as a result of which a shareholder may not be permitted to claim a full
credit or deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a regulated investment company relieves that Fund of Federal
income 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. The investment objectives of the Funds are
such that only a small portion, if any, of a Fund's distributions is expected
to qualify for the dividends-received deduction for corporate shareholders. In
addition, corporate shareholders who receive qualifying distributions must meet
the holding-period requirements in the Code in order to take the dividends-
received deduction.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains-that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains") and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted
net capital gains will be taxable to shareholders as such, regardless of how
long a shareholder has held shares in the Fund.
Under 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. Any loss realized on the sale of shares held six months
47
or less will be a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
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.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. 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. Distributions by a Fund may be subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, 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 LIMITED MATURITY
GOVERNMENT FUND, 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), ALLIANCE
GLOBAL DOLLAR GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME
TRUST, INC. (1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1,
1996, ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance
Mortgage Strategy Trust, Inc. 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 state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The 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 or Trustees, 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 Trustees 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
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund
and ACMC, alleging violations of the federal
48
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint sought
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994.
Plaintiffs alleged that during 1995 the Fund's losses exceeded $750,000,000 and
sought as relief unspecified damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint are that (i) the Fund misrepresented its ability to
hedge against the risks of investing in foreign securities, (ii) the Fund did
not properly disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented the
risks of investing in the Fund. The Amended Complaint made similar request for
class certification and damages as the Complaint. On July 15, 1997, the
District Court denied plaintiffs' motion to file the Amended Complaint and
dismissed the case ("Second Decision"). On October 29, 1997, the Court of
Appeals dismissed plaintiffs' appeal of the Second Decision as premature on
the grounds that the District Court had not entered a judgment with respect to
the Second Decision. On November 10, 1997, the District Court entered a
judgment with respect to the Second Decision, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
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's 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.
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."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
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 RATINGS SERVICES
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some
quality and
A-1
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB-Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B-Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC-Debt rated CCC is currently vulnerable to nonpayment and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial, or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC-Debt rated CC is currently highly vulnerable to nonpayment.
C-The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D-The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- -High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A- -Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B- -Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctutate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC-Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest, or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD-Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP-Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
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
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Between 1991 and 1995, Canada experienced a weakening of its
currency. In January 1995, the Canadian Dollar fell to a nine-year low against
the U.S. Dollar, decreasing in value compared to the U.S. Dollar by
approximately 20% from October 1991. Between January 1996 and October 1997, the
Canadian Dollar remained steady in value against the U.S. Dollar at a level
approximately 3% to 4% above that low. Beginning in October 1997, however, the
Canadian Dollar decreased in value against the U.S. Dollar by approximately 6%,
reaching an all-time low of 1.4649 Canadian Dollars per U.S. Dollar on January
29, 1998. On February 20, 1998, the Canadian Dollar-U.S. Dollar exchange rate
was 1.4206:1. The range of fluctuation that has occurred in the past is not
necessarily indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including eight consecutive years (1987-1994)
of growth in gross domestic product and a substantial reduction in the rate of
inflation and in public sector financial deficit. Much of the past improvement
in the Mexican economy has been attributable to a series of economic policy
initiatives intended to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the
Mexican government 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.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and a new
accord among the government and the business and labor sectors of the economy
was entered into in an effort to stabilize the economy and the financial
markets. To help relieve Mexico's liquidity crisis and restore financial
stability to Mexico's economy, the Mexican government also obtained financial
assistance from the United States, other countries and certain international
agencies conditioned upon the implementation and continuation of the economic
reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized
B-1
since the economic crisis of 1994, and the high inflation and high interest
rates that continued to be a factor after 1994 have subsided as well. After
declining for five consecutive quarters beginning with the first quarter of
1995, Mexico's gross domestic product began to grow in the second quarter of
1996. That growth was sustained in 1996, resulting in a 5.1% increase from
1995, and, according to preliminary estimates, continued through 1997,
resulting in a 7.3% increase from 1996. In addition, inflation dropped from a
52% annual rate in 1995 to a 27.7% annual rate in 1996 and a 15.7% annual rate
in 1997. Mexico's economy is influenced by international economic conditions,
particularly those in the United States, and by world prices for oil and other
commodities. The recovery of the economy will require continued economic and
fiscal discipline as well as stable political and social conditions. In
addition, there is no assurance that Mexico's economic policy initiatives will
be successful or that succeeding administrations will continue these
initiatives.
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 December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float against other
currencies, resulting in a precipitous decline against the U.S. Dollar. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including 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 announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product increased for four consecutive
years before declining in 1995. During 1996, however, gross domestic product
increased 4.3% from 1995. Preliminary data for 1997 indicate that gross
domestic product increased by more than 8.0% from 1996. The rate of inflation
is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. 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.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on bank deposits, which was
brought under control by a series of measures designed to strengthen the
financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted
B-2
abolishing previous requirements of a three-year waiting period for capital
repatriation. Under the legislation, foreign investors are permitted to remit
profits at any time.
B-3
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
WORLD INCOME TRUST
SHORT-TERM MULTI-MARKET TRUST
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each fund in which you are investing: 1 Write the three digit fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). 3 Check off a distribution option for your dividends. 4 Check off a
distribution option for your capital gains. All distributions (dividends
and capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a preprinted, voided check for that
account. If you want your distributions sent to a third party you must
complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D.
If more than one dividend direction or monthly exchange is desired, please call
our Literature Center to obtain a Shareholder Account Services Options Form for
completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor's Name
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
80103GEN-TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
R C D R C D
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
*CASH AND MONEY ORDERS ARE NOT ACCEPTED
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio, High Yield Fund and
World Income Trust.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
WORLD INCOME TRUST 54 not offered not offered
SHORT-TERM MULTI-MARKET TRUST 70 68 370
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
80103GEN-TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
80103GEN-TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
80103GEN-TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION PLEASE link the tax identification numbers or
account numbers listed below for Right of Accumulation privileges, so that this
and future purchases willreceive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT I want to reduce my sales charge by agreeing to
invest the following amount over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
80103GEN-TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
80103GEN-TABFAPP-P6
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
State Street Bank and Trust Company (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
4
<PAGE>
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
FORM N-14
PART B - STATEMENT OF ADDITIONAL INFORMATION
5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the assets and liabilities of
Alliance World Income Trust, Inc. and
Alliance Short-Term Multi-Market Trust, Inc.
1345 Avenue of the Americas, New York, NY 10105,
Telephone (800) 221-5672
by and in exchange for shares of
Alliance Multi-Market Strategy Trust, Inc.,
1345 Avenue of the Americas, New York, NY 10105,
Telephone (800) 221-5672
This Statement of Additional Information relating to the
proposed transfer of the assets of Alliance World Income Trust,
Inc. ("World Income") and Alliance Short-Term Multi-Market Trust,
Inc. ("Short-Term Multi-Market") to Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") in exchange for
shares of Multi-Market Strategy (the "Transactions") consists of
this cover page and the following described documents, each of
which is incorporated by reference herein:
(1) Statement of Additional Information of Multi-
Market Strategy dated March 2, 1998.
(2) Unaudited financial statements of Multi-Market
Strategy as of and for the six months ended
April 30, 1998.
(3) Statement of Additional Information of World
Income dated March 2, 1998.
(4) Unaudited financial statements of World Income
as of and for the six months ended April 30,
1998.
(5) Statement of Additional Information of Short-
Term Multi-Market dated March 2, 1998.
(6) Unaudited financial statements of Short-Term
Multi-Market as of and for the six months
ended April 30, 1998.
(7) Unaudited pro forma combined financial
information as of and for the twelve months
ended June 30, 1998. The pro forma financial
statements give effect to each of the
Transactions separately, as well as jointly,
in each case as if consummated at the
beginning of the period presented.
6
<PAGE>
This Statement of Additional Information is not a
prospectus. A Prospectus/Proxy Statement dated August [ ],
1998 relating to the above referenced matter may be obtained
without charge by writing to Alliance Fund Services, Inc.,
P.O. Box 1520, Secaucus, New Jersey 07096, or by calling
Alliance Fund Services, Inc. toll-free at 1-800-221-5672.
This Statement of Additional Information relates to, and
should be read in conjunction with, such Prospectus/Proxy
Statement.
This Statement of Additional Information is dated
August [ ], 1998.
7
<PAGE>
Alliance Capital [LOGO](R) The Alliance Stock Funds
The Alliance Bond Funds
_________________________________________________________________
Supplement dated May 1, 1998 to the Statements of Additional
Information of The Alliance Stock Funds and The Alliance Bond
Funds (each, a "Fund").
The following information concerning the purchase of Class A
shares and Class B shares by Merrill Lynch Plans (as defined
below) supplements the information set forth under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Employee benefit plans described below which are intended to
be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. The following
Merrill Lynch Plans are not eligible to purchase Class A shares
and are eligible to purchase Class B shares of the Fund at net
asset value without being subject to a contingent deferred sales
charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
8
<PAGE>
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth under
"Purchase of Shares" and "Redemption and Repurchase of
Shares" in the accompanying Statement of Additional
Information of the Fund.
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
9
<PAGE>
[LOGO] ALLIANCE MULTI-MARKET
STRATEGY TRUST, INC.
_________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4681
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for Alliance Multi-Market Strategy Trust, Inc. (the
"Fund") that offers Class A, Class B and Class C shares of the
Fund, and if the Fund begins to offer Advisor Class shares, the
Prospectus that offers the Advisor Class shares of the Fund (the
"Advisor Class Prospectus" and, together with any Prospectus that
offers the Class A, Class B and Class C shares, the
"Prospectus(es)"). The Fund currently does not offer Advisor
Class shares. Copies of the Prospectus(es) of the Fund may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund................................
Management of the Fund.................................
Expenses of the Fund...................................
Purchase of Shares.....................................
Redemption and Repurchase of Shares....................
Shareholder Services...................................
Net Asset Value........................................
Dividends, Distributions and Taxes.....................
Brokerage and 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
10
<PAGE>
Appendix D (Additional Information About
The United Mexican States)........................... D-1
______________________
(R): This registered service mark used under license from
the owner, Alliance Capital Management L.P.
11
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
The Fund is a non-diversified, open-end management
investment company whose investment objective is to seek the
highest level of current income, consistent with what Alliance
Capital Management L.P., the Fund's investment adviser (the
"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 five years. 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. Normally, 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. The Fund is designed for the investor who seeks
a higher yield than a money market fund or certificate of deposit
and less fluctuation in net asset value than a longer-term bond
fund. Certificates of deposit are insured and generally have
fixed interest rates while yields for the Fund will fluctuate
with changes in interest rates and other market conditions.
The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information set forth in the Fund's Prospectus under the heading
"Description of the Fund." Except as otherwise indicated, the
Fund's investment policies are not designated "fundamental
policies" within the meaning of the Investment Company Act of
1940, as amended (the "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. The Fund's
investment objective may not be changed without shareholder
approval. There can be, of course, no assurance that the Fund
will achieve its investment objective.
HOW THE FUND PURSUES ITS OBJECTIVES
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 (i.e., five years or
less). Normally, a high proportion of the Fund's portfolio
consists of money market instruments. The 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
2
<PAGE>
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 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 attractive returns currently available from short-
term foreign currency-denominated debt instruments can be
adversely affected by changes in exchange rates. The Adviser
believes that the use of foreign currency hedging techniques,
including "cross-hedges" (see "Additional Investment Policies and
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 Adviser is 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 whose governments are considered stable
by the Adviser. 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, New Zealand Dollar, Norwegian
3
<PAGE>
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German
Mark.
An issuer of debt securities purchased by the Fund may
be domiciled in a country other than the country in whose
currency the instrument is denominated. In addition, the Fund
may purchase debt securities 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. 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. For a
general description of Mexico, see Appendix D.
The Fund seeks to minimize investment risk by limiting
its portfolio investments to debt securities of high quality.
Accordingly, the Fund's portfolio consists 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, or by supranational entities, all of which are
rated AAA or AA by Standard & Poor's Ratings Services ("S&P") or
Aaa or Aa by Moody's Investors Services, Inc. ("Moody's") ("High
Quality Ratings") or, if unrated, determined by the Adviser to be
of equivalent quality; (iii) corporate debt securities having at
least one High Quality Rating or, if unrated, determined by the
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 $500 million 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 IBCA, 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 or AA by
S&P, or Aaa or Aa by Moody's and determined by the Adviser to be
of high quality.
The Fund may invest without limitation in commercial
paper which is indexed to certain specific foreign currency
exchange rates. 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
4
<PAGE>
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.
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 "Additional Investment Policies
and Practices-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
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.
The Fund may invest in debt securities issued by
supranational organizations such as: the International Bank for
5
<PAGE>
Reconstruction and Development (the "World Bank"), which was
chartered to finance development projects in developing member
countries; the European Union, which is a fifteen-nation
organization engaged in cooperative economic activities; 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 may invest in debt securities denominated in
the ECU, which is a "basket" consisting of specified amounts of
the currencies of certain of the fifteen member states of the
European Union. 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. The Adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European
governments and supranationals, in particular, issue ECU-
denominated obligations.
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.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The following additional investment policies supplement
those set forth in the Prospectus.
ILLIQUID SECURITIES. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
6
<PAGE>
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) direct placements
or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will
not entertain bids or offers), (b) 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.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest up to 5% of its total assets (taken
at market value) in restricted securities issued under Section
7
<PAGE>
4(2) of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering."
Section 4(2) instruments are restricted in the sense that they
can only be resold through the issuing dealer to institutional
investors and in private transactions; they cannot be resold to
the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
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, an automated
system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers which is sponsored by
the National Association of Securities Dealers, Inc., ("NASD").
The Fund's investment in Rule 144A eligible securities are not
subject to the limitations described above on securities issued
under Section 4(2).
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, 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.
NET ASSET VALUE FLUCTUATIONS. 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
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associated with a lower level of market value volatility and,
accordingly, it is expected that the net asset value of the
Fund's shares normally will fluctuate less than that of a longer-
term bond fund.
NON-DIVERSIFIED 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 5% 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.
U.S. GOVERNMENT SECURITIES. For a description of
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities ("U.S. Government Securities"), see Appendix A.
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
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
9
<PAGE>
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 Fund will not 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.
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
of 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"). The Fund may not engage in
10
<PAGE>
transaction hedges with respect to the currency of a particular
country to an extent greater than the aggregate amount of the
Fund's transactions in that currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a
substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund
believes that the U.S. Dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase
contract to buy that foreign currency for a fixed dollar amount
("position hedge"). In this situation the Fund may, in the
alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which
portfolio securities of the Fund are denominated ("cross-hedge").
To the extent required by applicable law, the Fund's Custodian
will place liquid assets 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 assets placed in a
separate account declines, additional liquid assets 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. In addition, the
Fund may use such other methods of "cover" as are permitted by
applicable law. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had
not entered into such contracts.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission (the "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
11
<PAGE>
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.
INTEREST RATE TRANSACTIONS. In order to attempt to
protect the value of the Fund's investments from interest rate or
currency cross-rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the
purchase or sale of interest rate caps and floors. The Fund
expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its
portfolio. The Fund may also enter into these transactions to
protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use
these transactions as a hedge and not as a speculative
investment. Interest rate swaps involve the exchange by the Fund
and another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The exchange commitments can involve
payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments on a notional
principal amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined
interest rate to receive payments on a notional principal amount
from the party selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis
depending on whether it is hedging its assets or its liabilities,
and will usually be 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
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<PAGE>
payments. Inasmuch as these hedging transactions are entered
into for good faith hedging purposes, the Adviser and the Fund
believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount
of cash or liquid securities having an aggregate net asset value
at least equal to the accrued excess will be maintained in a
segregated account by the Fund's Custodian. The Fund will enter
into interest rate swap, cap or floor transactions with its
Custodian, and with other counterparties, but only if (i) for
transactions with maturities under one year, such other
counterparty has outstanding short-term paper rated at least A-1
by S&P or Prime-1 by Moody's or (ii) for transactions with
maturities greater than one year, the counterparty has
outstanding debt securities rated at least AA by S&P or Aa by
Moody's. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. As a result, the swap
market has become well established and provides a degree of
liquidity. Caps and floors are more recent innovations for which
documentation is not as standardized and, accordingly, they are
less liquid than swaps.
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 price 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
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<PAGE>
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.
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, 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 Adviser (subject to review by the Board of
Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or other
distributions. The Fund may pay reasonable finders,
administrative and custodial fees in connection with a loan. The
Fund will not lend 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 in
which it invests, with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in such securities. There is no percentage
restriction on the Fund's ability to enter into repurchase
agreements. Currently the Fund enters into repurchase agreements
14
<PAGE>
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
Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
PORTFOLIO TURNOVER. The Fund may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons.
Such trading will increase the Fund's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income.
For the fiscal years October 31, 1996 and October 31, 1997, the
portfolio turnover rates of the securities of the Fund were 215%
and 173%, respectively. Management anticipates that the annual
turnover in the Fund will not be in excess of 400%. An annual
turnover rate of 400% occurs, for example, when all of the
securities in the Fund's portfolio are replaced four times in a
period of one year. A high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of
substantial net short-term capital gains.
SPECIAL BORROWING CONSIDERATIONS
EFFECTS OF BORROWING. The Fund maintains borrowings
from a syndicate of banks, none of which is affiliated with the
Fund or the Adviser, in an amount representing approximately 25%
of the Fund's total assets less liabilities (other than the
amount borrowed). The Fund's loan agreement provides for
additional borrowings and for repayments and reborrowings from
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<PAGE>
time to time, and the Fund 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 25%
target. The loan agreement provides for a selection of interest
rates that are based on the lending banks' short-term funding
costs in the U.S. and London markets.
Borrowings by the Fund result in leveraging of the
Fund's shares of common stock. The proceeds of such borrowings
are invested in high-quality, short-term debt securities in
accordance with the Fund's investment objective and policies.
The Adviser anticipates that short-term, high-quality debt
securities denominated in a number of foreign currencies will
continue to produce yields higher than U.S. Dollar-denominated
debt obligations of comparable maturity and quality, and that the
difference between the interest expense paid by the Fund on
borrowings and the rates received by the Fund from its
investments in short-term debt securities denominated in foreign
currencies will provide shareholders of the Fund with a
potentially higher yield.
Utilization of leverage, which is usually considered
speculative, however, involves certain risks to the Fund's
shareholders. These include a higher volatility of the net asset
value of the Fund's shares of common stock and the relatively
greater effect on the net asset value of the shares caused by
favorable or adverse changes in currency exchange rates. So long
as the 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 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 the 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, the
Fund's use of leverage would result in a lower rate of return
than if the 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 the Fund's current investment income were not
sufficient to meet the interest expense on borrowings, it could
16
<PAGE>
be necessary for the Fund to liquidate certain of its
investments, thereby reducing the net asset value of the Fund's
shares.
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS. In the
event of an increase in short-term rates on U.S. Dollar-
denominated obligations, or other changed market conditions, to
the point where the Fund's leverage could adversely affect the
Fund's shareholders, as noted above, or in anticipation of such
changes, the Fund may attempt to increase the percentage of its
investment portfolio invested in U.S. Dollar-denominated debt
securities, which would tend to offset the negative impact of
leverage on Fund shareholders. The Fund may also attempt to
reduce the degree to which it is leveraged by repaying amounts
borrowed.
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is "asset
coverage," as that term is defined and used in the 1940 Act, of
at least 300% for all borrowings of the Fund. In addition, under
the 1940 Act, in the event asset coverage falls below 300%, the
Fund must within three days reduce the amount of its borrowings
to such an extent that the asset coverage of its borrowings is at
least 300%. Under the Fund's capital structure, assuming, for
example, outstanding borrowings representing 25% of the Fund's
total assets (exclusive of liabilities other than such
borrowings), the asset coverage of the Fund's portfolio would be
400%. The Fund will maintain asset coverage of outstanding
borrowings of at least 300% and if necessary will, to the extent
possible, reduce the amounts borrowed by making repayments from
time to time in order to do so. Such repayments could require the
Fund to sell portfolio securities at times considered
disadvantageous by the Adviser.
OTHER BORROWINGS. The Fund may also borrow to
repurchase its shares or to meet redemption requests. In
addition, the Fund may borrow for temporary purposes (including
the purposes mentioned in the preceding sentence) in an amount
not exceeding 5% of the value of the total assets of the Fund.
Borrowings for temporary purposes are not subject to the 300%
asset coverage limit described above. See "Certain Fundamental
Investment Policies."
CERTAIN 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,
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<PAGE>
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 of 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 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, gas, or other mineral exploration or
development programs; (iv) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; 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
18
<PAGE>
might be deemed to be an underwriter for purposes of the
Securities Act.
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Fund may
not: (a) 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; (b) borrow money, except the Fund
may, in accordance with provisions of the 1940 Act, (i) borrow
from a bank, if after such borrowing, there is asset coverage of
at least 300% as defined in the 1940 Act and (ii) borrow for
temporary or emergency purposes in an amount not exceeding 5% of
the value of the total assets of the Fund; or (c) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings.
In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Fund may not invest in (1) warrants if, such
warrants valued at the lower cost or market, would exceed 5% of
the value of the Fund's net assets. Included within such amount,
but not to exceed 2% of the Fund's net assets may be warrants
which are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value;
(2) real estate limited partnerships and (3) mineral leases.
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 value or net assets will not be considered a
violation of any such maximum.
______________________________________________________________
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
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address of each of the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
DIRECTORS
JOHN D. CARIFA,2 52, Chairman and President of the Fund,
is the President and Chief Operating Officer, the Chief Financial
Officer and a Director of Alliance Capital Management Corporation
("ACMC") with which he has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable"). She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is P.O. Box 4653, Stamford,
Connecticut 06903.
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC, with which he had been associated since prior
to 1993. He is currently an independent consultant. His address
is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is Historic Hudson Valley, 150 White Plains Road,
Tarrytown, New York, 10591.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. 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, 58, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President, Chief Executive Officer and a
Director of Wenonah Development Company (investments ) and a
Director of Placer Dome, Inc. (mining). His address is 80 Pine
Street, New York, New York 10005.
DONALD J. ROBINSON, 63, was formerly a senior partner
and a member of the Executive Committee in the law firm of
Orrick, Herrington & Sutcliffe and is currently senior counsel to
that firm. His address is 666 Fifth Avenue, 19th Floor, New
York, New York 10103.
____________________
2. An "interested person" of the Fund as defined in the 1940
Act.
20
<PAGE>
OFFICERS
JOHN D. CARIFA, Chairman and President, see biography,
under "Directors" section above.
KATHLEEN A. CORBET, 37, Senior Vice President, is an
Executive Vice President of ACMC with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department, since prior to 1993.
WAYNE D. LYSKI, 56, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
DOUGLAS J. PEEBLES, 32, Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
EDMUND P. BERGAN, JR., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1993.
ANDREW L. GANGOLF, 43, Assistant Secretary, has been a
Vice President and Assistant General Counsel of AFD since
December 1994. Prior thereto he was a Vice President and
Assistant Secretary of Delaware Management Company, Inc. since
prior to 1993.
DOMENICK PUGLIESE, 36, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since prior to 1993.
EMILIE D. WRAPP, 41, Assistant Secretary, is a Vice
President and Special Counsel of AFD, with which she has been
associated since prior to 1993.
MARK D. GERSTEN, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS") with which he has been associated since prior to
1993.
JUAN J. RODRIGUEZ, 40, Controller, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
21
<PAGE>
CARLA LAROSE, 34, Assistant Controller, is a Manager of
AFS with which she has been associated since prior to 1993.
JOSEPH J. MANTINEO, 38, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
VINCENT S. NOTO, 33, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
Total Number
of Registered
Investment Total Number
Companies in of Investment
the Alliance Portfolios Within
Total Fund Complex, the Alliance
Compensation Including the Fund Complex,
from the Fund, as to Including the
Alliance Fund which the Fund, as to which
Aggregate Complex, Director is the Director is
Compensation Including a Director a Director or
Name of Director From the Fund the Fund or Trustee Trustee
John D. Carifa $-0- $-0- 54 118
Ruth Block $3,039 $164,000 40 80
David H. Dievler $3,046 $188,500 47 83
John H. Dobkin $3,030 $126,500 44 80
William H. Foulk, Jr. $3,106 $176,250 48 113
Dr. James M. Hester $3,006 $156,500 40 76
Clifford L. Michel $2,775 $194,500 41 92
Donald J. Robinson $2,971 $235,500 41 94
As of February 6, 1998, the Directors and officers of
the Fund as a group owned less than 1% of the shares of the Fund.
22
<PAGE>
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1997 totaling more than $218 billion (of which
approximately $85 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundation and endowment funds. As of
December 31, 1997, the Adviser was an investment manager of
employee benefit fund assets for 31 of the FORTUNE 100 companies.
As of that date, the Adviser and its subsidiaries employed
approximately 1,500 employees who operated out of domestic
offices and the offices of subsidiaries in Bahrain, Bangalore,
Chennai, Istanbul, London, Madrid, Mumbai, New Delhi, Paris,
Seoul, Singapore, Sydney, Tokyo and Toronto and affiliate offices
located in Vienna, Warsaw, Hong Kong, Sao Paulo and Moscow. The
58 registered investment companies comprising more than 122
separate investment portfolios managed by the Adviser currently
have over three million shareholder accounts.
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"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
23
<PAGE>
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement, the Adviser provides
investment advisory services and other placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement became effective on July 22,
1992. 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 the 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 remains 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
24
<PAGE>
by the Fund's Board of Directors, including in either case
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act. Most recently, continuance of the
Agreement was approved for the period ending October 31, 1998 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 9, 1997.
For the fiscal years ended October 31, 1997, October 31,
1996 and October 31, 1995 the Adviser received from the Fund
advisory fees of $861,400, $1,030,962 and $1,299,765,
respectively.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance All-
Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Developing Markets Fund, Inc., Alliance Global Dollar Government
Fund, Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic Income
Trust, Inc., Alliance Government Reserves, Alliance Greater China
'97 Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance Institutional Funds, Inc., Alliance International Fund,
Alliance International Premier Growth Fund, Inc., Alliance
Limited Maturity Government Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
25
<PAGE>
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc. and The
Spain Fund, Inc., all registered closed-end investment companies.
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter"), to permit the
Principal Underwriter to distribute the Fund's shares and to
permit the Fund to pay distribution services fees to defray
expenses associated with the distribution of its Class A shares,
Class B shares and Class C shares in accordance with a plan of
distribution which is included in the Agreement and has been duly
adopted and approved in accordance with Rule 12b-1 adopted by the
Commission under the 1940 Act (the "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 fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charges and
distribution services fees on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
26
<PAGE>
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not interested persons of the Fund, as defined in the 1940 Act,
are committed to the discretion of such disinterested Directors
then in office.
The Agreement became effective on July 22, 1992. 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 defined in the 1940
Act, of any such party) at a meeting called for that purpose and
held on October 17, 1991. An amendment to the Agreement to
permit the distribution of an additional class of shares, Class C
shares, was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on February 23, 1993, and by the initial holder of
Class C shares of the Fund on April 30, 1993. The Agreement
became effective on September 30, 1996 with respect to Advisor
Class shares.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the Fund's fiscal year ended October 31, 1997,
distribution services fees for expenditures payable to the
Principal Underwriter amounted to, with respect to Class A
shares, an amount aggregating $225,790 which constituted .30 of
1%, annualized, of the Fund's average daily net assets
attributable to Class A shares during such fiscal year, and the
Adviser made payments from its own resources as described above
aggregating $235,892. Of the $461,682 paid by the Fund and the
Adviser under the Plan with respect to Class A shares, $43,498
was spent on advertising, $1,925 on the printing and mailing of
prospectuses for persons other than current shareholders,
$291,799 for compensation to broker-dealers and other financial
intermediaries (including, $88,434 to the Fund's Principal
Underwriter), $7,261 for compensation to sales personnel and
$117,199 was spent on the printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures payable to the
Principal Underwriter amounted to, with respect to Class B
shares, an amount aggregating $670,505, which constituted 1.00%
27
<PAGE>
of the Fund's average daily net assets attributable to Class B
shares during such fiscal year. Of the $533,843 paid by the Fund
and the Adviser under the Plan with respect to Class B shares,
$44,302 was spent on advertising, $1,917 on the printing and
mailing of prospectuses for persons other than current
shareholders, $303,406 for compensation to broker-dealers and
other financial intermediaries (including, $90,819 to the Fund's
Principal Underwriter), $2,599 for compensation to sales
personnel and $102,281 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $79,338 on interest on Class B
financing. The additional $136,662 in payments to the Principal
Underwriter will be carried forward and offset against future
distribution service fees payable under the Plan.
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures payable to the
Principal Underwriter amounted to, with respect to Class C
shares, an amount aggregating $12,665 which constituted 1.00% of
the Fund's average daily net assets attributable to Class C
shares during such fiscal year, and the Adviser made payments
from its own resources as described above aggregating $98,700.
Of the $111,365 paid by the Fund and the Adviser under the Plan
with respect to Class C shares, $17,326 was spent on advertising,
$1,029 on the printing and mailing of prospectuses for persons
other than current shareholders, $53,973 for compensation to
broker-dealers and other financial intermediaries (including,
$35,214 to the Fund's Principal Underwriter), $2,199 for
compensation to sales personnel and $36,838 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
The Agreement will continue in effect for successive
twelve-month periods (computed from each 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) of that class, and, in either case,
approval by a majority of the Directors of the Fund who are not
parties to the Agreement or interested persons, as defined in the
1940 Act, of any such party (other than as directors of the Fund)
and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related
thereto. Most recently, continuance of the Agreement was
approved for the period ending October 31, 1998 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 9, 1997.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
28
<PAGE>
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that a particular class may bear
pursuant to the Agreement without the approval of a majority of
the outstanding voting shares of the Fund or the class or classes
of the Fund affected. The Agreement may be terminated (a) by the
Fund without penalty at any time by a majority vote of the
directors who are not interested persons, as defined in the 1940
Act, or by a majority vote of the outstanding shares of the Fund,
voting separately by class or (b) by the Principal Underwriter.
To terminate the Agreement, any party must give the other parties
60 days' written notice; to terminate the Rule 12b-1 Plan only,
the Fund need give no notice to the Principal Underwriter. The
Agreement will terminate automatically in the event of its
assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B and Class C shares is higher than
the transfer agency fee with respect to the Class A shares and
Advisor Class shares, reflecting the additional costs associated
with the Class B and Class C contingent deferred sales charges.
For the fiscal year ended October 31, 1997, the Fund paid AFS
$378,701 pursuant to the Transfer Agency Agreement.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Buy Shares."
29
<PAGE>
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents") and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets or, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Commercial Real Estate Group Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of each Fund in
which the program invests in order to be approved by AFD for
investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
30
<PAGE>
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Funds shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"Class A Shares." On each Fund business day on which a purchase
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A and Advisor Class shares as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
31
<PAGE>
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, 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 paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
32
<PAGE>
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B shares and Class C shares bear
higher transfer agency costs than those borne by Class A shares
and Advisor Class shares, (iv) each of Class A, Class B and
Class C shares has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fee is paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, then such amendment will also be submitted
to the Class B shareholders and Advisor Class shareholders and
the Class A, Class B and Advisor Class shareholders will vote
separately by class, and (v) Class B shares and Advisor Class
shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
33
<PAGE>
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares3
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans) for more than $250,000 for Class B
shares. Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
____________________
3. Advisor Class shares are sold only to investors described
above in this section under "--General."
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<PAGE>
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the fiscal years ended October 31, 1997,
October 31, 1996 and October 31, 1995 the aggregate amount of
underwriting commission payable with respect to shares of the
Fund were $106,736, $35,922 and $26,160, respectively. Of such
amounts, the Fund's Principal Underwriter received $2,107, $2,744
and $1,754, respectively, representing that portion of the sales
charges paid on shares of the Fund sold during the year which was
not reallowed to selected dealers (and was, accordingly, retained
by the Principal Underwriter). During the Fund's fiscal years
ended in 1997, 1996 and 1995, the Principal Underwriter received
contingent deferred sales charges of $6,149, $-0- and $-0-,
respectively, on Class A shares, $14,872, $16,503 and $149,566,
respectively, on Class B shares, and $1,764, $-0- and $-0-,
respectively, on Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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<PAGE>
SALES CHARGE
Discount or
Commission
As % of As % of to Dealers or
Amount of Net Amount the Public Agents As % of
Purchase Invested Offering Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
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<PAGE>
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under
"--Class B Shares--Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A Shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$10,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on October 31, 1997.
Net Asset Value per Class A Share at
October 31, 1997 $7.11
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $0.32
-----
Class A Per Share Offering
Price to the Public $7.43
=====
37
<PAGE>
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
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<PAGE>
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION).
An investor's purchase of additional Class A shares of the Fund
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
39
<PAGE>
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible to combine
his or her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs a Statement of Intention; however, the 13-month period
during which a Statement of Intention is in effect will begin on
the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
40
<PAGE>
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
41
<PAGE>
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter; Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
42
<PAGE>
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliates or agents, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
CLASS B SHARES
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
43
<PAGE>
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a
Year Since Purchase % of Dollar Amount Subject to Charge
First 3%
Second 2%
Third 1%
Fourth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
44
<PAGE>
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
45
<PAGE>
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
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Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder of a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
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shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents are
required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
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To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
share certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the share certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
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TELEPHONE REDEMPTION -- 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. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund, nor the Adviser, the Principal Underwriter or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to Class A, Class B and Class C shares), except that
requests placed through selected dealers or agents before the
close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
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fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
"pre-authorized check" drawn on the investor's own bank account.
Under such a program, pre-authorized monthly drafts for a fixed
amount (at least $25) are used to purchase shares through the
selected dealer or selected agent designated by the investor at
the public offering price next determined after the Principal
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Underwriter receives the proceeds from the investor's bank. In
electronic form, drafts can be made on or about a date each month
selected by the shareholder. Investors wishing to establish an
automatic investment program in connection with their initial
investment should complete the appropriate portion of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
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Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged if (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc. receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
share certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchanges received before
4:00 p.m. Eastern time on a Fund business day will be processed
as of the close of business on that day. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month or the Fund business
day prior thereto.
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None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
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EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
plan's request, without any sales charge, for Class A shares of
the Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
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<PAGE>
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares--General." Purchases of
additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. While an
occasional lump-sum investment may be made by a holder of Class A
shares who is maintaining a systematic withdrawal plan, such
investment should normally be an amount equivalent to three times
the annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
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<PAGE>
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
STATEMENTS AND REPORTS
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
SHAREHOLDER SERVICES APPLICABLE TO
CLASS A AND CLASS C SHAREHOLDERS ONLY
CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against
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Class A or Class C shares of the Fund redeemed from the
investor's account. Under this service, checks may be made
payable to any payee in any amount not less than $500 and not
more than 90% of the net asset value of the Class A or Class C
shares in the investor's account (excluding for this purpose the
current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder
wishing to establish this checkwriting service subsequent to the
opening of the shareholder's Fund account should contact the Fund
by telephone or mail. Corporations, fiduciaries and
institutional investors are required to furnish a certified
resolution or other evidence of authorization. This checkwriting
service will be subject to the Bank's customary rules and
regulations governing checking accounts, and the Fund and the
Bank each reserve the right to change or suspend the checkwriting
service. There is no charge to the shareholder for the
initiation and maintenance of this service or for the clearance
of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares in the shareholder's account to cover the
check. Because the level of net assets in a shareholder's
account constantly changes, due, among various factors, to market
fluctuations, a shareholder should not attempt to close his or
her account by use of a check. In this regard, the Bank has the
right to return checks (marked "insufficient funds") unpaid to
the presenting bank if the amount of the check exceeds 90% of the
assets in the account. Canceled (paid) checks are returned to
the shareholder. The checkwriting service enables the
shareholder to receive the daily dividends declared on the shares
to be redeemed until the day that the check is presented to the
Bank for payment.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value is computed in
accordance with the Fund's Articles of Incorporation and By-Laws
at the next close of regular trading on the Exchange (ordinarily
4:00 p.m. Eastern time) following receipt of a purchase or
redemption order by the Fund on each Fund business day on which
such an order is received and on such other days as the Board of
Directors of the Fund deems appropriate or necessary in order to
comply with Rule 22c-1 under the 1940 Act. The Fund's per share
net asset value is calculated by dividing the value of the Fund's
total assets, less its liabilities, by the total number of its
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shares then outstanding. A Fund business day is any weekday on
which the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
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value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
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faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
U.S. FEDERAL INCOME TAXES
The Fund intends for each taxable year to be qualified
as a "regulated investment company" under the Code. The
qualification as a regulated investment company relieves the Fund
of Federal income tax liability on the part of its net ordinary
income and net realized capital gains which it pays out 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
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qualify for such treatment. The information set forth in the
Prospectus and the following discussion relate solely to the U.S.
Federal income taxes on dividends and distributions by the Fund
and assumes that the Fund qualifies as a regulated investment
company. Investors should consult their own counsel for further
details, including their possible entitlement to foreign tax
credits that might be "passed through" to them under the rules
described below, and the application for state and local tax laws
to his or her particular situation.
In order to qualify as a regulated investment company
for any taxable year, the Fund must, among other things, derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currency. In addition, the Fund will qualify as a regulated
investment company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
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 at least the sum of 98% of its ordinary taxable income
for the calendar year plus 98% of its capital gain net income and
foreign currency gains for the twelve months ended October 31 of
such year plus any ordinary income or capital gain net income
from the preceding calendar year that was not distributed during
such year. Certain distributions of the Fund which are paid in
January of a given year but are declared in the prior October,
November or December to shareholders of record as of a specified
date during such a month may be treated as having been
distributed in December and will be taxable to shareholders as if
received in December.
Dividends of 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.
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Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains---that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Distributions of net capital gains will be
treated in the hands of shareholders as mid-term gains to the
extent designated by the Fund as deriving from net gains from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gains,
regardless of how long a shareholder has held shares in the Fund.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him 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 of net capital gains, 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 and distributions 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's
Common Stock.
The Fund may be required to withhold federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is
not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
FOREIGN INCOME TAXES
Income received by the Fund may also be subject to
foreign income taxes, including withholding taxes. The United
States has entered into tax treaties with many foreign countries
which entitle the Fund to a reduced rate of such taxes or
exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
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amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a shareholder will be required to (i) include in gross
income (in addition to taxable dividends actually received) his
pro rata share of foreign taxes paid by the Fund, (ii) treat his
pro rata share of such foreign taxes as having been paid by him,
and (iii) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a
credit against United States federal income taxes. Shareholders
who are not liable for federal income taxes, such as retirement
plans qualified under section 401 of the Code, will not be
affected by any such pass through of taxes by the Fund. No
deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition,
certain shareholders may be subject to rules which limit or
reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes paid by the Fund. A
shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least
15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date. 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.
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.
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
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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 distribution will be treated as a gain from the sale of
shares.
OPTIONS, FUTURES AND FORWARD 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, although the Fund may elect to have the gain
or loss it realizes on certain contracts taxed as "section 988"
gain or loss. Gain or loss realized by the Fund on section 1256
contracts other than forward foreign currency contracts generally
will be considered 60% long-term and 40% short-term capital gain
or loss. Gain or loss realized by the Fund on forward foreign
currency contracts will be treated as section 988 gain or loss
and will therefore be characterized as ordinary income or loss
and will increase or decrease the amount of the Fund's net
investment income available to be distributed to shareholders as
ordinary income, as described above. The Fund can elect to
exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section
1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
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manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
closing out of such options that are written by the Fund will be
treated as short-term capital gain or loss. In general, if the
Fund exercises an option, or an option that the Fund has written
is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of 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 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, currency swap, 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.
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A straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle." In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions by requiring, among other things,
that (i) loss realized on disposition of one position of a
straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term
capital gain); (iii) losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non-section 1256 positions be treated as 60% long-term and
40% short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long-term capital losses;
and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. The
Treasury Department is authorized to issue regulations providing
for the proper treatment of a mixed straddle where at least one
position is ordinary and at least one position is capital. No
such regulations have yet been issued. Various elections are
available to the Fund which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any
straddles held by the Fund all of the offsetting positions of
which consist of section 1256 contracts.
TAXATION OF FOREIGN STOCKHOLDERS
The foregoing discussion relates only to U.S. Federal
income tax law as it affects shareholders who are U.S. residents
or U.S. corporations. The effects of Federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.
_________________________________________________________________
BROKERAGE AND 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
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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 Corporation ("DLJ"), an affiliate of the
Adviser, or any other subsidiary or affiliate of Equitable.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
CAPITALIZATION
The authorized capital stock of the Fund currently
consists of 3,000,000,000 shares of Class A Common Stock, $.001
par value, 3,000,000,000 shares of Class B Common Stock, $.001
par value, 3,000,000,000 shares of Class C Common Stock, $.001
par value and 3,000,000,000 shares of Advisor Class Common Stock,
$.001 par value. All shares of the Fund, when issued, are fully
paid and non-assessable. The Board of Directors is authorized to
reclassify and issue any unissued shares to any number of
additional series and classes without shareholder approval.
Accordingly, the Board in the future, for reasons such as the
desire to establish one or more additional portfolios 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 law
of the State of Maryland. If shares of another series were
issued in connection with the creation of a second portfolio,
each share of either portfolio would normally be entitled to one
vote for all purposes. Generally, shares of both portfolios
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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 rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on February 6, 1998, there
were 17,221,223 shares of common stock of the Fund outstanding,
including 14,956,170 Class A shares, 2,125,327 Class B shares,
139,726 Class C shares and no Advisor Class shares. To the
knowledge of the Fund, the following persons owned of record or
beneficially 5% or more of the outstanding shares of the Fund as
of February 6, 1998.
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No. of Shares
Name and Address of Class % of Class
Class A
MLPF&S
For the Sole Benefit of its Customers 6,147,208 41.10%
Attn: Fund Administration
4800 Deerlake Dr. East, 3rd Fl.
Jacksonville, Florida 32246-6486
Class B
MLPF&S
For the Sole Benefit of its Customers 688,514 32.40%
Attn: Fund Administration
4800 Deerlake Dr. East, 3rd Fl.
Jacksonville, Florida 32246-6486
Class C
MLPF&S
For the Sole Benefit of its Customers 19,105 13.67%
Attn: Fund Administration
4800 Deerlake Dr. East, 3rd Fl.
Jacksonville, Florida 32246-6486
Lincoln Trust Co. CUST 11,092 7.94%
Michael Richarson
PO Box 5831
Denver, CO 80217
Bear Stearns Securities Corp. 7,123 5.10%
FBO 486-13288-15
1 Metrotech Center North
Brooklyn, NY 11201-3870
Martha E. Rogers 7,427 5.32%
Carol M. Baum POA
506 Caldwell Street
Goodland, KS 67735-1927
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, 02109 will act as custodian for the assets 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.
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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, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have 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." Computed
separately for each class, the Fund's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Fund's actual
distribution rate, which may be advertised in items of sales
literature, is computed in the same manner as yield except that
actual income dividends declared per share during the period in
question is substituted for net investment income per share. The
actual distribution rate is compounded separately for each class
of shares. Advertisements of the Fund's total return disclose
the Fund's average annual compounded total return for its most
recently completed one-, five- and ten-year periods (or, if
shorter, the period since the Fund's inception). The Fund's
total return for 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 in the value of such
investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions
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paid on shares of the Fund are assumed to have been reinvested
when received and the maximum sales charge applicable to
purchases of Fund shares is assumed to have been paid.
The Fund's yields for the month ended October 31, 1997
were 4.61%, 4.15% and 4.18% for Class A shares, Class B shares
and Class C shares, respectively. The Fund's actual distribution
rates for the month ended October 31, 1997 were 8.98%, 8.51% and
8.52% for Class A shares, Class B shares and Class C shares,
respectively. The Fund's total return for the one year period
ended October 31, 1997 was 3.25%, 3.95% and 5.94% for Class A,
Class B and Class C shares, respectively. The Fund's total
return for Class A and Class B shares for the five-year period
ended October 31, 1997 was 3.59% and 3.64%, respectively. The
Fund's total return for Class A and Class B shares for the period
from May 29, 1991 (commencement of distribution for Class A and
Class B shares) through April 30, 1997 were 2.91% and 2.84%,
respectively. The Fund's total return for Class C shares for the
period May 3, 1993 (commencement of distribution for Class C
shares) through October 31, 1997 was 3.47%.
Yield and total return are computed separately for each
class of shares. 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. The Fund
may advertise the fluctuation of its net asset value over certain
time periods and compare its performance to that available from
other investments, including money market funds and certificates
of deposit, the later of which, unlike the Fund, are insured and
have fixed rates of return.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers 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.
The Fund is ranked by Lipper in the category known as "Short
World Multi-Market Income Funds."
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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.
73
<PAGE>
ALLIANCE MULTI-MARKET STRATEGY TRUST
ANNUAL REPORT
OCTOBER 31, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
AUSTRALIA-9.2%
DEBT OBLIGATIONS-9.2%
Deutsche Bank AG
6.00%, 7/05/00 (a) AU$ 10,000 $ 7,095,792
State Bank of South Wales
8.63%, 8/20/01 6,000 4,596,301
Total Australian Securities
(cost $11,860,798) 11,692,093
DENMARK-6.6%
GOVERNMENT OBLIGATION-6.6%
Kingdom of Denmark
9.00%, 11/15/00 (a)
(cost $9,941,781) DKK 50,000 8,431,143
FRANCE-4.1%
GOVERNMENT OBLIGATION-4.1%
Government of France
7.75%, 4/12/00 (a)
(cost $5,007,641) FRF 28,000 5,206,411
GERMANY-16.4%
DEBT OBLIGATIONS-12.0%
Bayerische Landesbank Girozentrale
5.75%, 2/28/01 (a) US$ 5,000 4,966,860
Bayerische Vereinsbank Finansiering
5.25%, 5/17/01 (a) DEM 7,400 4,334,010
Deutsche Hypothekenbank
5.75%, 10/02/01 (a) 10,000 5,943,752
------------
15,244,622
GOVERNMENT OBLIGATION-4.4%
Government of Germany
8.00%, 7/22/02 (a) 8,500 5,540,157
Total German Securities
(cost $21,820,692) 20,784,779
ITALY-11.7%
GOVERNMENT OBLIGATIONS-11.7%
Republic of Italy
6.00%, 2/15/00 (a) ITL 10,400,000 6,218,973
6.25%, 5/15/02 (a) 14,400,000 8,694,222
Total Italian Securities
(cost $14,039,136) 14,913,195
MEXICO-5.2%
GOVERNMENT OBLIGATION-5.2%
Mexican Treasury Bill
22.85%, 6/04/98 (a)(b)
(cost $7,167,870) MXP 63,787 6,667,724
NEW ZEALAND-5.0%
GOVERNMENT OBLIGATION-5.0%
Government of New Zealand
10.00%, 3/15/02 (a)
(cost $6,910,129) NZ$ 9,150 6,383,766
NORWAY-5.3%
GOVERNMENT OBLIGATION-5.3%
Kingdom of Norway
7.00%, 5/31/01 (a)
(cost $7,340,901) NOK 45,000 6,808,075
POLAND-4.0%
GOVERNMENT OBLIGATION-4.0%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $5,232,570) PLN 21,600 5,095,988
SPAIN-4.5%
GOVERNMENT OBLIGATION-4.5%
Government of Spain
7.40%, 7/30/99 (a)
(cost $5,627,044) ESP 800,000 5,712,864
SWEDEN-8.2%
GOVERNMENT OBLIGATIONS-8.2%
Kingdom of Sweden
5.50%, 4/12/02 (a) SEK 40,000 5,243,190
13.00%, 6/15/01 (a) 32,000 5,243,829
Total Swedish Securities
(cost $11,186,107) 10,487,019
UNITED STATES-13.2%
DEBT OBLIGATION-3.2%
Morgan Guaranty Trust Co.
6.38%, 3/26/01 US$ 4,000 4,032,680
6
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
GOVERNMENT AGENCY OBLIGATION-3.9%
FNMA Global
7.25%, 6/20/02 (a) NZ$ 7,850 $ 4,919,573
TIME DEPOSIT-6.1%
Union Bank of Switzerland
5.63%, 11/03/97 US$ 7,800 7,800,000
Total United States Securities
(cost $17,155,740) 16,752,253
TOTAL INVESTMENTS-93.4%
(cost $123,290,409) 118,935,310
Other assets less liabilities-6.6% 8,349,554
NET ASSETS-100% $127,284,864
(a) Securities, or portion thereof, with an aggregate market value of
$102,506,329 have been segregated to collateralize forward exchange currency
contracts.
(b) Annualized yield to maturity at purchase date.
Glossary:
FNMA - Federal National Mortgage Association
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $123,290,409) $ 118,935,310
Cash 83,624
Receivable for investment securities sold 16,084,402
Receivable for capital stock sold 6,848,878
Interest receivable 2,699,993
Total assets 144,652,207
LIABILITIES
Payable for investment securities purchased 8,885,757
Payable for capital stock redeemed 7,067,491
Unrealized depreciation of forward exchange
currency contracts 809,466
Dividend payable 344,279
Advisory fee payable 66,354
Distribution fee payable 56,349
Accrued expenses and other liabilities 137,647
Total liabilities 17,367,343
NET ASSETS $ 127,284,864
COMPOSITION OF NET ASSETS
Capital stock, at par $ 17,903
Additional paid-in capital 149,990,746
Undistributed net investment income 6,044,326
Accumulated net realized loss on investments and foreign
currency transactions (23,648,532)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (5,119,579)
$ 127,284,864
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($96,132,589/
13,521,188 shares of capital stock issued and outstanding) $7.11
Sales charge--4.25% of public offering price 0.32
Maximum offering price $7.43
CLASS B SHARES
Net asset value and offering price per share ($29,949,071/
4,212,381 shares of capital stock issued and outstanding) $7.11
CLASS C SHARES
Net asset value and offering price per share ($1,203,204/
169,231 shares of capital stock issued and outstanding) $7.11
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes
withheld of $2,819) $11,597,392
EXPENSES
Advisory fee $ 861,400
Distribution fee - Class A 225,790
Distribution fee - Class B 670,505
Distribution fee - Class C 12,665
Transfer agency 378,701
Custodian 213,311
Administrative 139,303
Audit and legal 123,759
Registration 49,413
Printing 46,526
Directors' fees 23,777
Miscellaneous 10,832
Total expenses 2,755,982
Less: expense offset arrangement (see Note B) (14,534)
Net expenses 2,741,448
Net investment income 8,855,944
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 543,242
Net realized gain on foreign currency transactions 7,847,854
Net change in unrealized appreciation (depreciation) of:
Investments (5,701,069)
Foreign currency denominated assets and liabilities (913,253)
Net gain on investments 1,776,774
NET INCREASE IN NET ASSETS FROM OPERATIONS $10,632,718
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 8,855,944 $ 13,711,313
Net realized gain on investments and
foreign currency transactions 8,391,096 8,965,952
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (6,614,322) 2,521,721
Net increase in net assets from operations 10,632,718 25,198,986
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (4,899,179) (6,739,295)
Class B (3,883,236) (8,667,262)
Class C (73,529) (68,303)
Distributions in excess of net investment
income
Class A (2,095,730) -0-
Class B (1,692,062) -0-
Class C (32,833) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (28,950,404) (45,618,195)
Total decrease (30,994,255) (35,894,069)
NET ASSETS
Beginning of year 158,279,119 194,173,188
End of year (including undistributed net
investment income of $6,044,326, and
$2,010,110, respectively) $127,284,864 $158,279,119
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Multi-Market Strategy Trust, Inc. (the "Fund") was incorporated in the
State of Maryland as a non-diversified, open-end management investment company.
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are sold with a contingent deferred sales
charge which declines from 3.0% to zero depending on the period of time the
shares are held. Class B shares will automatically convert to Class A shares
six years after the end of the calendar month of purchase. Class C shares are
subject to a contingent deferred sales charge of 1.0% on redemptions made
within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that each class bears different distribution expenses and
has exclusive voting rights with respect to its distribution plan. The
following is a summary of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on the day of valuation or,
if no such closing price is available, at the mean of the last bid and ask
price quoted on such day. However, readily marketable portfolio securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair value of such securities.
Options are valued at market value or 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. Securities for which market quotations are not readily
available and restricted securities are valued in good faith at fair value
using methods determined by the Board of Directors.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when earned or accrued.
Net realized gains on foreign currency transactions represent foreign exchange
gains and losses from sales and maturities of securities and forward exchange
currency contracts, holdings of foreign currencies, exchange gains and losses
realized between the trade and settlement dates on investment transactions, and
the difference between the amounts of interest recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid. Net change in
unrealized appreciation (depreciation) of foreign currency denominated assets
and liabilities represents net currency gains and losses from valuing foreign
currency denominated assets and liabilities at period end exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
11
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency gains, resulted in a net increase in
undistributed net investment income and additional paid-in capital and a
corresponding increase in accumulated net realized loss on investments and
foreign currency transactions. This reclassification had no effect on net
assets.
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
.60 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $139,303 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, 1997.
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 $227,227 for the year ended October 31, 1997.
In addition, for the year ended October 31, 1997, the Fund's expenses were
reduced by $14,534 under an expense offset arrangement with Alliance Fund
Services. Transfer Agency fees reported in the statement of operations exclude
these credits.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $6,149 from the sale of Class A shares and $14,872,
and $1,764 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the year ended
October 31, 1997.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to both
Class B and Class C shares. The fees are accrued daily and paid monthly. The
Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities. The
Distributor has incurred expenses in excess of the distribution costs
reimbursed by the Fund in the amount of $9,474,320 and $553,610 for Class B and
C shares, respectively. Such costs may be recovered from the Fund in future
periods so long as the agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $172,663,904 and $189,946,821,
respectively, for the year ended October 31, 1997. There were purchases of
$24,899,758 and sales of $37,657,708 of U.S. government and government agency
obligations for the year ended October 31, 1997.
At October 31, 1997, 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 $1,287,872 and gross unrealized
depreciation of investments was $5,642,971, resulting in net unrealized
depreciation of $4,355,099 (excluding foreign currency transactions).
12
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
At October 31, 1997, the Fund had a capital loss carry forward of $23,648,532
of which $1,488,331 expires in the year 2000, $4,570,679 expires in the year
2001, $11,533,613 expires in the year 2002, and $6,055,909 expires in the year
2003.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. 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.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure of
the Fund in that particular currency contract.
At October 31, 1997, the Fund had outstanding forward exchange currency
contracts, as follows:
<TABLE>
<CAPTION>
CONTRACT U.S. $ VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY
BUY CONTRACTS
Deutsche Marks,
expiring 11/07/97-11/25/97 18,028 $ 10,360,426 $ 10,461,122 $ 100,696
French Francs,
expiring 11/06/97 7,798 1,349,814 1,352,763 2,949
Indonesian Rupiah,
expiring 1/16/98 9,000,000 3,568,597 2,434,900 (1,133,697)
Norwegian Kroner,
expiring 11/03/97 47,838 6,625,605 6,825,839 200,234
Swedish Krona,
expiring 12/04/97 38,394 5,119,214 5,114,604 (4,610)
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
Australian Dollars,
expiring 11/14/97 19,243 14,187,616 13,535,311 652,305
Deutsche Marks,
expiring 11/07/97-11/25/97 72,514 41,135,436 42,097,878 (962,442)
French Francs,
expiring 11/06/97 34,242 5,758,837 5,940,255 (181,418)
Indonesian Rupiah,
expiring 1/16/98 9,000,000 3,491,891 2,434,900 1,056,991
</TABLE>
13
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
CONTRACT U.S. $ VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Italian Lira,
expiring 11/10/97 24,988,933 $ 14,454,245 $ 14,753,725 $ (299,480)
New Zealand Dollars,
expiring 11/10/97 19,395 12,315,950 12,072,513 243,437
Norwegian Kroner,
expiring 11/03/97 47,838 6,750,401 6,825,839 (75,438)
Swedish Krona,
expiring 12/04/97 111,058 14,593,643 14,794,349 (200,706)
Swiss Francs,
expiring 12/08/97 9,385 6,512,811 6,721,098 (208,287)
$ (809,466)
</TABLE>
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the year ended October
31, 1997.
3. INTEREST RATE SWAP AGREEMENTS
The Fund enters into currency and interest rate swaps to protect itself from
foreign currency and interest rate fluctuations on the underlying debt
instruments. A swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the foreign securities or currencies.
14
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the
value of investments are recorded for financial statement purposes as
unrealized appreciation or depreciation of investments. Realized gains and
losses from terminated swaps are included in net realized gains on investment
transactions. There were no outstanding currency or interest rate swap
contracts at October 31, 1997.
NOTE E: CAPITAL STOCK
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 516,722 302,988 $ 3,728,611 $ 2,125,120
Shares issued in
reinvestment of
dividends 211,609 223,790 1,529,106 1,567,466
Shares converted
from Class B 5,542,644 481,948 39,662,519 3,382,773
Shares redeemed (2,268,565) (2,745,589) (16,382,016) (19,157,166)
Net increase
(decrease) 4,002,410 (1,736,863) $ 28,538,220 $ (12,081,807)
CLASS B
Shares sold 509,209 711,413 $3,686,703 $5,004,343
Shares issued in
reinvestment of
dividends 176,547 249,020 1,277,395 1,743,484
Shares converted
to Class A (5,542,644) (481,948) (39,662,519) (3,382,773)
Shares redeemed (3,169,143) (5,315,003) (22,944,703) (37,147,265)
Net decrease (8,026,031) (4,836,518) $ (57,643,124) $ (33,782,211)
CLASS C
Shares sold 114,774 98,250 $ 838,047 $ 694,497
Shares issued in
reinvestment of
dividends 7,279 3,744 52,557 26,251
Shares redeemed (101,777) (68,091) (736,104) (474,925)
Net increase 20,276 33,903 $ 154,500 $ 245,823
15
FINANCIAL HIGHLIGHTS ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.23 $ 6.83 $ 8.04 $ 8.94 $ 8.85
INCOME FROM INVESTMENT OPERATIONS
Net investment income .47(a) .59(a) .77(a) .85 1.02
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions .08 .48 (1.31) (1.08) (.26)
Net increase (decrease) in net asset
value from operations .55 1.07 (.54) (.23) .76
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.47) (.67) -0- (.09) (.67)
Distributions in excess of net
investment income (.20) -0- -0- -0- -0-
Tax return of capital -0- -0- (.67) (.58) -0-
Total dividends and distributions (.67) (.67) (.67) (.67) (.67)
Net asset value, end of year $ 7.11 $ 7.23 $ 6.83 $ 8.04 $ 8.94
TOTAL RETURN
Total investment return based on
net asset value(b) 7.82% 16.37% (6.47)% (2.64)% 9.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $96,133 $68,776 $76,837 $52,385 $82,977
Ratio to average net assets of:
Expenses 1.58%(c) 1.64% 1.60% 1.41% 1.94%
Expenses, excluding interest expense 1.58% 1.60%(d) 1.55%(d) 1.30%(d) 1.40%(d)
Net investment income 6.50% 8.40% 8.56% 7.17% 9.17%
Portfolio turnover rate 173% 215% 400% 605% 200%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.23 $ 6.83 $ 8.04 $ 8.94 $ 8.85
INCOME FROM INVESTMENT OPERATIONS
Net investment income .42(a) .53(a) .44(a) .88 .92
Net realized and unrealized gain
(loss) on investments
and foreign currency transactions .06 .47 (1.05) (1.18) (.22)
Net increase (decrease) in net asset
value from operations .48 1.00 (.61) (.30) .70
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.42) (.60) -0- (.08) (.61)
Distributions in excess of net
investment income (.18) -0- -0- -0- -0-
Tax return of capital -0- -0- (.60) (.52) -0-
Total dividends and distributions (.60) (.60) (.60) (.60) (.61)
Net asset value, end of year $ 7.11 $ 7.23 $ 6.83 $ 8.04 $ 8.94
TOTAL RETURN
Total investment return based on
net asset value(b) 6.90% 15.35% (7.31)% (3.35)% 8.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $29,949 $88,427 $116,551 $233,896 $431,186
Ratio to average net assets of:
Expenses 2.29%(c) 2.35% 2.29% 2.11% 2.64%
Expenses, excluding interest expense 2.29% 2.31%(d) 2.22%(d) 2.01%(d) 2.11%(d)
Net investment income 5.79% 7.69% 7.53% 6.44% 8.46%
Portfolio turnover rate 173% 215% 400% 605% 200%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------
MAY 3, 1993(E)
YEAR ENDED OCTOBER 31, TO
------------------------------------------------------ OCT. 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.23 $ 6.83 $ 8.04 $ 8.94 $ 8.76
INCOME FROM INVESTMENT OPERATIONS
Net investment income .42(a) .54(a) .44(a) .46 .32
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .07 .47 (1.04) (.75) .16
Net increase (decrease) in net asset
value from operations .49 1.01 (.60) (.29) .48
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.42) (.61) -0- (.09) (.30)
Distributions in excess of net
investment income (.19) -0- -0- -0- -0-
Tax return of capital -0- -0- (.61) (.52) -0-
Total dividends and distributions (.61) (.61) (.61) (.61) (.30)
Net asset value, end of period $ 7.11 $ 7.23 $ 6.83 $ 8.04 $ 8.94
TOTAL RETURN
Total investment return based on
net asset value (b) 6.92% 15.36% (7.29)% (3.34)% 5.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,203 $1,076 $786 $1,252 $718
Ratio to average net assets of:
Expenses 2.28%(c) 2.34% 2.29% 2.08% 2.44%(f)
Expenses, excluding interest expense 2.28% 2.30%(d) 2.24%(d) 1.99%(d) 2.11%(d)(f)
Net investment income 5.80% 7.62% 7.55% 6.10% 7.17%(f)
Portfolio turnover rate 173% 215% 400% 605% 200%
</TABLE>
(a) Based on average shares outstanding.
(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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of the total
investment return. Total investment return calculated for a period of less than
one year is not annualized.
(c) Ratio reflects expense grossed up for expense offset arrangement with the
Transfer Agent. For the year ended October 31, 1997, the net expense ratio was
1.57%, 2.28% and 2.27% for Class A, B and C shares, respectively.
(d) Interest expense includes commitment fees paid.
(e) Commencement of distribution.
(f) Annualized.
18
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE MULTI-MARKET
STRATEGY TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Multi-Market Strategy Trust, Inc. (the "Fund"), including the
portfolio of investments, as of October 31, 1997, 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, 1997, 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 Multi-Market Strategy Trust, Inc. at October 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
December 10, 1997
19
74
<PAGE>
ALLIANCE MULTI-MARKET STRATEGY TRUST
SEMI-ANNUAL REPORT
APRIL 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
AUSTRALIA-8.5%
DEBT OBLIGATIONS-8.5%
Deutsche Bank AG
6.00%, 7/5/00 (a) AU$ 8,000 $ 5,251,917
State Bank of South Wales
8.63%, 8/20/01 (a) 6,000 4,234,407
Total Australian Securities
(cost $10,449,065) 9,486,324
DENMARK-7.2%
GOVERNMENT OBLIGATION-7.2%
Kingdom of Denmark
9.00%, 11/15/00 (a)
(cost $9,941,782) DKK 50,000 8,041,050
FRANCE-4.5%
GOVERNMENT OBLIGATION-4.5%
Government of France
7.75%, 4/12/00 (a)
(cost $5,007,641) FRF 28,000 4,958,576
GERMANY-18.2%
DEBT OBLIGATIONS-13.4%
Bayerische Landesbank Girozentrale
5.75%, 2/28/01 (a) US$ 5,000 4,972,220
Bayerische Vereinsbank
Finansiering
5.25%, 5/17/01 (a) DEM 7,400 4,208,716
Deutsche Hypothekenbank
5.75%, 10/02/01 (a) 10,000 5,773,839
-----------
14,954,775
GOVERNMENT OBLIGATION-4.8%
Government of Germany
8.00%, 7/22/02 (a) 8,500 5,345,957
Total German Securities
(cost $21,834,315) 20,300,732
ITALY-13.1%
GOVERNMENT OBLIGATIONS-13.1%
Republic of Italy
6.00%, 2/15/00 (a) ITL 10,400,000 6,014,957
6.25%, 5/15/02 (a) 14,400,000 8,551,933
Total Italian Securities
(cost $14,054,557) 14,566,890
MEXICO-6.6%
GOVERNMENT OBLIGATION-6.6%
Mexican Treasury Bill
22.85%, 6/04/98 (a)(b)
(cost $7,865,283) MXP 63,787 7,387,150
NORWAY-4.8%
GOVERNMENT OBLIGATION-4.8%
Kingdom of Norway
7.00%, 5/31/01 (a)
(cost $6,198,983) NOK 38,000 5,382,329
POLAND-5.2%
GOVERNMENT OBLIGATION-5.2%
Government of Poland
Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $5,811,656) PLN 21,600 5,820,839
SWEDEN-9.3%
GOVERNMENT OBLIGATIONS-9.3%
Kingdom of Sweden
5.50%, 4/12/02 (a) SEK 40,000 5,247,040
13.00%, 6/15/01 (a) 32,000 5,064,853
Total Swedish Securities
(cost $11,186,107) 10,311,893
UNITED STATES-18.5%
DEBT OBLIGATION-3.6%
Morgan Guaranty Trust Co.
6.38%, 3/26/01 (a) US$ 4,000 4,037,004
GOVERNMENT AGENCY OBLIGATION-3.8%
FNMA Global
7.25%, 6/20/02 (a) NZ$ 7,850 4,258,199
GOVERNMENT OBLIGATION-5.1%
U.S. Treasury Notes
6.50%, 5/31/02 US$ 5,500 5,663,279
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
TIME DEPOSIT-6.0%
Rabobank
5.44%, 5/01/98 US$ 6,600 $ 6,600,000
Total United States Securities
(cost $21,646,626) 20,558,482
TOTAL INVESTMENTS-95.9%
(cost $113,996,014) $106,814,265
Other assets less liabilities-4.1% 4,610,824
NET ASSETS-100% $111,425,089
(a) Securities, or a portion thereof, with an aggregate market value of
$94,550,986 have been segregated to collateralize forward exchange currency
contracts.
(b) Annualized yield to maturity at purchase date.
Glossary:
FNMA - Federal National Mortgage Association.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $113,996,014) $106,814,265
Cash 82,829
Receivable for investment securities sold 9,033,245
Interest receivable 2,941,956
Receivable for capital stock sold 9,783
Prepaid expenses 5,679
Total assets 118,887,757
LIABILITIES
Payable for investment securities purchased 6,600,000
Dividend payable 302,162
Payable for capital stock redeemed 163,081
Unrealized depreciation of forward exchange
currency contracts 155,537
Advisory fee payable 55,838
Distribution fee payable 34,226
Accrued expenses and other liabilities 151,824
Total liabilities 7,462,668
NET ASSETS $111,425,089
COMPOSITION OF NET ASSETS
Capital stock, at par $ 16,408
Additional paid-in capital 139,651,443
Distributions in excess of net investment income (348,303)
Accumulated net realized loss on investments and foreign
currency transactions (20,532,151)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (7,362,308)
$111,425,089
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($100,628,783 / 14,820,573 shares of capital stock
issued and outstanding) $6.79
Sales charge--4.25% of public offering price 0.30
Maximum offering price $7.09
CLASS B SHARES
Net asset value and offering price per share
($9,948,000 / 1,462,726 shares of capital stock
issued and outstanding) $6.80
CLASS C SHARES
Net asset value and offering price per share
($848,306 / 124,783 shares of capital stock
issued and outstanding) $6.80
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest $4,841,057
EXPENSES
Advisory fee $ 353,855
Distribution fee - Class A 148,321
Distribution fee - Class B 90,391
Distribution fee - Class C 4,938
Transfer agency 167,565
Custodian 100,571
Administrative 68,255
Audit and legal 54,325
Printing 31,019
Registration 26,721
Directors' fees 12,162
Miscellaneous 2,557
Total expenses 1,060,680
Net investment income 3,780,377
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (70,848)
Net realized gain on foreign currency transactions 3,187,229
Net change in unrealized depreciation of:
Investments (2,826,650)
Foreign currency denominated assets and liabilities 583,921
Net gain on investments and foreign currency transactions 873,652
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,654,029
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997
----------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 3,780,377 $ 8,855,944
Net realized gain on investments and
foreign currency transactions 3,116,381 8,391,096
Net change in unrealized depreciation
of investments and and foreign
currency denominated assets and
liabilities (2,242,729) (6,614,322)
Net increase in net assets from
operations 4,654,029 10,632,718
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (8,462,776) (4,899,179)
Class B (1,628,862) (3,883,236)
Class C (81,368) (73,529)
Distributions in excess of net
investment income
Class A -0- (2,095,730)
Class B -0- (1,692,062)
Class C -0- (32,833)
CAPITAL STOCK TRANSACTIONS
Net decrease (10,340,798) (28,950,404)
Total decrease (15,859,775) (30,994,255)
NET ASSETS
Beginning of year 127,284,864 158,279,119
End of period (including
undistributed net investment income
of $6,044,326 at October 31, 1997) $111,425,089 $127,284,864
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Multi-Market Strategy Trust, Inc. (the "Fund") was incorporated in the
State of Maryland as a non-diversified, open-end management investment company.
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are sold with a contingent deferred sales
charge which declines from 3.0% to zero depending on the period of time the
shares are held. Class B shares will automatically convert to Class A shares
six years after the end of the calendar month of purchase. Class C shares are
subject to a contingent deferred sales charge of 1.0% on redemptions made
within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that each class bears different distribution expenses and
has exclusive voting rights with respect to its distribution plan. The
financial statements have been prepared in conformity with generally accepted
accounting principles which require management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities in the
financial statements and amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price, if there was no sale on such
day, the last bid price quoted on such day. If no bid prices are quoted, then
the security is valued at the mean of the bid and asked prices as obtained on
that day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked price provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities.
2. 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 earned or accrued.
Net realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
10
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.60 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $68,255 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended April 30, 1998.
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 $96,304 for the six months ended April 30, 1998.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $1,423 from the sale of Class A shares and $7,468,
and $281 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the six months
ended April 30, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to both
Class B and Class C shares. The fees are accrued daily and paid monthly. The
Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities. The
Distributor has incurred expenses in excess of the distribution costs
reimbursed by the Fund in the amount of $9,551,576 and $581,063 for Class B and
C shares, respectively. Such costs may be recovered from the Fund in future
periods so long as the agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
11
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Sales of investment securities (excluding short-term investments and U.S.
government obligations) aggregated $13,408,948, for the six months ended April
30, 1998. There were U.S. government and government agency obligations
purchases of $5,689,922 for the six months ended April 30, 1998.
At April 30, 1998, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $597,058 and
gross unrealized depreciation of investments was $7,778,807 resulting in net
unrealized depreciation of $7,181,749 (excluding foreign currency transactions).
At October 31, 1997, the Fund had a capital loss carryforward of $23,648,532 of
which $1,488,331 expires in the year 2000, $4,570,679 expires in the year 2001,
$11,533,613 expires in the year 2002, and $6,055,909 expires in the year 2003.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. 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.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure of
the Fund in that particular currency contract.
At April 30, 1998, the Fund had outstanding forward exchange currency
contracts, as follows:
U.S. $
CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- -------------- ------- -------------
FORWARD EXCHANGE CURRENCY
BUY CONTRACTS
Deutsche Marks,
settling 6/17/98-8/20/98 17,214 $ 9,570,414 $ 9,637,675 $ 67,261
New Zealand Dollars,
settling 6/17/98 3,600 2,007,720 1,991,866 (15,854)
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
Australian Dollars,
settling 5/14/98 19,243 12,706,508 12,552,943 153,565
British Pounds,
settling 5/18/98 1,700 2,866,033 2,841,290 24,743
Deutsche Marks,
settling 8/20/98 64,437 36,021,192 36,127,057 (105,865)
12
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
U.S. $
CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- -------------- ------- -------------
French Francs,
settling 7/15/98 26,444 $ 4,354,383 $ 4,417,570 $ (63,187)
Italian Lira,
settling 6/26/98 24,988,933 13,895,478 14,115,908 (220,430)
Japanese Yen,
settling 6/17/98 493,406 3,837,527 3,749,746 87,781
New Zealand Dollar,
settling 6/17/98 11,480 6,291,178 6,351,977 (60,799)
Swedish Krona,
settling 6/16/98 72,664 9,375,938 9,398,690 (22,752)
----------
$(155,537)
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the six months ended
April 30, 1998.
3. INTEREST RATE SWAP AGREEMENTS
The Fund enters into currency and interest rate swaps to protect itself from
foreign currency and interest rate fluctuations on the underlying debt
instruments. A swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements
13
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
in interest rates or in the value of the foreign securities or currencies.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the value
of investments are recorded for financial statement purposes as unrealized
appreciation or depreciation of investments. Realized gains and losses from
terminated swaps are included in net realized gains on investment transactions.
There were no outstanding currency or interest rate swap contracts at April 30,
1998.
NOTE E: CAPITAL STOCK
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 8,446 516,722 $72,176 $3,728,611
Shares issued in
reinvestment of
dividends 270,163 211,609 1,852,956 1,529,106
Shares converted from
Class B 2,684,604 5,542,644 18,549,634 39,662,519
Shares redeemed (1,663,828) (2,268,565) (11,464,637) (16,382,016)
Net increase 1,299,385 4,002,410 $9,010,129 $28,538,220
CLASS B
Shares sold 149,680 509,209 $1,032,983 $3,686,703
Shares issued in
reinvestment of
dividends 79,304 176,547 545,134 1,277,395
Shares converted to
Class A (2,935,401) (5,542,644) (18,549,634) (39,662,519)
Shares redeemed (43,238) (3,169,143) (2,069,820) (22,944,703)
Net decrease (2,749,655) (8,026,031) $(19,041,337) $(57,643,124)
CLASS C
Shares sold 16,423 114,774 $113,072 $838,047
Shares issued in
reinvestment of
dividends 5,562 7,279 38,231 52,557
Shares redeemed (66,433) (101,777) (460,893) (736,104)
Net increase
(decrease) (44,448) 20,276 $(309,590) $154,500
14
FINANCIAL HIGHLIGHTS ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.11 $7.23 $6.83 $8.04 $8.94 $8.85
INCOME FROM INVESTMENT OPERATIONS
Net investment income .23(a) .47(a) .59(a) .77(a) .85 1.02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .04 .08 .48 (1.31) (1.08) (.26)
Net increase (decrease) in net asset
value from operations .27 .55 1.07 (.54) (.23) .76
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.59) (.47) (.67) -0- (.09) (.67)
Distributions in excess of net investment
income -0- (.20) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.67) (.58) -0-
Total dividends and distributions (.59) (.67) (.67) (.67) (.67) (.67)
Net asset value, end of period $6.79 $7.11 $7.23 $6.83 $8.04 $8.94
TOTAL RETURN
Total investment return based on net
asset value (b) 4.00% 7.82% 16.37% (6.47)% (2.64)% 9.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $100,629 $96,133 $68,776 $76,837 $52,385 $82,977
Ratio to average net assets of:
Expenses 1.69%(c) 1.58%(d) 1.64% 1.60% 1.41% 1.94%
Expenses, excluding interest
expense 1.69%(c) 1.58% 1.60%(e) 1.55%(e) 1.30%(e) 1.40%(e)
Net investment income 6.55%(c) 6.50% 8.40% 8.56% 7.17% 9.17%
Portfolio turnover rate 12% 173% 215% 400% 605% 200%
</TABLE>
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.11 $7.23 $6.83 $8.04 $8.94 $8.85
INCOME FROM INVESTMENT OPERATIONS
Net investment income .18(a) .42(a) .53(a) .44(a) .88 .92
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .07 .06 .47 (1.05) (1.18) (.22)
Net increase (decrease) in net asset
value from operations .25 .48 1.00 (.61) (.30) .70
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.56) (.42) (.60) -0- (.08) (.61)
Distributions in excess of net investment
income -0- (.18) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.60) (.52) -0-
Total dividends and distributions (.56) (.60) (.60) (.60) (.60) (.61)
Net asset value, end of period $6.80 $7.11 $7.23 $6.83 $8.04 $8.94
TOTAL RETURN
Total investment return based on net
asset value (b) 3.69% 6.90% 15.35% (7.31)% (3.35)% 8.25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $9,948 $29,949 $88,427 $116,551 $233,896 $431,186
Ratio to average net assets of:
Expenses 2.37%(c) 2.29%(d) 2.35% 2.29% 2.11% 2.64%
Expenses, excluding interest
expense 2.37%(c) 2.29% 2.31%(e) 2.22%(e) 2.01%(e) .11%(e)
Net investment income 5.67%(c) 5.79% 7.69% 7.53% 6.44% 8.46%
Portfolio turnover rate 12% 173% 215% 400% 605% 200%
</TABLE>
See footnote summary on page 17.
16
ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS MAY 3, 1993(F)
ENDED YEAR ENDED OCTOBER 31, TO
APRIL 30, 1998 -------------------------------------------------- OCTOBER 31,
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.11 $7.23 $6.83 $8.04 $8.94 $8.76
INCOME FROM INVESTMENT OPERATIONS
Net investment income .20(a) .42(a) .54(a) .44(a) .46 .32
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .05 .07 .47 (1.04) (.75) .16
Net increase (decrease) in net asset
value from operations .25 .49 1.01 (.60) (.29) .48
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.56) (.42) (.61) -0- (.09) (.30)
Distributions in excess of net investment
income -0- (.19) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.61) (.52) -0-
Total dividends and distributions (.56) (.61) (.61) (.61) (.61) (.30)
Net asset value, end of period $6.80 $7.11 $7.23 $6.83 $8.04 $8.94
TOTAL RETURN
Total investment return based on net
asset value (b) 3.70% 6.92% 15.36% (7.29)% (3.34)% 5.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $848 $1,203 $1,076 $786 $1,252 $718
Ratio to average net assets of:
Expenses 2.37%(c) 2.28%(d) 2.34% 2.29% 2.08% 2.44%(c)
Expenses, excluding interest
expense 2.37%(c) 2.28% 2.30%(e) 2.24%(e) 1.99%(e) .11%(c)(e)
Net investment income 5.80%(c) 5.80% 7.62% 7.55% 6.10% 7.17%(c)
Portfolio turnover rate 12% 173% 215% 400% 605% 200%
</TABLE>
(a) Based on average shares outstanding.
(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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of the total
investment return. Total investment return calculated for a period of less than
one year is not annualized.
(c) Annualized.
(d) Ratio reflects expense offset arrangement with the Transfer Agent. For the
year ended October 31, 1997, the net expense ratio was 1.57%, 2.28% and 2.27%
for Class A, B and C shares, respectively.
(e) Interest expense includes commitment fees paid.
(f) Commencement of distribution.
17
75
<PAGE>
_____________________________________________________________
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.
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
<PAGE>
_____________________________________________________________
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 IBCA, INC. BOND RATINGS
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
as in the case of high class equipment certificates or bonds that
B-1
<PAGE>
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior through
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. 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 numbers 1+, 1, 2, and 3 to denote
relative strengths 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.
B-2
<PAGE>
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 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 payments. "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
<PAGE>
_____________________________________________________________
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
U.S. Treasury Bonds, 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 contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
C-1
<PAGE>
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
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
C-2
<PAGE>
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 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
C-3
<PAGE>
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.
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 as 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,
C-4
<PAGE>
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.
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.
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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
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities or
other high-grade 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 grade
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 purchase 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
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writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
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
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exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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_______________________________________________________________
APPENDIX D: ADDITIONAL INFORMATION ABOUT
THE UNITED MEXICAN STATES
_______________________________________________________________
Territory and Population
The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
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 91.1 million, as reported by the National Institute
of Statistics, Geography and Informatics in 1995.
Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1995 of
16.4 million, 3.3 million and 2.9 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas, have resulted in a reduction of
the population growth rate to a projected 1.6% in 1997.
Government
The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
establishes 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 17 ministries, the office of the Federal Attorney
General, the Federal District Department and the office of the
Attorney General of the Federal District.
Federal 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, four from
each state and four from 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 elected by a system of
proportional representation. The Constitution provides that the
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President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.
Federal Judicial authority is vested in the Supreme
Court of Justice, the Circuit and District courts, and the
Federal Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.
Mexico has diplomatic relations with approximately 176
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States, the
International Monetary Fund (the "IMF"), the World Bank, the
International Finance Corporation, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
Mexico became a member of the Organization for Economic
Corporation and Development (the "OECD") on April 14, 1994 and
the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).
Politics
The Partido Revolucionario Institucional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and until the 1997 Congressional
elections held a majority in 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 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with
16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD had the
third largest representation with 10 seats in the Senate and 70
seats in the Chamber of Deputies. The PRI won two additional
seats pursuant to proportional representation and the PAN and the
PRD each won one seat in extraordinary elections held on
April 30, 1995. In the mid-term Congressional elections on
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July 6, 1997, the PRI lost its majority in the Chamber of
Deputies and now holds 239 of its 500 seats. Elections will next
be held by 2000 (Presidential).
At the beginning of 1994 armed insurgents attacked (and
in some cases temporarily seized control of) several villages in
the southern state of Chiapas. While the Government responded by
providing support to the local authorities and publicly offering
to negotiate a peaceful resolution that would address the
underlying concerns of the local population, the conflict
remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the
spring of 1994, but subsequently were broken off. In December of
1994, the Congress approved the creation of a Congressional peace
commission, to be formed by members of both chambers of Congress,
which would be responsible for mediating the negotiations between
the Government and the insurgents. By the end of 1994, however,
the insurgents had not agreed to resume negotiations and there
were additional incidents of civil unrest.
In the Spring of 1995, the Government renewed its
efforts to resolve its differences with the insurgents in the
Chiapas region by facilitating their participation in the
political process. On March 9, 1995, Congress approved a law
granting temporary amnesty to insurgents who participate in peace
talks with the Government, and on March 13, 1995, the law
establishing the framework for these peace talks took effect. On
September 11, 1995, the Government and the insurgents reached an
agreement pursuant to which both sides accepted a common
political agenda and procedural rules, and agreed to the creation
of a working committee regarding the rights of indigenous
peoples. This agreement was expected to represent a first step
toward a comprehensive peace agreement between the parties. The
working committee began negotiations on October 17, 1995 and
concluded a second round of meetings on November 19, 1995 having
made significant progress in laying out the framework for a
plenary session that took place from January 10 through
January 19, 1996. The attendees at the plenary session drafted
an agreement on a series of measures aimed at enhancing and
guaranteeing the rights of the indigenous population. The
agreement was signed on February 16, 1996. Talks with the
insurgents have continued but are currently on hold.
On August 28, 1996, a newly formed group calling itself
the Popular Revolutionary Army attacked military and police
targets in small cities of some southern states of Mexico. It is
generally believed that this group does not enjoy popular
support, and its terrorists attacks have been condemned by both
Government and nongovernment representatives. The Government has
announced the apprehension of several alleged members of the
group.
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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
include 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. There have
also been mushrooming revelations linking Mexico's drug cartels
with high Government and military officials. These revelations
could jeopardize Mexico's status as an ally of the U.S. in the
war against narcotics smuggling. While Mexico is currently
certified as an ally there is no assurance that the certification
will be maintained. A loss of certification could result in the
termination of U.S. economic assistance to Mexico.
On January 17, 1995, the major political parties of
Mexico entered into a new accord to further the opening of the
political process in Mexico. On July 25, 1996, the Mexican
Government announced certain proposed constitutional amendments
aimed at reforming the electoral law that were ratified on
August 22, 1996. The amendments, which had been agreed to by the
President and the leaders of the four major political parties
represented in Congress, among other things, exclude the
President from the Federal Electoral Institute, an autonomous
agency charged with organizing elections; eliminate the Electoral
Committee of the Chamber of Deputies, which had been responsible
for determining the validity of presidential elections; impose
limits on expenditures on political campaigns and controls on the
source of and uses of funds contributed to a political party;
grant voting rights to Mexican citizens residing abroad; reduce
from 315 to 300 the maximum number of congressional
representatives who may belong to a single party, and establish
an electoral procedure intended to result in a more proportional
representation in the Senate. The Mexican Supreme Court is
empowered to determine the constitutionality of electoral laws
and the Mexican Federal Electoral Court, which has been part of
the executive branch, will become part of the judicial branch.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary authority 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
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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
monetary policy matters. The amendment significantly strengthens
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 became a member of the GATT in 1986 and has been
a member of the WTO since January 1, 1995, the date on which the
WTO superseded the GATT. 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 as a step toward
establishing a free-trade area by the end of 1997, 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 steep decline in oil prices
in 1981 and 1982, together with high international interest rates
and the credit markets' unwillingness to refinance maturing
external Mexican credits, led in 1982 to record inflation,
successive devaluations of the peso by almost 500% in total, a
pubic sector deficit of 16.9% of GDP and, in August 1982, a
liquidity crisis that precipitated subsequent restructurings of a
large portion of the country's external debt. Through much of
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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."
The value of the 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), and 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.
A fixed exchange rate was maintained from February to
December 1988. Thereafter, under a Government implemented
devaluation schedule, the intended annual rate of devaluation was
gradually lowered from 16.7% in 1989 to 11.4% in 1990, 4.5% in
1991 and 2.4% in 1992. From October 1992 through December 20,
1994, the peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, which
was the maximum selling rate, depreciated at a daily rate of
0.0004 pesos (equal to approximately 4.5% per year), while the
floor of the band, i.e., the minimum buying rate, remained fixed.
Banco de Mexico agreed to intervene in the foreign exchange
market to the extent that the peso/dollar exchange rate reached
either the floor or the ceiling of the band.
RECENT DEVELOPMENTS. Beginning on January 1, 1994,
volatility in the peso/dollar exchange rate began to increase,
with the value of the peso relative to the dollar declining at
one point to an exchange rate of 3.375 pesos to the U.S. Dollar,
a decline of approximately 8.69% from the high of 3.1050 pesos
reached in early February. This increased volatility was
attributed to a number of political and economic factors,
including a growing current account deficit, the relative
overvaluation of the peso, investor reactions to the increase in
U.S. interest rates, lower than expected economic growth in
Mexico in 1993, uncertainty concerning the Mexican Presidential
elections in August 1994 and certain related developments.
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On December 20, 1994, increased pressure on the
peso/dollar exchange rate led Mexico to increase the ceiling of
the Banco de Mexico intervention band. That action proved
insufficient to address the concerns of foreign investors, and
the demand for foreign currency continued. On December 22, the
Government adopted a free exchange rate policy, eliminating the
intervention band and allowing the peso to float freely against
the dollar. The value of the peso continued to weaken relative
to the dollar in the following days. There was substantial
volatility in the peso/dollar exchange during the first quarter
of 1995, with the peso/dollar exchange rate falling to a low
point of 7.588 pesos to the U.S. Dollar on March 13, 1995. By
the end of April and through September 1995, the exchange rate
began to stabilize; however, the exchange rate began to show
signs of renewed volatility in October and November 1995. The
peso/dollar exchange rate fell to a low for the year of 8.14
pesos to the U.S. Dollar on November 13, 1995. The peso/dollar
exchange rate announced by Banco de Mexico on October 27, 1997
(to take effect on the second business day thereafter) for the
payment of obligations denominated in dollars and payable in
pesos was 8.39 pesos to the U.S. Dollar.
In order to address the adverse economic situation that
developed at the end of 1994, the Government announced in January
1995 a new economic program and a new accord among the Government
and the business and labor sectors of the economy, which,
together with a subsequent program announced in March 1995 and
the international support package described below, formed the
basis of Mexico's 1995 economic plan (the "1995 Economic Plan").
The objectives of the 1995 Economic Plan were to stabilize the
financial markets, lay the foundation for a return to lower
inflation rates over the medium-term, preserve Mexico's
international competitiveness, maintain the solvency of the
banking system and attempt to reassure long-term investors of the
strong underlying fundamentals of the Mexican economy.
The central elements of the 1995 Economic Plan were
fiscal reform, aimed at increasing public revenues through price
and tax adjustments and reducing public sector expenditures;
restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining
the current floating exchange rate policy; reduction of the
current account deficit; introduction of certain financial
mechanisms to enhance the stability of the banking sector; and
maintenance and enhancement of certain social programs, to ease
the transition for the poorest segments of society.
In addition to the actions described above, in the
beginning of 1995, the Government engaged in a series of
discussions with the IMF, the World Bank, the Inter-American
Development Bank and the U.S. and Canadian Governments in order
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to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial
stability to Mexico's economy. The proceeds of the loans and
other financial support have been and will be used to refinance
public sector short-term debt, primarily Tesobonos, to restore
the country's international reserves and to support the banking
sector. The largest component of the international support
package is up to $20 billion in support from the United States
pursuant to four related agreements entered into on February 21,
1995. During 1995, the U.S. Government and the Canadian
Government disbursed $13.7 billion of proceeds to Mexico under
these agreements and the North American Framework Agreement
("NAFA"), the proceeds of which were used by Mexico to refinance
maturing short-term debt, including Tesobonos and $1 billion of
short-term swaps under the NAFA.
Using resources made available through the international
support package as well as operations by Banco de Mexico, in 1995
Mexico altered its debt profile significantly. The outstanding
Tesobono balance was reduced from $29.2 billion at December 31,
1994 to $16.2 billion at the end of the first quarter of 1995,
$10.0 billion at the end of the second quarter, $2.5 billion at
the end of the third quarter and $246 million at the end of the
fourth quarter. By February 16, 1996, Mexico had no Tesobonos
outstanding, and has not issued Tesobonos since that date. As of
December 31, 1996, 100% of Mexico's net internal debt was
denominated and payable in pesos, as compared with only 44.3% of
such debt at the end of 1994.
On May 31, 1995, the Government announced the Plan
Nacional de Desarrollo 1995-2000 (1995-2000 National Development
Plan, or the "Development Plan"). The Development Plan covers
five topics: sovereignty; the rule of law; democratic
development; social development; and economic growth. The
fundamental strategic objective of the Development Plan is to
promote vigorous and sustainable economic growth. Among other
things, the Development Plan calls for steps to increase domestic
savings, preferences for channeling foreign investment into
direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive
activities and further deregulation of the economy.
On October 29, 1995, the Government announced the
establishment of a new accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para la Recuperacion Economica (Alliance for Economic
Recovery or "ARE"). The chief objectives of the ARE, which was
replaced by the ACE (as defined below), were to stimulate
economic recovery and job creation, and to strengthen the basis
for gradual and sustainable economic growth.
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On October 26, 1996, the Government announced the
establishment of another accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para el Crecimiento Economico (Alliance for Economic
Growth or "ACE"). The chief objectives of the ACE are to foster
sustainable economic growth by emphasizing (i) the export sector,
particularly through domestic and foreign investment, (ii) public
investment, particularly in the hydrocarbon, electricity,
transportation and water sectors, private consumption and
(iii) fiscal and monetary discipline in order to encourage an
environment of greater price stability and lower interest rates.
On June 3, 1997, the Government announced the Programa
Nacional de Financiamiento del Desarrollo 1997-2000 (National
Development Financing Program 1997-2000, or "PRONAFIDE"). The
PRONAFIDE's goals are to: (i) achieve, on average, real GDP
growth of 5% per year, (ii) generate more than one million jobs
per year, (iii) increase real wages and salaries, (iv) strengthen
the capacity of the Government to respond to social needs and
(v) avoid an economic crisis of the type suffered by Mexico
during the past 20 years.
The effects of the devaluation of the peso, as well as
the Government's response to that and related events, were
apparent in the performance of the Mexican economy during 1995
and 1996. Recent trade figures show a reversal of Mexico's trade
deficit during 1995. The value of imports (including in-bond
industries) decreased by 8.7% between 1994 and 1995, to $72.5
billion in 1995. Although the value of imports (including
in-bond industries) in 1996 increased approximately 23.4% from
1995, to $89.5 billion, exports increased by almost the same
amount. During 1995, Mexico registered a $7.089 billion trade
surplus, its first annual trade surplus since 1989. Mexico
registered a surplus in its trade balance of $6.531 billion
during 1996, down approximately 7.9% from 1995. During 1996,
Mexico's current account balance registered a deficit of $1.922
billion, as compared with a deficit of $1.577 billion in 1995.
Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1996, Mexico's international
reserves amounted to $17,509 million, as compared to $15,741
million at December 31, 1995, $6,148 million at December 31, 1994
and $24,538 million at December 31, 1993.
During 1995 real GDP decreased by 6.9%, as compared with
a growth rate of 3.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP continued to grow in the third and
fourth quarters of 1996, resulting in an overall GDP growth rate
of 5.1% for 1996. According to preliminary estimates, the GDP
continued to grow by 5.1% during the first quarter of 1997,
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compared to the first quarter of 1996. The Government currently
projects a 4.5% increase in the GDP for 1997. Although the
Mexican economy has stabilized, there can be no assurance that
the government's plan will lead to a full recovery.
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 GDP
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 will 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 1996 and for each of the six months ended June 1997.
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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 3.222 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.598 -- --
1997
January 7.839 7.831 -- --
February 7.784 7.793 -- --
March 7.891 7.963 -- --
April 7.927 7.904 -- --
May 7.909 7.906 -- --
June 7.958 7.947 -- --
* 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 wages and prices (the "1987 accord"). The
1987 accord included the implementation of restrictive fiscal and
monetary policies, the elimination of trade barriers and the
reduction of import tariffs. After substantive increases in
public sector prices and utility rates, price controls were
introduced.
The 1987 accord was succeeded by a series of additional
accords, each of which continued to stress the moderation of
D-11
<PAGE>
inflation, fiscal discipline and a gradual devaluation of the
peso. There was a gradual reduction in the number of goods and
services whose prices were covered by such accords. The two most
recent of these accords also incorporated a reduction in the
income tax rate applicable to corporations and certain self-
employed individuals from 35% to 34% and a reduction in the
withholding tax applicable to interest payments on publicly
issued external debt and external debt payable to certain
financial institutions from 15% to 4.9%. Under the later of
these two accords, tax benefits were proposed for workers
receiving salaries not exceeding twice the minimum wage and asset
taxes to be reduced to 1.8%. 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, 8.0% in 1993, and 7.1% in
1994.
Over the medium-term, the Government is committed to
reversing the decline in real wages experienced in the last
decade through control of inflation, a controlled gradual upward
adjustment of wages and a reduction in income taxes for the lower
income brackets. Nonetheless, the effect of the devaluation of
the peso and the Government's response to that event and related
developments caused a significant increase in inflation in 1995,
as well a decline in real wages for much of the population during
1995. Inflation during 1995 (as measured by the increase in the
National Consumer Price Index), was 52.0%, as compared with 7.1%
during 1994. Inflation during 1996 was 27.7%. In May 1997, the
monthly consumer inflation rate was 0.9%, the first time the
monthly inflation rate was below 1% since December 1994. The
inflation rate during the first six months of 1997 was 8.7%,
compared to 15.3% during the first six months of 1996.
CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for the year
ended December 31 for the years 1981 through 1996 and for the six
months ended June 30, 1997.
D-12
<PAGE>
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................................... 9.7
1990................................... 29.9
1991................................... 18.8
1992................................... 11.9
1993................................... 8.0
1994................................... 7.1
1995................................... 52.0
1996................................... 27.7
1997(1)................................ 8.7
(1) For the six months ended June 30.
Source: Banco de Mexico.
D-13
<PAGE>
MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1990 through 1996 at historical and constant prices.
Gross Change from
Gross Domestic Product Prior Year at
Domestic Product at 1980 Prices(1) Constant Prices
________________ _________________ _______________
(millions of Mexican New Pesos) (percentage)
1991. . . . 865,166 5,463 3.6
1992. . . . 1,019,156 5,616 2.8
1993. . . . 1,145,382 5,659 0.7
1994. . 1,272,799 5,858 3.5
1995(2). 1,604,368 5,452 (6.9)
1996(2)(3) 2,285,266 1,270.4(4) 3.0
(1) Constant peso with purchasing power at December 31, 1980,
expressed in new pesos.
(2) Preliminary.
(3) Annualized.
(4) Constant peso with purchasing power at December 31, 1993.
Source: Ministry of Finance and Public Credit
D-14
<PAGE>
INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day Cetes, the
average weighted cost of term deposits for commercial banks
("CPP"), the average interest rate ("TIIP") and the equilibrium
interest rate ("TIIE") for the periods listed below:
Average Cetes and Interest Rates
_________________________________
28-Day 91-Day
Cetes Cetes CPP TIIP TIIE
_____ _____ _____ _____ _____
1990:
Jan.-June 41.2 40.7 43.2% _____ _____
July-Dec. 28.3 29.4 31.0 _____ _____
1991:
Jan.-June 21.2 21.7 24.3 _____ _____
July-Dec. 17.3 18.0 20.8 _____ _____
1992:
Jan.-June 13.8 13.8 16.9 _____ _____
July-Dec. 17.4 18.0 20.7 _____ _____
1993:
Jan.-June 16.4 17.3 20.9 20.4(1) _____
July-Dec. 13.5 13.6 16.2 16.1 _____
1994:
Jan.-June 13.0 13.5 14.2 15.3 _____
July-Dec. 15.2 15.7 16.8 20.4 _____
1995:
Jan.-June 55.0 54.3 49.6 63.6 71.2(2)
July-Dec. 41.9 42.2 40.7 44.5 44.5
1996:
Jan.-June 35.4 37.2 34.5 37.3 37.2
July-Dec. 27.4 28.6 26.9 30.2 30.1
1997:
January 23.6 24.6 24.1 25.9 26.0
February 19.8 22.0 21.1 22.2 22.1
March 21.7 22.3 21.1 24.0 24.0
April 21.4 22.4 21.1 23.8 24.0
May 18.4 20.6 18.7 20.6 20.7
June 20.2 21.4 18.8 22.5 22.5
(1) February-June average
(2) Average for the last two weeks of March
Source: Banco de Mexico
D-15
<PAGE>
[LOGO] ALLIANCE WORLD INCOME TRUST, INC
________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus for Alliance World Income Trust, Inc. (the
"Fund"). A copy of the Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or "For Literature"
telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund. . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . .
Expenses of the Fund . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . .
Redemption and Repurchase of Shares. . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . .
Net Asset Value. . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . .
Brokerage and 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
Appendix D (Additional Information About
The United Mexican States) . . . . . . . . . . . . . D-1
____________________
(R): This registered service mark used under license from
the owner, Alliance Capital Management L.P.
D-16
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
INTRODUCTION TO THE FUND
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
2
<PAGE>
particular currency will vary in accordance with the Adviser's
assessment of 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 across-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 Union 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 Fund
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. 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 the 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 Union, a fifteen-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. 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 (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.
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 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
4
<PAGE>
instrumentalities, all of which are rated AAA or AA by Standard &
Poor's Ratings Services ("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 IBCA, 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
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
5
<PAGE>
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 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,
6
<PAGE>
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 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
7
<PAGE>
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.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities eligible for
8
<PAGE>
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.
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, an automated
system for the clearance and settlement of transactions in
unregistered securities of domestic and foreign issuer which is
sponsored by the National Association of Securities Dealers, Inc.
("NASD").
9
<PAGE>
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, 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
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
10
<PAGE>
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 liquid assets 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.
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
11
<PAGE>
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 Fund are denominated ("cross-
hedge"). To the extent required by applicable law, the Fund's
Custodian will place liquid assets 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 assets
placed in a separate account declines, additional liquid assets
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. In
addition, the Fund may use such other methods of "cover" as are
permitted by applicable law.
12
<PAGE>
The Fund may purchase or sell forward foreign currency
exchange contracts. While these contracts are not presently
regulated by the Commodity Futures Trading Commission (the
"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.
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.
13
<PAGE>
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.
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)
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan,
the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent
collateral. The Fund will have the right to regain record
ownership of loaned securities or equivalent securities in order
to exercise ownership rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions.
The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan. The Fund will not lend
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
14
<PAGE>
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.
CERTAIN 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;
15
<PAGE>
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 and gas, or other mineral exploration or development
programs; (iv) purchase securities on margin except for such
short-term credits as may be necessary for the clearance of
transactions; 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
16
<PAGE>
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, that it will (i) 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) 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) 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 if such
purchase at the time thereof would cause more than 10% of the
voting securities of any issuer to be held by the Fund.
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 at any such maximum.
17
<PAGE>
_________________________________________________________________
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,4 52, Chairman and President of the
Fund, is the President, Chief Operating Officer, and a Director
of Alliance Capital Management Corporation ("ACMC") with which he
has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable"). She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is P.O. Box 4653, Stamford,
Connecticut 06903.
DAVID H. DIEVLER, 68, a Senior Vice President of ACMC
with which he had been associated since prior to 1993. He is
currently an independent consultant. His address is P.O. Box
167, Spring Lake, New Jersey 07762
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is Historic Hudson Valley, 150 White Plains Road,
Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 65, is an investment adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
____________________
4. An "interested person" of the Fund as defined in the 1940
Act.
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<PAGE>
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. 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, 58, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President, Chief Executive Officer and
Director of Wenonah Development Company (investments) and a
Director of Placer Dome, Inc. (mining). His address is 80 Pine
Street, New York, New York 10005.
DONALD J. ROBINSON, 63, was formerly a senior partner
and a member of the Executive Committee at in the law firm of
Orrick, Herrington & Sutcliffe and is currently senior counsel to
that firm. His address is 666 Fifth Avenue, 19th Floor, New
York, New York 10103.
OFFICERS
JOHN D. CARIFA, Chairman and President, see the
biography under "DIRECTORS" section, above.
KATHLEEN A. CORBET, 37, Senior Vice President, is an
Executive Vice President of ACMC with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department, since prior to 1993.
WAYNE D. LYSKI, 56, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
DOUGLAS J. PEEBLES, 32, Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
EDMUND P. BERGAN, JR., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1993.
ANDREW L. GANGOLF, 43, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD since December
1994. Prior thereto, he was a Vice President and Assistant
Secretary of Delaware Management Company, Inc. since prior to
1993.
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<PAGE>
DOMENICK PUGLIESE, 36, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice President
and Counsel of Concord Holding Corporation since 1994 and Vice
President and Associate General Counsel of Prudential Securities
since prior to 1993.
EMILIE D. WRAPP, 41, Assistant Secretary, is a Vice
President and Special Counsel of AFD, with which she has been
associated since prior to 1993.
MARK D. GERSTEN, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS"), with which he has been associated since prior to
1993.
JUAN J. RODRIGUEZ, 40, Controller, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
CARLA LAROSE, 34, Assistant Controller, is a Manager of
AFS with which she has been associated since prior to 1993.
JOSEPH J. MANTINEO, 38, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
VINCENT S. NOTO, 33, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
20
<PAGE>
Total Number Total Number
of Registered of Investment
Investment Portfolios
Companies within the
the Alliance Alliance
Fund Complex, Fund Complex,
Including the Including the
Total Fund, as to Fund, as to
Compensation which the which the
Aggregate from the Director is Director is a
Compensation Alliance a Director Director or
Name of Director From the Fund Fund Complex or Trustee Trustee
John D. Carifa $-0- $-0- 54 118
Ruth Block $3039 $164,000 40 80
David H. Dievler $3,046 $188,500 47 83
John H. Dobkin $3,030 $126,500 44 80
William H. Foulk, Jr. $3,106 $176,250 48 113
Dr. James M. Hester $3,006 $156,500 40 76
Clifford L. Michel $2,775 $194,500 41 92
Donald J. Robinson $2,971 $235,500 41 94
As of February 6, 1998, 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 Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1997 totaling more than $218 billion (of which
approximately $85 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundation and endowment funds. As of
December 31, 1997, the Adviser was an investment manager of
employee benefit fund assets for 31 of the FORTUNE 100 companies.
As of that date, the Adviser and its subsidiaries employed
approximately 1,500 employees who operated out of domestic
offices and the offices of subsidiaries in Bahrain, Bangalore,
Chennai, Istanbul, London, Madrid, Mumbai, Paris, Singapore,
Tokyo and Toronto and affiliate offices located in Vienna,
Warsaw, Hong Kong, Sao Paulo and Moscow. The 58 registered
21
<PAGE>
investment companies comprising more than 122 separate investment
portfolios managed by the Adviser currently have over three
million shareholder accounts.
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"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
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.
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<PAGE>
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
of the Fund ended in 1995, 1996 and 1997 advisory fees payable to
the Adviser amounted to $451,385, $316,077 and $268,583,
respectively. Of those amounts, $111,110, $77,804 and $66,114 for
fiscal years of the Fund ended in 1995, 1996 and 1997,
respectively, were waived by the Adviser so that during such
period, the Fund paid advisory fees in amounts aggregating,
$340,275, $238,273 and $202,469, respectively.
The Advisory Agreement became effective on July 22,
1992. 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, 1998
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 9, 1997.
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 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
23
<PAGE>
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China '97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield Fund,
Inc., Alliance Income Builder Fund, Inc., Alliance Institutional
Funds, Inc., Alliance International Fund, Alliance International
Premier Growth Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Money Market Fund, Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance Municipal
Income Fund II, Alliance Municipal Trust, Alliance New Europe
Fund, Inc., Alliance North American Government Income Trust,
Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc., Alliance/Regent
Sector Opportunity Fund, Inc., Alliance Short-Term Multi-Market
Trust, Inc., Alliance Technology Fund, Inc., Alliance Utility
Income Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Portfolios, Fiduciary
Management Associates and The Hudson River Trust, all registered
open-end investment companies; and to ACM Government Income Fund,
Inc., ACM Government Securities Fund, Inc., ACM Government
Spectrum Fund, Inc., ACM Government Opportunity Fund, Inc., ACM
Managed Income Fund, Inc., ACM Managed Dollar Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage Fund, Inc., Alliance World Dollar Government Fund,
Inc., Alliance World Dollar Government Fund II, Inc., The Austria
Fund, Inc., The Korean Investment Fund, Inc., The Southern Africa
Fund, Inc. and The Spain Fund, Inc., all registered closed-end
investment companies.
24
<PAGE>
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter") and the Adviser to
permit the Principal Underwriter to distribute the Funds shares
and to permit the Fund to pay distribution services fees to
defray 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 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 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 defined in the 1940
Act, of any such party) at a meeting called for that purpose held
on October 14, 1991.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
25
<PAGE>
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures under the Agreement
to the Principal Underwriter amounted to $371,885. Of that
amount, $90,906 was waived by the Principal Underwriter so that
during such period, the Fund paid distribution services fees for
expenditures in an amount aggregating $280,979 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 $556,930. Of the
$837,909 paid by the Fund and the Adviser under the Plan, $86,252
was spent on advertising, $3,878 on the printing and mailing of
prospectuses for persons other than current shareholders,
$533,902 for compensation to broker-dealers and other financial
intermediaries (including, $176,331 to the Fund's Principal
Underwriter), $3,180 for compensation to sales personnel and
$210,697 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 12b-1 Plan or any agreements related
thereto. Most recently, continuance of the Agreement was
approved for the period ending October 31, 1998 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 9, 1997.
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 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.
26
<PAGE>
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, 1997, the Fund
paid Alliance Fund Services, Inc. $45,142 pursuant to the
Transfer Agency Agreement.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Buy Shares."
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value, without any sales charge,
through (i) investment dealers that are members of the NASD and
have entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions
and other financial intermediaries or their affiliates that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents") and (iii) the Principal
Underwriter. 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 through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of shares made through
such financial representative. Such financial representative may
also impose requirements with respect to the purchase, sale or
exchange of shares that are different from, or in addition to,
those imposed by the Fund, including requirements as to the
minimum initial and subsequent investment amounts.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
27
<PAGE>
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value. 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 as of the next close of regular trading on the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The 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, agents or financial representatives, as applicable, the
applicable public offering price will be the net asset value as
so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The selected
dealer, agent or financial representative, as applicable, is
responsible for transmitting such orders by 5:00 p.m. If the
selected dealer, agent or financial representative fails to do
so, the investor's right to that day's closing price must be
settled between the investor and the selected dealer, agent or
financial representative, as applicable. If the selected dealer,
agent or financial representative, as applicable, receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
28
<PAGE>
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. New York time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other 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 taken 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.
29
<PAGE>
_______________________________________________________________
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. If a shareholder is in doubt about what
documents are required by his or her fee-based program or
employee benefit plan, the shareholder should contact his or her
financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund 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 will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment received by a shareholder upon redemption or
repurchase of his or her shares, assuming the shares constitute
capital assets in his or her hands, will result in long-term or
short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
30
<PAGE>
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
share certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the share certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
Electronic Funds Transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at (800) 221-
5672 before 4:00 p.m. Eastern time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc. or by checking the appropriate box on the
Subscription Application found in the Prospectus.
TELEPHONE REDEMPTION--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
31
<PAGE>
(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. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund, nor
the Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request, except that requests placed through selected dealers
or agents before the close of regular trading on the Exchange on
any day will be executed at the net asset value determined as of
such close of regular trading on that day if received by the
Principal Underwriter prior to its close of business on that day
(normally 5:00 p.m. Eastern time). The financial intermediary or
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
financial intermediary or selected dealer or agent fails to do
so, the shareholder's right to receive that day's closing price
must be settled between the shareholder and the dealer or agent.
A shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares of
the Fund. Normally, if shares of the Fund are offered through a
financial intermediary or selected dealer or agent, the
repurchase is settled by the shareholder as an ordinary
transaction with or through the selected dealer or agent, who may
charge the shareholder for this service. The repurchase of
32
<PAGE>
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.
_________________________________________________________________
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 "For Literature" telephone number on the
cover of this Statement of Additional Information, or write to:
33
<PAGE>
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. The minimum initial investment requirement may be
waived with respect to certain of these qualified plans.
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.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
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
34
<PAGE>
amount of not less than $50 on a selected date. Systematic
withdrawal plan participants must elect to have their dividends
and distributions from the Fund automatically reinvested in
additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions. 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 plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
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.
35
<PAGE>
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
36
<PAGE>
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
37
<PAGE>
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
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<PAGE>
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS AND
DISTRIBUTIONS
GENERAL
The Fund intends for each taxable year to be qualified
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 effect and applicability
of Federal, state, local and foreign tax laws to their own
particular situation and the possible effects of changes therein.
In order to qualify as a regulated investment company
for any taxable year, the fund must, among other things, derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign
currency or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currency. In addition, the Fund will qualify as a regulated
investment company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
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
39
<PAGE>
equal to the sum 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.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains---that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Distributions of net capital gains will be
treated in the hands of shareholders as mid-term gains to the
extent designated by the Fund as deriving from net gains from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gains,
regardless of how long a shareholder has held shares in the Fund.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him 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 of net capital gains, 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.
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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 may be required to withhold federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue
Services that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is
not an additional tax; any amount so withheld may be credited
against a shareholder's federal income tax liability or refunded.
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 shareholders may be subject to rules which limit or
reduce their ability to fully deduct, or claim a credit for,
their pro rata share of the foreign taxes paid by the Fund. A
shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least
15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date. Each shareholder will be notified within
41
<PAGE>
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.
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
42
<PAGE>
extent that such distributions exceed such shareholder's basis,
each will be treated as a gain from the sale of shares.
OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN CURRENCY
CONTRACTS
Certain listed options, regulated futures contracts and
forward foreign currency contracts are considered "section 1256
contracts" for Federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for Federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts other than forward foreign currency contracts will
be considered 60% long- term and 40% short-term capital gain or
loss, although the Fund may elect to have the gain or loss it
realizes on certain contracts taxed as "section 988" gain or
loss. Gain or loss realized by the Fund on forward foreign
currency contracts generally 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. The
regulations issued 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.
43
<PAGE>
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or 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
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<PAGE>
Treasury Department is authorized to issue regulations providing
for the proper treatment of a mixed straddle where at least one
position is ordinary and at least one position is capital. No
such regulations have yet been issued. Various elections are
available to the Fund which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any
straddles held by the Fund all of the offsetting positions of
which consist of section 1256 contracts.
TAXATION OF FOREIGN SHAREHOLDERS
The foregoing discussion relates only to United States
Federal income tax law as it affects shareholders who are United
States 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.
________________________________________________________________
BROKERAGE AND 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
45
<PAGE>
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Portfolio securities
will not be purchased from or sold to Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser, or
any other subsidiary or affiliate of Equitable.
________________________________________________________________
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 6, 1998 consisted of 12,303,513 shares of common stock.
To the knowledge of the Fund, no person owned of record or
46
<PAGE>
beneficially 5% or more of the outstanding shares of the Fund as
of February 6, 1998.
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Water Street, Boston Massachusetts 02109, will act as the Fund's
custodian for the assets of the Fund, but plays no part in
deciding on the purchase or sale of portfolio securities.
Subject to the supervision of the Fund's Directors, Brown
Brothers may enter into sub-custodial agreements for the holding
of the Fund's foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 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, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have 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
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
47
<PAGE>
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, 1997
was 3.15%. The Fund's actual distribution rate for such period
was 6.39%. The Fund's average annual total return for the one-
year period ended October 31, 1997 was 3.47%. The Fund's average
annual total return for the five-year period ended October 31,
1997 was 2.07%. For the period from December 3, 1990
(commencement of distribution) through October 31, 1997 the
Fund's average annual total return was 2.51%.
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. and
Morningstar, Inc. 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 independent organizations such as
Donoghue, Inc. or another similar organization.
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<PAGE>
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser 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.
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<PAGE>
ALLIANCE WORLD INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
MEXICO-8.8%
GOVERNMENT OBLIGATION-8.8%
Mexican Treasury Bill
22.85%, 6/04/98 (a)(b)
(cost $2,040,617) MXP 18,159 $ 1,898,230
POLAND-6.9%
GOVERNMENT OBLIGATION-6.9%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $1,526,166) PLN 6,300 1,486,330
UNITED STATES-161.3%
CERTIFICATES OF DEPOSIT-27.9%
Canadian Imperial Bank of Commerce
5.72%, 5/27/98 (a) US$ 1,500 1,500,000
Deutsche Bank AG
5.75%, 7/29/98 (a) 1,500 1,500,000
Morgan Guaranty Trust Co.
5.87%, 8/06/98 1,500 1,501,034
Westdeutsche Landesbank
5.72%, 8/26/98 (a) 1,500 1,500,000
------------
6,001,034
COMMERCIAL PAPER-41.2%
Abbey National PLC
5.55%, 4/27/98 (a) US$ 1,500 1,459,069
Banque Internationale de Luxembourg
5.55%, 1/23/98 1,500 1,480,806
BBV Finance Delaware
5.57%, 3/20/98 (a) 1,500 1,467,740
Societe Generale
5.53%, 12/22/97 (a) 1,500 1,488,249
Toronto Dominion Bank
5.57%, 1/26/98 (a) 1,500 1,480,041
Union Bank of Switzerland
5.52%, 11/24/97 (a) 1,500 1,494,710
------------
8,870,615
GOVERNMENT OBLIGATION-90.4%
United States Treasury Bill
4.92%, 11/20/97 (b) 19,500 19,455,794
TIME DEPOSIT-1.8%
Bank of New York
5.25%, 11/03/97 400 400,000
Total United States Securities
(cost $34,722,249) 34,727,443
TOTAL INVESTMENTS-177.0%
(cost $38,289,032) 38,112,003
Other assets less liabilities-(77.0%) (16,582,771)
NET ASSETS-100% $ 21,529,232
(a) Securities, or portion thereof, with an aggregate market value of
$15,274,369 have been segregated to collateralize forward exchange currency
contracts.
(b) Annualized yield to maturity at purchase date.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $38,289,032) $ 38,112,003
Cash 36,160
Interest receivable 25,163
Receivable for capital stock sold 2,375
Total assets 38,175,701
LIABILITIES
Payable for capital stock redeemed 16,454,664
Dividend payable 71,816
Distribution fee payable 21,549
Advisory fee payable 16,304
Unrealized depreciation of forward exchange
currency contracts 6,128
Accrued expenses 76,008
Total liabilities 16,646,469
NET ASSETS $ 21,529,232
COMPOSITION OF NET ASSETS
Capital stock, at par $ 26,583
Additional paid-in capital 25,991,457
Distributions in excess of net investment income (65,686)
Accumulated net realized loss on investments and foreign
currency transactions (4,239,965)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (183,157)
$ 21,529,232
NET ASSET VALUE PER SHARE (based on 13,291,525
shares outstanding) $1.62
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 2,726,054
EXPENSES
Advisory fee $ 268,583
Distribution fee 371,885
Administrative 126,531
Custodian 119,128
Audit and legal 97,596
Transfer agency 45,142
Directors' fees 21,869
Registration 18,480
Printing 11,750
Miscellaneous 4,701
Total expenses 1,085,665
Less: Fees waived and assumed by Adviser
and Distributor (157,020)
Net expenses 928,645
Net investment income 1,797,409
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (80,140)
Net realized gain on foreign
currency transactions 11,179
Net change in unrealized appreciation
(depreciation) of:
Investments (222,185)
Foreign currrency denominated assets
and liabilities (79,540)
Net loss on investments and foreign
currency transactions (370,686)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,426,723
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,797,409 $ 2,612,380
Net realized gain (loss) on investments
and foreign currency transactions (68,961) 475,207
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (301,725) 206,348
Net increase in net assets from operations 1,426,723 3,293,935
DIVIDENDS ANDDISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,502,762) (3,023,315)
Tax return of capital (1,092,302) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (22,192,637) (11,158,351)
Total decrease (23,360,978) (10,887,731)
NET ASSETS
Beginning of year 44,890,210 55,777,941
End of year $ 21,529,232 $ 44,890,210
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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 management
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 the day of valuation or,
if no such closing price is available, at the mean of the last bid and ask
price quoted on such day. However, readily marketable portfolio securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair value of such securities.
Options are valued at market value or 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. Securities for which market quotations are not readily
available and restricted securities are valued in good faith at fair value
using methods determined by the Board of Directors.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar on the valuation date. 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 earned or accrued.
Net realized gain on foreign currency transactions represents foreign exchange
gains and losses from sales and maturities of securities and forward exchange
currency contracts, holdings of foreign currencies, exchange gains and losses
realized between the trade and settlement dates on investment transactions, and
the difference between the amounts of interest recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid. Net change in
unrealized appreciation (depreciation) of foreign currency denominated assets
and liabilities represents net currency gains and losses from valuing foreign
currency denominated assets and liabilities at period end exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as an
adjustment to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency gains and a tax return of capital
distribution, resulted in a net decrease in distributions in excess of net
investment income, an increase in accumulated net realized loss on investments
and foreign currency transactions and a corresponding decrease in additional
paid-in capital. This reclassification had no effect on net assets.
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
.65 of 1% of the average daily net assets of the Fund. Such fee is
10
ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
accrued daily and paid monthly. For the year ended October 31, 1997, the
Adviser agreed to waive a portion of its advisory fee. The amount of such fee
waiver was $66,114.
Pursuant to the advisory agreement, the Fund paid $126,531 to the Adviser
representing reimbursement of the cost of certain legal and accounting services
provided to the Fund by the Adviser for the year ended October 31, 1997.
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 $32,192 for the year ended October 31, 1997.
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 .90 of 1% of the average daily net assets of the Fund. The fees
are accrued daily and paid monthly. For the year ended October 31, 1997, the
Distributor agreed to waive a portion of its distribution fee. The amount of
such fee waiver was $90,906. The Agreement provides that the Distributor will
use the 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.
NOTE D: INVESTMENT TRANSACTIONS
At October 31, 1997, 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 $5,194 and gross unrealized
depreciation of investments was $182,223, resulting in net unrealized
depreciation of $177,029 (excluding foreign currency transactions).
For federal income tax purposes, the Fund had a capital loss carryforward at
October 31, 1997 of $4,239,965 of which $293,011 expires in the year 1998,
$104,550 expires in the year 1999, $833,703 expires in the year 2000, $240,553
expires in the year 2001, $2,640,608 expires in the year 2002, $47,400 expires
in the year 2004, and $80,140 expires in the year 2005.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sale commitments denominated in
foreign currencies and for investment purposes. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
At October 31, 1997, the Fund had outstanding forward exchange currency
contracts, as follows:
CONTRACT U.S.$ VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
-------- ------------ ------------ ------------
FORWARD EXCHANGE
CURRENCY BUY CONTRACTS
Deutsche Marks,
expiring 11/07/97 2,700 $ 1,537,918 $ 1,565,997 $ 28,079
FORWARD EXCHANGE
CURRENCY SALE CONTRACTS
Deutsche Marks,
expiring 11/07/97 2,700 1,531,790 1,565,997 (34,207)
$ (6,128)
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the year ended October
31, 1997.
12
ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
Shares sold 1,098,101 592,826 $ 1,819,549 $ 987,152
Shares issued in
reinvestment of
dividends and
distributions 632,580 798,519 1,041,737 1,327,317
Shares redeemed (15,377,403) (8,120,965) (25,053,923) (13,472,820)
Net decrease (13,646,722) (6,729,620) $(22,192,637) $(11,158,351)
13
FINANCIAL HIGHLIGHTS ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.67 $ 1.66 $ 1.88 $ 1.90 $ 1.91
INCOME FROM INVESTMENT OPERATIONS
Net investment income .07(a) .09(a) .11(a) .18 .22
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions (.01) .02 (.23) (.12) (.16)
Net increase (decrease) in net asset
value from operations .06 .11 (.12) .06 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.06) (.10) -0- (.05) (.07)
Tax return of capital (.05) -0- (.10) (.03) -0-
Total dividends and distributions (.11) (.10) (.10) (.08) (.07)
Net asset value, end of year $ 1.62 $ 1.67 $ 1.66 $ 1.88 $ 1.90
TOTAL RETURN:
Total investment return based on
net asset value (b) 3.47% 6.98% (6.35)% 3.27% 3.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $21,529 $44,890 $55,778 $103,310 $149,623
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 2.25% 2.10% 1.97% 1.70% 1.54%
Expenses, before waivers/reimbursements 2.63% 2.48% 2.35% 2.08% 1.92%
Net investment income 4.35% 5.37% 6.46% 3.96% 5.14%
</TABLE>
(a) Based on average shares outstanding.
(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.
14
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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, 1997, 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 years 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, 1997, 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with generally accepted accounting
principles.
New York, New York
December 10, 1997
15
50
<PAGE>
ALLIANCE WORLD INCOME TRUST
SEMI-ANNUAL REPORT
APRIL 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- ------------------------------------------------------------------------
MEXICO-5.7%
GOVERNMENT OBLIGATION-5.7%
Mexican Treasury Bill
22.85%, 6/04/98 (a)(b)
(cost $1,129,405) MXP 9,159 $ 1,060,748
POLAND-9.1%
GOVERNMENT OBLIGATION-9.1%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $1,695,066) PLN 6,300 1,697,745
UNITED STATES-85.0%
CERTIFICATES OF DEPOSIT-32.3%
Canadian Imperial Bank of Commerce
5.72%, 5/27/98 (a) US$ 1,500 1,500,000
Deutsche Bank AG
5.75%, 7/29/98 (a) 1,500 1,500,000
Morgan Guaranty Trust Co.
5.87%, 8/06/98 (a) US$ 1,500 1,501,034
Westdeutsche Landesbank
5.72%, 8/26/98 (a) 1,500 1,500,000
------------
6,001,034
TIME DEPOSIT-52.7%
Union Bank of Switzerland
5.50%, 5/01/98 9,800 9,800,000
Total United States Securities
(cost $15,801,034) 15,801,034
TOTAL INVESTMENTS-99.8%
(cost $18,625,505) 18,559,527
Other assets less liabilities-0.2% 36,196
NET ASSETS-100% $18,595,723
(a) Securities, or portion thereof, with an aggregate market value of
$8,759,527 have been segregated to collateralize forward exchange currency
contracts.
(b) Annualized yield to maturity at purchase date.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $18,625,505) $18,559,527
Cash 13,117
Receivable for investment securities sold 9,801,443
Interest receivable 200,510
Unrealized appreciation of forward exchange currency contracts 22,066
Receivable for capital stock sold 10,000
Total assets 28,606,663
LIABILITIES
Payable for investment securities purchased 9,800,000
Payable for capital stock redeemed 51,007
Dividend payable 25,768
Distribution fee payable 9,995
Advisory fee payable 7,979
Accrued expenses 116,191
TOTAL LIABILITIES 10,010,940
NET ASSETS $18,595,723
COMPOSITION OF NET ASSETS
Capital stock, at par $23,009
Additional paid-in capital 23,108,985
Distributions in excess of net investment income (227,489)
Accumulated net realized loss on investments and foreign
currency transactions (4,264,870)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (43,912)
$18,595,723
NET ASSET VALUE PER SHARE (based on 11,504,322
shares outstanding) $1.62
See notes to financial statements.
6
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest $776,060
EXPENSES
Advisory fee $65,978
Distribution fee 91,355
Administrative 62,885
Custodian 55,395
Audit and legal 53,853
Transfer agency 22,738
Registration 13,506
Directors' fees 10,955
Printing 9,905
Miscellaneous 2,230
Total expenses 388,800
Less: Fees waived by Adviser and Distributor (38,573)
Net expenses 350,227
Net investment income 425,833
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (1,978)
Net realized loss on foreign currency transactions (22,927)
Net change in unrealized appreciation (depreciation) of:
Investments 111,051
Foreign currrency denominated assets and liabilities 28,194
Net gain on investments and foreign currency transactions 114,340
NET INCREASE IN NET ASSETS FROM OPERATIONS $540,173
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997
----------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 425,833 $ 1,797,409
Net realized loss on investments and foreign
currency transactions (24,905) (68,961)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 139,245 (301,725)
Net increase in net assets from operations 540,173 1,426,723
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (587,636) (1,502,762)
Tax return of capital -0- (1,092,302)
CAPITAL STOCK TRANSACTIONS
Net decrease (2,886,046) (22,192,637)
Total decrease (2,933,509) (23,360,978)
NET ASSETS
Beginning of year 21,529,232 44,890,210
End of period $18,595,723 $21,529,232
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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 management
investment company. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price, if there was no sale on such
day, the last bid price quoted on such day. If no bid prices are quoted, then
the security is valued at the mean of the bid and asked prices as obtained on
that day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked prices provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities.
2. 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 on the valuation date. 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 earned or accrued.
Net realized gain and losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as an
adjustment to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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
.65 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly. For the six months ended April 30, 1998, the Adviser
agreed to waive a portion of its advisory fee. The amount of such fee waiver
was $16,241.
Pursuant to the advisory agreement, the Fund paid $62,885 to the Adviser
representing reimbursement of the cost of certain legal and accounting services
provided to the Fund by the Adviser for the six months ended April 30, 1998.
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 $14,509 for the six months ended April 30, 1998.
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 .90 of 1% of the average daily net assets of the Fund. The fees
are accrued daily and paid monthly. For the six months ended April 30, 1998,
the Distributor agreed to waive a portion of its distribution fee. The amount
of such fee waiver was $22,332. The Agreement provides that the Distributor
will use the 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.
NOTE D: INVESTMENT TRANSACTIONS
At April 30, 1998, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $2,679 and gross
unrealized depreciation of investments was $68,657 resulting in net unrealized
depreciation of $65,978 (excluding foreign currency transactions).
For federal income tax purposes, the Fund had a capital loss carryforward at
October 31, 1997 of $4,239,965 of which $293,011 expires in the year 1998,
$104,550 expires in the year 1999, $833,703 expires in the year 2000, $240,553
expires in the year 2001, $2,640,608 expires in the year 2002, $47,400 expires
in the year 2004, and $80,140 expires in the year 2005.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sale commitments denominated in
foreign currencies and for investment purposes. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
10
ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
At April 30, 1998, the Fund had outstanding forward exchange currency
contracts, as follows:
CONTRACT U.S. VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- -------------- ------- -------------
FORWARD EXCHANGE CURRENCY
BUY CONTRACTS
Deutsche Marks,
settling 6/17/98 1,050 $577,834 $586,666 $ 8,832
New Zealand Dollars,
settling 6/17/98 375 209,138 207,486 (1,652)
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
British Pounds,
settling 5/18/98 250 421,798 417,837 3,961
Deutsche Marks,
settling 8/20/98 243 135,841 136,240 (399)
Japanese Yen,
settling 6/17/98 74,813 581,863 568,553 13,310
New Zealand Dollars,
settling 6/17/98 375 205,500 207,486 (1,986)
----------
$22,066
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the six months ended
April 30, 1998.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
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:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------ ------------ -------------- --------------
Shares sold 116,950 1,098,101 $189,008 $ 1,819,549
Shares issued in
reinvestment of
dividends and
distributions 250,376 632,580 404,609 1,041,737
Shares redeemed (2,154,529) (15,377,403) (3,479,663) (25,053,923)
Net decrease (1,787,203) (13,646,722) $(2,886,046) $(22,192,637)
12
FINANCIAL HIGHLIGHTS ALLIANCE WORLD INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1998 -------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.62 $ 1.67 $ 1.66 $ 1.88 $ 1.90 $ 1.91
INCOME FROM INVESTMENT OPERATIONS
Net investment income .03(a) .07(a) .09(a) .11(a) .18 .22
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions -0- (.01) .02 (.23) (.12) (.16)
Net increase (decrease) in net asset
value from operations .03 .06 .11 (.12) .06 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.03) (.06) (.10) -0- (.05) (.07)
Tax return of capital -0- (.05) -0- (.10) (.03) -0-
Total dividends and distributions (.03) (.11) (.10) (.10) (.08) (.07)
Net asset value, end of period $1.62 $1.62 $1.67 $1.66 $1.88 $1.90
TOTAL RETURN:
Total investment return based on net
asset value (b) 2.75% 3.47% 6.98% (6.35)% 3.27% 3.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $18,596 $21,529 $44,890 $55,778 $103,310 $149,623
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 3.45%(c) 2.25% 2.10% 1.97% 1.70% 1.54%
Expenses, before waivers/reimbursements 3.83%(c) 2.63% 2.48% 2.35% 2.08% 1.92%
Net investment income 4.20%(c) 4.35% 5.37% 6.46% 3.96% 5.14%
</TABLE>
(a) Based on average shares outstanding.
(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.
(c) Annualized
13
51
<PAGE>
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.
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
<PAGE>
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 IBCA, Inc.
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
voluntary reduction of the debt by call or purchase are often
B-1
<PAGE>
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
B-2
<PAGE>
of the 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
<PAGE>
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
<PAGE>
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
C-2
<PAGE>
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes, that use of such contracts will benefit the
Fund, if the Adviser's investment judgment 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
C-3
<PAGE>
contract to hedge against a market advance due to declining
interest rates.
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
C-4
<PAGE>
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.
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
C-5
<PAGE>
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
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.
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Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data, on which to make
trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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_______________________________________________________________
APPENDIX D: ADDITIONAL INFORMATION ABOUT
THE UNITED MEXICAN STATES
_______________________________________________________________
Territory and Population
The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
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 91.1 million, as reported by the National Institute
of Statistics, Geography and Informatics in 1995.
Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1995 of
16.4 million, 3.3 million and 2.9 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas, have resulted in a reduction of
the population growth rate to a projected 1.6% in 1997.
Government
The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
establishes 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 17 ministries, the office of the Federal Attorney
General, the Federal District Department and the office of the
Attorney General of the Federal District.
Federal 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, four from
each state and four from 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 elected by a system of
proportional representation. The Constitution provides that the
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President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.
Federal Judicial authority is vested in the Supreme
Court of Justice, the Circuit and District courts, and the
Federal Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.
Mexico has diplomatic relations with approximately 176
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States, the
International Monetary Fund (the "IMF"), the World Bank, the
International Finance Corporation, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
Mexico became a member of the Organization for Economic
Corporation and Development (the "OECD") on April 14, 1994 and
the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).
Politics
The Partido Revolucionario Institucional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and until the 1997 Congressional
elections held a majority in 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 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with
16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD had the
third largest representation with 10 seats in the Senate and 70
seats in the Chamber of Deputies. The PRI won two additional
seats pursuant to proportional representation and the PAN and the
PRD each won one seat in extraordinary elections held on
April 30, 1995. In the mid-term Congressional elections on
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July 6, 1997, the PRI lost its majority in the Chamber of
Deputies and now holds 239 of its 500 seats. Elections will next
be held by 2000 (Presidential).
At the beginning of 1994 armed insurgents attacked (and
in some cases temporarily seized control of) several villages in
the southern state of Chiapas. While the Government responded by
providing support to the local authorities and publicly offering
to negotiate a peaceful resolution that would address the
underlying concerns of the local population, the conflict
remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the
spring of 1994, but subsequently were broken off. In December of
1994, the Congress approved the creation of a Congressional peace
commission, to be formed by members of both chambers of Congress,
which would be responsible for mediating the negotiations between
the Government and the insurgents. By the end of 1994, however,
the insurgents had not agreed to resume negotiations and there
were additional incidents of civil unrest.
In the Spring of 1995, the Government renewed its
efforts to resolve its differences with the insurgents in the
Chiapas region by facilitating their participation in the
political process. On March 9, 1995, Congress approved a law
granting temporary amnesty to insurgents who participate in peace
talks with the Government, and on March 13, 1995, the law
establishing the framework for these peace talks took effect. On
September 11, 1995, the Government and the insurgents reached an
agreement pursuant to which both sides accepted a common
political agenda and procedural rules, and agreed to the creation
of a working committee regarding the rights of indigenous
peoples. This agreement was expected to represent a first step
toward a comprehensive peace agreement between the parties. The
working committee began negotiations on October 17, 1995 and
concluded a second round of meetings on November 19, 1995 having
made significant progress in laying out the framework for a
plenary session that took place from January 10 through
January 19, 1996. The attendees at the plenary session drafted
an agreement on a series of measures aimed at enhancing and
guaranteeing the rights of the indigenous population. The
agreement was signed on February 16, 1996. Talks with the
insurgents are currently on hold.
On August 28, 1996, a newly formed group calling itself
the Popular Revolutionary Army attacked military and police
targets in small cities of some southern states of Mexico. It is
generally believed that this group does not enjoy popular
support, and its terrorists attacks have been condemned by both
Government and nongovernment representatives. The Government has
announced the apprehension of several alleged members of the
group.
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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
include 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. There have
also been mushrooming revelations linking Mexico's drug cartels
with high Government and military officials. These revelations
could jeopardize Mexico's status as an ally of the U.S. in the
war against narcotics smuggling. While Mexico is currently
certified as an ally there is no assurance that the certification
will be maintained. A loss of certification could result in the
termination of U.S. economic assistance to Mexico.
On January 17, 1995, the major political parties of
Mexico entered into a new accord to further the opening of the
political process in Mexico. On July 25, 1996, the Mexican
Government announced certain proposed constitutional amendments
aimed at reforming the electoral law that were ratified on
August 22, 1996. The amendments, which had been agreed to by the
President and the leaders of the four major political parties
represented in Congress, among other things, exclude the
President from the Federal Electoral Institute, an autonomous
agency charged with organizing elections; eliminate the Electoral
Committee of the Chamber of Deputies, which had been responsible
for determining the validity of presidential elections; impose
limits on expenditures on political campaigns and controls on the
source of and uses of funds contributed to a political party;
grant voting rights to Mexican citizens residing abroad; reduce
from 315 to 300 the maximum number of congressional
representatives who may belong to a single party, and establish
an electoral procedure intended to result in a more proportional
representation in the Senate. The Mexican Supreme Court is
empowered to determine the constitutionality of electoral laws
and the Mexican Federal Electoral Court, which has been part of
the executive branch, will become part of the judicial branch.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary authority 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
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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
monetary policy matters. The amendment significantly strengthens
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 became a member of the GATT in 1986 and has been
a member of the WTO since January 1, 1995, the date on which the
WTO superseded the GATT. 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 as a step toward
establishing a free-trade area by the end of 1997, 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 steep decline in oil prices
in 1981 and 1982, together with high international interest rates
and the credit markets' unwillingness to refinance maturing
external Mexican credits, led in 1982 to record inflation,
successive devaluations of the peso by almost 500% in total, a
pubic sector deficit of 16.9% of GDP and, in August 1982, a
liquidity crisis that precipitated subsequent restructurings of a
large portion of the country's external debt. Through much of
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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."
The value of the 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), and 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.
A fixed exchange rate was maintained from February to
December 1988. Thereafter, under a Government implemented
devaluation schedule, the intended annual rate of devaluation was
gradually lowered from 16.7% in 1989 to 11.4% in 1990, 4.5% in
1991 and 2.4% in 1992. From October 1992 through December 20,
1994, the peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, which
was the maximum selling rate, depreciated at a daily rate of
0.0004 pesos (equal to approximately 4.5% per year), while the
floor of the band, i.e., the minimum buying rate, remained fixed.
Banco de Mexico agreed to intervene in the foreign exchange
market to the extent that the peso/dollar exchange rate reached
either the floor or the ceiling of the band.
RECENT DEVELOPMENTS. Beginning on January 1, 1994,
volatility in the peso/dollar exchange rate began to increase,
with the value of the peso relative to the dollar declining at
one point to an exchange rate of 3.375 pesos to the U.S. Dollar,
a decline of approximately 8.69% from the high of 3.1050 pesos
reached in early February. This increased volatility was
attributed to a number of political and economic factors,
including a growing current account deficit, the relative
overvaluation of the peso, investor reactions to the increase in
U.S. interest rates, lower than expected economic growth in
Mexico in 1993, uncertainty concerning the Mexican Presidential
elections in August 1994 and certain related developments.
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On December 20, 1994, increased pressure on the
peso/dollar exchange rate led Mexico to increase the ceiling of
the Banco de Mexico intervention band. That action proved
insufficient to address the concerns of foreign investors, and
the demand for foreign currency continued. On December 22, the
Government adopted a free exchange rate policy, eliminating the
intervention band and allowing the peso to float freely against
the dollar. The value of the peso continued to weaken relative
to the dollar in the following days. There was substantial
volatility in the peso/dollar exchange during the first quarter
of 1995, with the peso/dollar exchange rate falling to a low
point of 7.588 pesos to the U.S. Dollar on March 13, 1995. By
the end of April and through September 1995, the exchange rate
began to stabilize; however, the exchange rate began to show
signs of renewed volatility in October and November 1995. The
peso/dollar exchange rate fell to a low for the year of 8.14
pesos to the U.S. Dollar on November 13, 1995. The peso/dollar
exchange rate announced by Banco de Mexico on October 27, 1997
(to take effect on the second business day thereafter) for the
payment of obligations denominated in dollars and payable in
pesos was 8.39 pesos to the U.S. Dollar.
In order to address the adverse economic situation that
developed at the end of 1994, the Government announced in January
1995 a new economic program and a new accord among the Government
and the business and labor sectors of the economy, which,
together with a subsequent program announced in March 1995 and
the international support package described below, formed the
basis of Mexico's 1995 economic plan (the "1995 Economic Plan").
The objectives of the 1995 Economic Plan were to stabilize the
financial markets, lay the foundation for a return to lower
inflation rates over the medium-term, preserve Mexico's
international competitiveness, maintain the solvency of the
banking system and attempt to reassure long-term investors of the
strong underlying fundamentals of the Mexican economy.
The central elements of the 1995 Economic Plan were
fiscal reform, aimed at increasing public revenues through price
and tax adjustments and reducing public sector expenditures;
restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining
the current floating exchange rate policy; reduction of the
current account deficit; introduction of certain financial
mechanisms to enhance the stability of the banking sector; and
maintenance and enhancement of certain social programs, to ease
the transition for the poorest segments of society.
In addition to the actions described above, in the
beginning of 1995, the Government engaged in a series of
discussions with the IMF, the World Bank, the Inter-American
Development Bank and the U.S. and Canadian Governments in order
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to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial
stability to Mexico's economy. The proceeds of the loans and
other financial support have been and will be used to refinance
public sector short-term debt, primarily Tesobonos, to restore
the country's international reserves and to support the banking
sector. The largest component of the international support
package is up to $20 billion in support from the United States
pursuant to four related agreements entered into on February 21,
1995. During 1995, the U.S. Government and the Canadian
Government disbursed $13.7 billion of proceeds to Mexico under
these agreements and the North American Framework Agreement
("NAFA"), the proceeds of which were used by Mexico to refinance
maturing short-term debt, including Tesobonos and $1 billion of
short-term swaps under the NAFA.
Using resources made available through the international
support package as well as operations by Banco de Mexico, in 1995
Mexico altered its debt profile significantly. The outstanding
Tesobono balance was reduced from $29.2 billion at December 31,
1994 to $16.2 billion at the end of the first quarter of 1995,
$10.0 billion at the end of the second quarter, $2.5 billion at
the end of the third quarter and $246 million at the end of the
fourth quarter. By February 16, 1996, Mexico had no Tesobonos
outstanding, and has not issued Tesobonos since that date. As of
December 31, 1996, 100% of Mexico's net internal debt was
denominated and payable in pesos, as compared with only 44.3% of
such debt at the end of 1994.
On May 31, 1995, the Government announced the Plan
Nacional de Desarrollo 1995-2000 (1995-2000 National Development
Plan, or the "Development Plan"). The Development Plan covers
five topics: sovereignty; the rule of law; democratic
development; social development; and economic growth. The
fundamental strategic objective of the Development Plan is to
promote vigorous and sustainable economic growth. Among other
things, the Development Plan calls for steps to increase domestic
savings, preferences for channeling foreign investment into
direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive
activities and further deregulation of the economy.
On October 29, 1995, the Government announced the
establishment of a new accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para la Recuperacion Economica (Alliance for Economic
Recovery or "ARE"). The chief objectives of the ARE, which was
replaced by the ACE (as defined below), were to stimulate
economic recovery and job creation, and to strengthen the basis
for gradual and sustainable economic growth.
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On October 26, 1996, the Government announced the
establishment of another accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para el Crecimiento Economico (Alliance for Economic
Growth or "ACE"). The chief objectives of the ACE are to foster
sustainable economic growth by emphasizing (i) the export sector,
particularly through domestic and foreign investment, (ii) public
investment, particularly in the hydrocarbon, electricity,
transportation and water sectors, private consumption and
(iii) fiscal and monetary discipline in order to encourage an
environment of greater price stability and lower interest rates.
On June 3, 1997, the Government announced the Programa
Nacional de Financiamiento del Desarrollo 1997-2000 (National
Development Financing Program 1997-2000, or "PRONAFIDE"). The
PRONAFIDE's goals are to: (i) achieve, on average, real GDP
growth of 5% per year, (ii) generate more than one million jobs
per year, (iii) increase real wages and salaries, (iv) strengthen
the capacity of the Government to respond to social needs and
(v) avoid an economic crisis of the type suffered by Mexico
during the past 20 years.
The effects of the devaluation of the peso, as well as
the Government's response to that and related events, were
apparent in the performance of the Mexican economy during 1995
and 1996. Recent trade figures show a reversal of Mexico's trade
deficit during 1995. The value of imports (including in-bond
industries) decreased by 8.7% between 1994 and 1995, to $72.5
billion in 1995. Although the value of imports (including in-
bond industries) in 1996 increased approximately 23.4% from 1995,
to $89.5 billion, exports increased by almost the same amount.
During 1995, Mexico registered a $7.089 billion trade surplus,
its first annual trade surplus since 1989. Mexico registered a
surplus in its trade balance of $6.531 billion during 1996, down
approximately 7.9% from 1995. During 1996, Mexico's current
account balance registered a deficit of $1.922 billion, as
compared with a deficit of $1.577 billion in 1995.
Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1996, Mexico's international
reserves amounted to $17,509 million, as compared to $15,741
million at December 31, 1995, $6,148 million at December 31, 1994
and $24,538 million at December 31, 1993.
During 1995 real GDP decreased by 6.9%, as compared with
a growth rate of 3.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP continued to grow in the third and
fourth quarters of 1996, resulting in an overall GDP growth rate
of 5.1% for 1996. According to preliminary estimates, the GDP
continued to grow by 5.1% during the first quarter of 1997,
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compared to the first quarter of 1996. The Government currently
projects a 4.5% increase in the GDP for 1997. Although the
Mexican economy has stabilized, there can be no assurance that
the government's plan will lead to a full recovery.
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 GDP
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 will 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 1996 and for each of the six months ended June 1997.
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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 3.222 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.598 -- --
1997
January 7.839 7.831 -- --
February 7.784 7.793 -- --
March 7.891 7.963 -- --
April 7.927 7.904 -- --
May 7.909 7.906 -- --
June 7.958 7.947 -- --
* 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 wages and prices (the "1987 accord"). The
1987 accord included the implementation of restrictive fiscal and
monetary policies, the elimination of trade barriers and the
reduction of import tariffs. After substantive increases in
public sector prices and utility rates, price controls were
introduced.
The 1987 accord was succeeded by a series of additional
accords, each of which continued to stress the moderation of
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inflation, fiscal discipline and a gradual devaluation of the
peso. There was a gradual reduction in the number of goods and
services whose prices were covered by such accords. The two most
recent of these accords also incorporated a reduction in the
income tax rate applicable to corporations and certain self-
employed individuals from 35% to 34% and a reduction in the
withholding tax applicable to interest payments on publicly
issued external debt and external debt payable to certain
financial institutions from 15% to 4.9%. Under the later of
these two accords, tax benefits were proposed for workers
receiving salaries not exceeding twice the minimum wage and asset
taxes to be reduced to 1.8%. 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, 8.0% in 1993, and 7.1% in
1994.
Over the medium-term, the Government is committed to
reversing the decline in real wages experienced in the last
decade through control of inflation, a controlled gradual upward
adjustment of wages and a reduction in income taxes for the lower
income brackets. Nonetheless, the effect of the devaluation of
the peso and the Government's response to that event and related
developments caused a significant increase in inflation in 1995,
as well a decline in real wages for much of the population during
1995. Inflation during 1995 (as measured by the increase in the
National Consumer Price Index), was 52.0%, as compared with 7.1%
during 1994. Inflation during 1996 was 27.7%. In May 1997, the
monthly consumer inflation rate was 0.9%, the first time the
monthly inflation rate was below 1% since December 1994. The
inflation rate during the first six months of 1997 was 8.7%,
compared to 15.3% during the first six months of 1996.
CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for the year
ended December 31 for the years 1981 through 1996 and for the six
months ended June 30, 1997.
D-12
<PAGE>
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................................... 9.7
1990................................... 29.9
1991................................... 18.8
1992................................... 11.9
1993................................... 8.0
1994................................... 7.1
1995................................... 52.0
1996................................... 27.7
1997(1)................................ 8.7
(1) For the six months ended June 30.
Source: Banco de Mexico.
D-13
<PAGE>
MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1990 through 1996 at historical and constant prices.
Gross Change from
Gross Domestic Product Prior Year at
Domestic Product at 1980 Prices(1) Constant Prices
________________ _________________ _______________
(millions of Mexican New Pesos) (percentage)
1991. . . . 865,166 5,463 3.6
1992. . . . 1,019,156 5,616 2.8
1993. . . . 1,145,382 5,659 0.7
1994. . 1,272,799 5,858 3.5
1995(2). 1,604,368 5,452 (6.9)
1996(2)(3) 2,285,266 1,270.4(4) 3.0
(1) Constant peso with purchasing power at December 31, 1980,
expressed in new pesos.
(2) Preliminary.
(3) Annualized.
(4) Constant peso with purchasing power at December 31, 1993.
Source: Ministry of Finance and Public Credit
D-14
<PAGE>
INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day Cetes, the
average weighted cost of term deposits for commercial banks
("CPP"), the average interest rate ("TIIP") and the equilibrium
interest rate ("TIIE") for the periods listed below:
Average Cetes and Interest Rates
_________________________________
28-Day 91-Day
Cetes Cetes CPP TIIP TIIE
_____ _____ _____ _____ _____
1990:
Jan.-June 41.2 40.7 43.2% _____ _____
July-Dec. 28.3 29.4 31.0 _____ _____
1991:
Jan.-June 21.2 21.7 24.3 _____ _____
July-Dec. 17.3 18.0 20.8 _____ _____
1992:
Jan.-June 13.8 13.8 16.9 _____ _____
July-Dec. 17.4 18.0 20.7 _____ _____
1993:
Jan.-June 16.4 17.3 20.9 20.4(1) _____
July-Dec. 13.5 13.6 16.2 16.1 _____
1994:
Jan.-June 13.0 13.5 14.2 15.3 _____
July-Dec. 15.2 15.7 16.8 20.4 _____
1995:
Jan.-June 55.0 54.3 49.6 63.6 71.2(2)
July-Dec. 41.9 42.2 40.7 44.5 44.5
1996:
Jan.-June 35.4 37.2 34.5 37.3 37.2
July-Dec. 27.4 28.6 26.9 30.2 30.1
1997:
January 23.6 24.6 24.1 25.9 26.0
February 19.8 22.0 21.1 22.2 22.1
March 21.7 22.3 21.1 24.0 24.0
April 21.4 22.4 21.1 23.8 24.0
May 18.4 20.6 18.7 20.6 20.7
June 20.2 21.4 18.8 22.5 22.5
(1) February-June average
(2) Average for the last two weeks of March
Source: Banco de Mexico
D-15
<PAGE>
ALLIANCE SHORT-TERM
(LOGO)(R) MULTI-MARKET TRUST, INC.
____________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
____________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
February 27, 1998
____________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus that offers Class A, Class B and Class C shares of
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund") and, if
the Fund begins to offer Advisor Class shares, the Prospectus
that offers the Advisor Class shares of the Fund (the "Advisor
Class Prospectus" and, together with any Prospectus that offers
the Class A, Class B and Class C shares, the "Prospectus(es)").
The Fund currently does not offer Advisor Class shares. Copies
of the Prospectus(es) of the Fund may be obtained by contacting
Alliance Fund Services, Inc. at the address or the "For
Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund . . . . . . . . . . . . . . . .
Management of the Fund. . . . . . . . . . . . . . . . .
Expenses of the Fund. . . . . . . . . . . . . . . . . .
Purchase of Shares. . . . . . . . . . . . . . . . . . .
Redemption and Repurchase of Shares . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes. . . . . . . . . . .
Brokerage and Portfolio Transactions. . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . .
Financial Statements and Report of
Independent Auditors. . . . . . . . . . . . . . . . .
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
Appendix D (Additional Information About
The United Mexican States) . . . . . . . . . . . . . D-1
D-16
<PAGE>
\_____________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
D-17
<PAGE>
______________________________________________________________
DESCRIPTION OF THE FUND
______________________________________________________________
Except as otherwise indicated, the investment policies
of the Fund are not designated "fundamental policies" and,
therefore, may be changed by the Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. The Fund's investment objective may not be changed
without shareholder approval. There can be, of course, no
assurance that the Fund will achieve its investment objective.
The following policies and restrictions supplement, and should be
read in conjunction with, the information set forth in the Fund's
Prospectus under the heading "Description of the Fund."
INVESTMENT OBJECTIVE
The Fund is a non-diversified, open-end management
investment company which seeks the highest level of current
income, consistent with what Alliance Capital Management L.P.
(the "Adviser"), the Fund's investment 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 three years. 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. 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. The
Fund is designed for the investor who seeks a higher yield than a
money market fund or certificate of deposit and less fluctuation
in net asset value than a longer-term bond fund. Certificates of
deposit are insured and generally have fixed interest rates while
yields for the Fund will fluctuate with changes in interest rates
and other market conditions.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund seeks to minimize credit risk and fluctuations
in net asset value by investing only in shorter-term debt
securities. Normally, a high proportion of the Fund's portfolio
consists of money market instruments. The 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
2
<PAGE>
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 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 available from short- term foreign currency-
denominated debt instruments can be adversely affected by changes
in exchange rates. The Adviser believes that the use of foreign
currency hedging techniques, including "cross-hedges" (see
"Additional Investment Policies and 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 Adviser is 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 whose governments are considered stable
by the Adviser. 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.
3
<PAGE>
An issuer of debt securities purchased by the Fund may
be domiciled in a country other than the country in whose
currency the instrument is denominated. In addition, the Fund
may purchase debt securities 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. 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. For a
general description of Mexico, see Appendix D.
The Fund seeks to minimize investment risk by limiting
its portfolio investments to debt securities of high quality.
Accordingly, the Fund's portfolio consists 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, or by supranational entities, all of which are
rated AAA or AA by Standard & Poor's Ratings Services ("S&P") or
Aaa or Aa by Moody's Investors Services, Inc. ("Moody's") ("High
Quality Ratings") or, if unrated, determined by the Adviser to be
of equivalent quality; (iii) corporate debt securities having at
least one High Quality Rating or, if unrated, determined by the
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 $500 million 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 IBCA, 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, AA or A
by S&P, or Aaa, Aa or A by Moody's and determined by the Adviser
to be of high quality.
The Fund may invest without limitation in commercial
paper which is indexed to certain specific foreign currency
exchange rates. 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
4
<PAGE>
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.
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 "Additional Investment Policies
and Practices--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 an investment return on
the Fund's shares will be affected by economic or regulatory
developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability
and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the
exposure to credit losses. The banking industry is also subject
to the effects of: the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or
high technology-related companies; national and local regulation;
and completion 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.
The Fund may invest in debt securities issued by
supranational organizations such as: the International Bank for
Reconstruction and Development (the "World Bank"), which was
chartered to finance development projects in developing member
countries; the European Union, which is a fifteen-nation
5
<PAGE>
organization engaged in cooperative economic activities; 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 may invest in debt securities denominated in
the ECU, which is a "basket" consisting of specified amounts of
the currencies of certain of the fifteen member states of the
European Union. 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. The Adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European
governments and supranationals, in particular, issue ECU-
denominated obligations.
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.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The following additional investment policies supplement
those set forth above.
LOAN PARTICIPATIONS. The Fund may invest up to 5% of
its total assets in high quality participation interests having
remaining maturities not exceeding one year in loans extended by
banks to U.S. and foreign companies. In a typical corporate loan
syndication, a number of lenders, usually banks ("co-lenders"),
6
<PAGE>
lend a corporate borrower a specified sum pursuant to the terms
and conditions of a loan agreement. One of the co-lenders
usually agrees to act as the agent bank with respect to the loan.
The loan agreement among the corporate borrower and the
co-lenders identifies the agent bank as well as sets forth the
rights and duties of the parties. The agreement often (but not
always) provides for the collateralization of the corporate
borrower's obligations thereunder and includes various types of
restrictive covenants which must be met by the borrower.
The participation interests acquired by the Fund may,
depending on the transaction, take the form of a direct
co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another
participant, or a participation in the seller's share of the
loan. Typically, the Fund will look to the agent bank to collect
principal of and interest on a participation interest, to monitor
compliance with loan covenants, to enforce all credit remedies,
such as foreclosures on collateral, and to notify co-lenders of
any adverse changes in the borrower's financial condition or
declarations of insolvency. The agent bank in such cases will be
qualified under the Investment Company Act of 1940, as amended
(the "1940 Act") to serve as a custodian for a registered
investment company such as the Fund. The agent bank is
compensated for these services by the borrower pursuant to the
terms of the loan agreement.
When the Fund acts as co-lender in connection with a
participation interest or when the Fund acquires a participation
interest the terms of which provide that the Fund will be in
privity with the corporate borrower, the Fund will have direct
recourse against the borrower in the event the borrower fails to
pay scheduled principal and interest. In cases where the Fund
lacks such direct recourse, the Fund will look to the agent bank
to enforce appropriate credit remedies against the borrower.
The Fund believes that the principal credit risk
associated with acquiring participation interests from a
co-lender or another participant is the credit risk associates
with the underlying corporate borrower. The Fund may incur
additional credit risk, however, when the Fund is in the position
of a participant rather than a co-lender because the Fund must
assume the risk of insolvency of the co-lender from which the
participation interest was acquired and that of any person
interpositioned between the Fund and the co-lender. However, in
acquiring participation interests the Fund will conduct analysis
and evaluation of the financial condition of each such co-lender
and participant to ensure that the participation interest meets
the Fund's high quality standard and will continue to do so as
long as it holds a participation.
7
<PAGE>
ILLIQUID SECURITIES. 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)
except as provided below, direct placements or other securities
which are subject to legal or contractual restrictions on resale
or for which there is no readily available market (e.g., trading
in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids
or offers), (b) 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 and Practices," below.
Securities that have legal or contractual restrictions on resale
but have a readily available market are not deemed illiquid for
purposes of this limitation.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bond 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
8
<PAGE>
institutions may not be indicative of the liquidity of such
investments.
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, an automated
system for the clearance and settlement of transactions in
unregistered securities of domestic and foreign issuers which is
sponsored by the National Association of Securities Dealers, Inc.
("NASD").
The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (1) the frequency
of trades and quotes for the security; (2) the number of dealers
issuing quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the security;
(5) the nature of the security (including its unregistered
nature) and the nature of the marketplace for the security (e.g.,
the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (6) any
applicable Securities and Exchange Commission (the "Commission")
interpretation or position with respect to such type of
securities.
NET ASSET VALUE FLUCTUATIONS. 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 asset value of the
Fund's shares normally will fluctuate less than that of a longer-
term bond fund.
9
<PAGE>
NON-DIVERSIFIED 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 5% 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. For purposes of the Fund's
requirement to maintain diversification for tax purposes, the
issuer of a loan participation will be the underlying borrower.
In cases where the Fund does not have recourse directly against
the borrower, both the borrower and each agent bank and co-lender
interposed between the Fund and the borrower will be deemed
issuers of the loan participation for tax diversification
purposes. 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.
U.S. GOVERNMENT SECURITIES. For a description of
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. See Appendix A.
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
10
<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. These
investment techniques will be used only to hedge against
anticipated future changes in interest or exchange rates which
otherwise might either adversely affect the value of the Fund's
portfolio securities or adversely affect the prices of securities
which the Fund intends to purchase at a later date. These
investment techniques will not be used for speculation.
See Appendix C for further discussion of the use, risks
and costs of futures contracts and options on futures contracts.
The Fund will not 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; or if immediately
thereafter the amount of margin deposits on all the futures
contracts of the Fund and premiums paid on options on futures
contracts would exceed 5% of the market value of the total assets
of the Fund.
For information on the use, risks and costs of options
on foreign currencies, see Appendix C.
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.
11
<PAGE>
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"). The Fund may not engage in
transaction hedges with respect to the currency of a particular
country to an extent greater than the aggregate amount of the
Fund's transactions in that currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a
substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund
believes that the U.S. Dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase
contract to buy that foreign currency for a fixed dollar amount
("position hedge"). In this situation the Fund may, in the
alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which
portfolio securities of the Fund are denominated ("cross-hedge").
To the extent required by applicable law, the Fund's Custodian
will place cash not available for investment in U.S. Government
Securities or other liquid assets 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 liquid
assets 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. In
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<PAGE>
addition, the Fund may use such other methods of "cover" as are
permitted by applicable law.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission (the "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 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.
INTEREST RATE TRANSACTIONS. The Fund may enter into
interest rate swaps and may purchase or sell interest rate caps
and floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio. The Fund may also enter
into these transactions to protect against any increase in the
price of securities the Fund anticipates purchasing at a later
date. The Fund does not intend to use these transactions as a
speculative investment. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The exchange commitments can
involve payments to be made in the same currency or in different
currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
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<PAGE>
contractually-based principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments on
a notional principal amount from the party selling such interest
rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis
depending on whether it is hedging its assets or its liabilities,
and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of
the two payments. The net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount
of cash or liquid assets having an aggregate net asset value at
least equal to the accrued excess will be maintained in a
segregated account by the Fund's Custodian. If the Fund enters
into an interest rate swap on other than a net basis, the Fund
would maintain a segregated account with its Custodian in the
full amount accrued on a daily basis of the Fund's obligations
with respect to the swap. The Fund will enter into interest rate
swap, cap or floor transactions with its Custodian, and with
other counterparties, but only if: (i) for transactions with
maturities under one year, such other counterparty has
outstanding short-term paper rated at least A-1 by S&P or Prime-1
by Moody's, or (ii) for transactions with maturities greater than
one year, the counterparty has outstanding debt securities rated
at least AA by S&P or Aa by Moody's. If there is a default by
the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms
acting both as principals and agents utilizing standardized swap
documentation. The Adviser has determined that, as a result, the
swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has
not been developed and, accordingly, they are less liquid than
swaps. To the extent the Fund sells (i.e., writes) caps and
floors, it will maintain in a segregated account liquid assets
having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of the Fund's obligations with
respect to any caps or floors. The use of interest rate swaps is
a highly specialized activity which involves investment
techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Adviser is
incorrect in its forecasts of market values, interest rates and
other applicable factors, the investment performance of the Fund
would diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
14
<PAGE>
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described above.
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 price 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
15
<PAGE>
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.
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 Adviser (subject to review by the Board of
Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed-upon amount of income from a borrower who has delivered
equivalent collateral. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or other
distributions. The Fund may pay reasonable finders,
administrative and custodial fees in connection with a loan. The
Fund will not lend 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" with member banks of the Federal Reserve
System or "primary dealers" (as designated by the Federal Reserve
Bank of New York) in U.S. Government 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
16
<PAGE>
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
this 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 Adviser monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
PORTFOLIO TURNOVER. The Fund may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such
trading will increase the Fund's rate of turnover (which rate may
be higher than that of other investment companies) and the
incidence of short-term capital gain taxable as ordinary income.
The annual portfolio turnover rates for the fiscal years ended in
1996 and 1997 were 208% and 172%, respectively. Management
anticipates that the annual turnover in the Fund will not be in
excess of 500%. An annual turnover rate of 500% occurs, for
example, when all of the securities in the Fund's portfolio are
replaced five times in a period of one year. A high rate of
portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains.
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;
17
<PAGE>
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 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, gas, or other mineral exploration or
development programs; (iv) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; 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 maintain portfolio diversification and 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
18
<PAGE>
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 addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Fund has undertaken not to: (i) invest in
warrants if, such warrants valued at the lower cost or market,
would exceed 5% of the value of the Fund's net assets;
(ii) purchase the securities of any company that has a record of
less than three years of continuous operation (including that of
any 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; or
(iii) purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its
aggregate investment in such classes of securities would exceed
5% of its total assets. Included within such amount, but not to
exceed 2% of the Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or attached to
securities may be deemed to be without value.
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 principal officers of the Fund, their
ages and their principal occupations during the past five years
are set forth below. Each such Director and officer is also a
trustee, director or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.
19
<PAGE>
DIRECTORS
JOHN D. CARIFA,5 52, Chairman and President of the Fund,
is the President, Chief Operating Officer and a Director of
Alliance Capital Management Corporation ("ACMC") with which he
has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable") since prior to 1993.
She is a Director of Ecolab Incorporated (specialty chemicals)
and Amoco Corporation (oil and gas). Her address is P.O. Box
4653, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC, with which he had been associated since prior
to 1993. He is currently an independent consultant. His
address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993. His
address is Historic Hudson Valley, 150 White Plains Road,
Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 65, is an investment adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser with
which he had been associated since prior to 1993. His address is
Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of The Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. 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, 58, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President, Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 63, was formerly a senior partner
and member of the Executive Committee of Orrick, Herrington &
Sutcliffe and is currently senior counsel to that firm. His
____________________
5. An "interested person" of the Fund as defined in the 1940
Act.
20
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address is 666 Fifth Avenue, 19th Floor, New York, New York
10103.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT, (see biography,
under "Directors" section above).
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 56, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 38, is an
Executive Vice President of ACMC with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department since prior to 1993.
F. JEANNE GOETZ, VICE PRESIDENT, 43, is a Senior Vice
President of ACMC with which she has been associated since prior
to 1993.
JOHN J. KELLEY, VICE PRESIDENT, 38, is a Vice President
of ACMC with which he has been associated since April 1994.
Previously, he was a Senior Vice President at C. J. Lawrence/
Deutsche Bank, New York, since prior to 1993.
DOUGLAS J. PEEBLES, VICE PRESIDENT, 32, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
CHRISTIAN G. WILSON, ASSISTANT VICE PRESIDENT, 29, is a
Vice President of ACMC with which he has been associated since
prior to 1993.
EDMUND P. BERGAN, JR., SECRETARY, 47, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1993.
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 36, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Financial Holding Corporation
since 1994 and Vice President and Associate General Counsel of
Prudential Securities since 1993.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
47, is a Vice President of AFD and a Senior Vice President of
Alliance Fund Services, Inc. ("AFS") with which he has been
associated since prior to 1993.
21
<PAGE>
JUAN RODRIGUEZ, CONTROLLER, 40, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
CARLA, LaROSE, ASSISTANT CONTROLLER, 34, is a Manager of
AFS with which she has been associated since prior to 1993.
SDI Capital Management, LLC, 1608 Walnut Street, Suite 501,
Philadelphia, PA 19103.
JOSEPH J. MANTINEO, ASSISTANT CONTROLLER, 38, is a Vice
President of AFS with which he has been associated since prior to
1993.
VINCENT S. NOTO, ASSISTANT CONTROLLER, 33, is an
Assistant Vice President of AFS with which he has been associated
since prior to 1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies), in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee are set forth below. Neither the Fund nor any other
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
22
<PAGE>
Total Number
Total Number of Investment
of Investment Portfolios
Companies in Within the
the Alliance Alliance
Total Fund Complex, Fund Complex,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is
from Including Director or a Director
Name of Director the Fund the Fund Trustee or Trustee
_________________ _____________ _____________ _____________ _____________
John D. Carifa $ -0- $ -0- 54 118
Ruth Block $3,286 $164,000 40 80
David H. Dievler $3,293 $188,500 47 83
John H. Dobkin $ -0- $126,500 44 80
William H. Foulk, Jr. $ -0- $176,250 48 113
Dr. James M. Hester $3,253 $156,500 40 76
Clifford L. Michel $2,980 $194,500 41 92
Donald J. Robinson $3,218 $235,500 41 94
As of February 13, 1998, 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 Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1997 totaling more than $218 billion (of which
approximately $85 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundation and endowment funds. As of
December 31, 1997, the Adviser was an investment manager of
employee benefit fund assets for 31 of the FORTUNE 100 companies.
As of that date, the Adviser and its subsidiaries employed
approximately 1,500 employees who operated out of domestic
offices and the offices of subsidiaries in Bahrain, Bangalore,
23
<PAGE>
Chennai, Istanbul, London, Madrid, Mumbai, New Delhi, Paris,
Seoul, Singapore, Sydney, Tokyo and Toronto and affiliate offices
located in Vienna, Warsaw, Hong Kong, Sao Paulo and Moscow. The
58 registered investment companies comprising more than 122
separate investment portfolios managed by the Adviser currently
have over three million shareholder accounts.
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"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement with the Fund, 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
24
<PAGE>
facilities and provides persons satisfactory to the Fund's Board
of Directors to serve as the Fund's officers.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
to registration with the Commission and with state regulatory
authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
provided to the Fund at cost and the payments specifically
approved by the Fund's Board of Directors. The Fund paid to the
Adviser a total of $151,378 in respect of such services during
the fiscal year of the Fund ended in 1997.
For the fiscal years of the Fund ended October 31, ,
1995, 1996 and 1997 the Adviser received an advisory fee in the
amount of $6,033,815 and $4,077,972 and 3,297,775, respectively.
The Advisory Agreement became effective on July 22,
1992. 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 of any such party, at a meeting called for such purpose
and held on September 11, 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 January 1),
provided that such continuance is specifically approved at least
annually by a majority vote of the holders of the outstanding
voting securities of the Fund or by a majority vote of the
Directors, and in either case, by a majority of the Directors who
neither are interested persons (as defined in the 1940 Act) of
the Fund nor have any direct or indirect financial interest in
the Advisory Agreement, cast in person at a meeting called for
the purpose of voting on such approval. Most recently, the Board
of Directors approved the continuance of the Advisory Agreement
until December 31, 1997 at their meeting held on December 10,
1997.
25
<PAGE>
The Advisory Agreement is terminable without penalty on
60 days' written notice, 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 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
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is the investment adviser to the following registered
investment companies: ACM Institutional Reserves, Inc., AFD
Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
Institutional Funds, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc, Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income Fund,
26
<PAGE>
Inc., Alliance Variable Products Series Fund, Inc., Alliance
World Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Portfolios
and The Hudson River Trust, all registered open-end investment
companies; and to ACM Government Income Fund, Inc., ACM
Government Securities Fund, Inc., ACM Government Spectrum Fund,
Inc., ACM Government Opportunity Fund, Inc., ACM Managed Dollar
Income Fund, Inc., ACM Managed Income Fund, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.
______________________________________________________________
EXPENSES OF THE FUND
______________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A , Class B and Class C shares in accordance with a
plan of distribution which is included in the Agreement and has
been duly adopted and approved in accordance with Rule 12b-1
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 fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares and
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
27
<PAGE>
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 disinterested
Directors (as defined in the 1940 Act) are committed to the
discretion of such disinterested Directors then in office.
The Agreement became effective on July 22, 1992, with
respect to Class A shares and Class B shares, and was amended as
of April 30, 1993 to permit the distribution of Class C shares
and September 30, 1996 to permit the distribution of Advisor
Class shares.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the Fund's fiscal year ended October 31, 1997,
distribution services fees for expenditures under the Agreement,
with respect to Class A shares, were in amounts aggregating
$1,225,436 which constituted .30 of 1% of the Fund's average
daily net assets attributable to Class A shares during such
fiscal year, and the Adviser made payments from its own resources
aggregating $451,559. Of the $1,676,995 paid by the Fund and the
Adviser under the Plan with respect to Class A shares, $107,274
was spent on advertising, $6,535 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,275,290 for compensation to broker-dealers and other financial
intermediaries (including $216,126 to the Fund's Principal
Underwriter), $29,885 for compensation to sales personnel and
$258,013 was spent on the printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the Fund's fiscal year ended October 31, 1997,
distribution services fees for expenditures under the Agreement,
with respect to Class B shares, were in amounts aggregating
$1,832,201, which constituted 1.00% of the Fund's average daily
net assets attributable to Class B shares during such fiscal
year. Of the $1,086,068 paid by the Fund and the Adviser under
the Plan with respect to Class B shares, $61,233 was spent on
advertising, $3,587 on the printing and mailing of prospectuses
for persons other than current shareholders, $659,293 for
compensation to broker-dealers and other financial intermediaries
(including $120,819 to the Fund's Principal Underwriter), $6,072
for compensation to sales personnel, $143,153 was spent on the
printing of sales literature, travel, entertainment, due
diligence, other promotional expenses and $212,730 was spent on
28
<PAGE>
financing of interest relating to Class B shares. The additional
$743,133 in payment to the Principal Underwriter will be carried
forward and offset against future distribution service fees
payable under the Plan.
During the Fund's fiscal year ended October 31, 1997,
distribution services fees for expenditures under the Agreement
with respect to Class C shares, were in amounts aggregating
$78,809, which constituted 1.00% of the Fund's average daily net
assets attributable to Class C shares during such fiscal year,
and the Adviser made payments from its own resources aggregating
$132,106. Of the $210,915 paid by the Fund and the Adviser under
the Plan with respect to Class C shares, $20,949 was spent on
advertising, $1,597 on the printing and mailing of prospectuses
for persons other than current shareholders, $127,078 for
compensation to broker-dealers and other financial intermediaries
(including $47,726 to the Fund's Principal Underwriter), $1,742
for compensation to sales personnel, $52,577 was spent on the
printing of sales literature, travel, entertainment, due
diligence, other promotional expenses and $6,972 was spent on the
financing of interest relating to Class C shares.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1) with respect
to each class of the Fund, provided, however, that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of
that class, and in either case, by a majority of the Directors of
the Fund who are not parties to this Agreement or interested
persons, as defined in the 1940 Act, of any such party (other
than as directors of the Fund) and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan or any
agreement related thereto. Most recently the Directors approved
the continuance of the Agreement until December 31, 1998 at their
meeting held on December 10, 1997.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or holders of the Fund's
outstanding voting securities, voting separately by class, and in
29
<PAGE>
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 holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the disinterested Directors as
defined in the 1940 Act, or (b) by the Principal Underwriter. To
terminate the Agreement, any party must give the other party 60
days' written notice; to terminate the Rule 12b-1 Plan only, the
Fund is not required to give prior written notice to the
Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B and Class C shares is higher than
the transfer agency fee with respect to the Class A shares and
Advisor Class shares, reflecting the additional costs associated
with the Class B and Class C contingent deferred sales charges.
For the fiscal year ended October 31, 1997, the Fund paid
Alliance Fund Services, Inc. $1,009,580 pursuant to the Transfer
Agency Agreement.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under "Purchase and Sale of Shares--How
to Buy Shares."
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares held for one year
or more, without any contingent deferred sales charge ("Class C
shares"), or to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
30
<PAGE>
sales charge, in each case as described below. Shares of the
Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of NASD and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions
and other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents"), and (iii) the Principal
Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv),
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or (iv)
by directors and present or retired full-time employees of CB
Commercial Real Estate Group, Inc.
Generally, a fee-based program must charge an asset-
based or other similar fee and must invest at least $250,000 in
Advisor Class shares of each Fund in which the program invests in
order to be approved by AFD for investment in Advisor Class
shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
31
<PAGE>
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of the
Fund's shares to the public in response to conditions in the
securities markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"--Class A Shares." On each Fund business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently
4:00 p.m. Eastern time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Fund business day is any day on which the
Exchange is open for trading.
The respective per share net asset values of the Class
A, Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset values of the Class A
and Advisor Class shares, as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents, or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, if
applicable, is responsible for transmitting such orders by
32
<PAGE>
5:00 p.m. If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, if
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders and may not exceed $500,000. Payment
for shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
33
<PAGE>
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B and Class C shares bear higher
transfer agency costs than those borne by Class A shares and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B shareholders and
Advisor Class shareholders and the Class A shareholders, the
Class B shareholders and the Advisor Class shareholders will vote
separately by class, and (v) Class B shares and Advisor Class
shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
ALTERNATIVE RETAIL PURCHASE ARRANGEMENTS--CLASS A, CLASS
B AND CLASS C SHARES6
____________________
6. Advisor Class shares are sold only to investors described
above in this section under "--General."
34
<PAGE>
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee and
contingent deferred sales charge on Class C shares, would be less
than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans) for more than
$250,000 for Class B shares. Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charge who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge or Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
35
<PAGE>
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value of
money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended in 1996 and 1997,
the aggregate amount of underwriting commission payable with
respect to shares of the Fund were , $257,441, $251,737 and
$271,395, respectively. Of that amount, the Principal
Underwriter received amounts of $19,677, $16,307 and $15,064,
respectively, representing that portion of the sales charges paid
on shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Fund's fiscal years ended
in 1995, 1996 and 1997, the Principal Underwriter received
contingent deferred sales charges of $-0-, $-0- and $111,
respectively, on Class A shares, $1,340,337, $273,441 and
$45,613, respectively, and on Class B shares and Class C shares,
$-0-, $-0- and $4,299, respectively.
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
36
<PAGE>
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ____________
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 3.36 3.25 3.00
$250,000 but
less than
$500,000 2.30 2.25 2.00
$500,000 but
less than
$1,000,000* 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "-- Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
37
<PAGE>
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under
"--Class B Shares Conversion Feature" and "-- Conversion of
Advisor Class Shares to Class A Shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on October 15, 1997.
38
<PAGE>
Net Asset Value per Class A Share
at December 31, 1997 $7.59
Per Share Sales Charge - 4.25%
of offering price (4.44% .34
of net asset value per share) _____
Class A Per Share Offering Price
to the Public $7.93
=====
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
39
<PAGE>
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
-Alliance Strategic Balanced Fund
40
<PAGE>
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible to combine
his or her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B, Class
C and/or Advisor Class shares) of the Fund or any other Alliance
Mutual Fund. Each purchase of shares under a Statement of
Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
41
<PAGE>
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund, to qualify for the
3.25% sales charge on the total amount being invested (the sales
charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
42
<PAGE>
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable
to each succeeding monthly purchase will be that normally
applicable, under such schedule, to an investment equal to the
sum of (i) the total purchase previously made during the 13-month
period and (ii) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors, including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
43
<PAGE>
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or other financial
intermediary, or its affiliate or agent, for services in the
nature of investment advisory or administrative services;
(vi) persons who establish to the Principal Underwriter's
satisfaction that they are investing, within such time period as
may be designated by the Principal Underwriter, proceeds of
redemption of shares of such other registered investment
companies as may be designated from time to time by the Principal
Underwriter; and (vii) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k) plans), custodial
accounts maintained pursuant to Section 403(b)(7) retirement
plans and individual retirement accounts (including individual
retirement accounts to which simplified employee pension (SEP)
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
CLASS B SHARES
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
44
<PAGE>
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
CONTINGENT DEFERRED
SALES CHARGE AS A %
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 3.0%
Second 2.0%
Third 1.0%
Fourth and Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
45
<PAGE>
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Code, of a shareholder, (ii) to the extent that
the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2, (iii) that had
been purchased by present or former Directors of the Fund, by the
relative of any such person, by any trust, individual retirement
account or retirement plan account for the benefit of any such
person or relative, or by the estate of any such person or
relative; or (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
46
<PAGE>
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
as long as the shares are held for one year or more, and without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
47
<PAGE>
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
CONVERSION OF ADVISOR CLASS SHARES TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program, or plan, or to be associated with the
investment advisory or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or the fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
48
<PAGE>
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
_______________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under "Purchase and Sale of Shares--How
to Sell Shares." If you are an Advisor Class shareholder through
an account established under a fee-based program your fee-based
program may impose requirements with respect to the purchase,
sale or exchange of Advisor Class shares of the Fund that are
different from those described herein. A transaction fee may be
charged by your financial representative with respect to the
purchase, sale or exchange of Advisor Class shares made through
such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A , or Class B or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
49
<PAGE>
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
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TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder
is eligible to request redemption by check of Fund shares for
which no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTIONS--GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares (i)
for which certificates have been issued, (ii) held in nominee or
"street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
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executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
_______________________________________________________________
SHAREHOLDER SERVICES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
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representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfers
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes 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.
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Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m. Eastern time on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
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<PAGE>
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, N.J. 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.
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Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contributions to an IRA will be deductible if neither
the individual nor his or her spouse is an active participant in
an employer-sponsored retirement plan. If the individual or his
or her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
plan's request, without any sales charge, for Class A shares of
the Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation, minimum $25 per pay
period, may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
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SYSTEMATIC WITHDRAWAL PLAN
GENERAL. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares--General." Purchases of
additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. While an
occasional lump-sum investment may be made by a holder of Class A
shares who is maintaining a systematic withdrawal plan, such
investment should normally be an amount equivalent to three times
the annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2% bi-
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monthly or 3% quarterly of the value at the time of redemption of
the Class B or Class C shares in a shareholders account may be
redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on his or her Class A, Class B, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
the Prospectus. Current shareholders should contact Alliance
Fund Services, Inc. to establish a dividend direction plan.
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 monthly cumulative dividend statement and 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.
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CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class
A or Class C shares of the Fund redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current
month's accumulated dividends and shares for which certificates
have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of
his or her Fund account should contact the Fund by telephone or
mail. Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
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Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
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such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
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of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
U.S. FEDERAL INCOME TAXES
The Fund intends for each taxable year to be qualified
as a "regulated investment company" under the Code.
Qualification as a regulated investment company relieves the Fund
of federal income tax and excise taxes on the portion of its
investment company taxable income and net capital gains which it
pays out to its shareholders. Such qualification does not, of
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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 U.S. Federal income taxes on dividends and
distributions by the Fund and assumes that the Fund qualifies as
a regulated investment company. Investors should consult their
own counsel for further details, including their possible
entitlement to foreign tax credits that might be "passed through"
to them under the rules described below, and the application of
state and local tax laws to his or her particular situation.
In order to qualify as a regulated investment company
for any taxable year, the fund must, among other things, derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the
sale or other disposition of stock, securities, or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currency. In addition, the Fund will qualify as a regulated
investment company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
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 at least the sum 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 gains from
the preceding calendar year that was not distributed during such
year. Certain distributions of the Fund which are paid in
January of a given year but are declared in the prior October,
November or December to shareholders of record as of a specified
date during such a month may be treated as having been
distributed in December and will be taxable to shareholders as if
received in December.
Dividends of 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
63
<PAGE>
that none of the Fund's dividends or distributions will qualify
for the dividends-received deduction for corporations.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains--that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Distributions of net capital gains will be
treated in the hands of shareholders as mid-term gains to the
extent designated by the Fund as deriving from net gains from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gains,
regardless of how long a shareholder has held shares in the Fund.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him as described above. If a shareholder has held
shares in the Fund for six months or less and during that period
has received a distribution of net capital gains, 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 and distributions 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's
Common Stock.
The Fund generally will be required to withhold tax at
the rate of 31% with respect to distributions 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 notified by the Internal Revenue Service
that he or she is subject to backup withholding.
FOREIGN TAX CREDITS
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
64
<PAGE>
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, or claim a
credit for, their pro-rata share of the foreign taxes paid by the
Fund. A shareholder's foreign tax credit with respect to a
dividend received from the Fund will be disallowed unless the
shareholder holds shares in the Fund on the ex-dividend date and
for at least 15 other days during the 30-day period beginning 15
days prior to the ex-dividend date. 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.
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.
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
65
<PAGE>
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 or her Fund shares. To
the extent that such distributions exceed such shareholder's
basis, each distribution will be treated as a gain from the sale
of shares.
OPTIONS, FUTURES AND FORWARD 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, although the Fund may elect to have the gain or loss it
realizes on certain contracts taxed as "section 988" gain or
loss. Gain or loss realized by the Fund on forward foreign
currency contracts generally will be treated as section 988 gain
or loss and will therefore be characterized as ordinary income or
loss and will increase or decrease the amount of the Fund's net
investment income available to be distributed to shareholders as
ordinary income, as described above. The Fund can elect to
exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section
1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
66
<PAGE>
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to options traded over-the-counter or on
certain foreign exchanges, gain or loss realized by the Fund upon
the lapse or sale of such options held by the Fund will be either
long-term or short-term capital gain or loss depending upon the
Fund's holding period with respect to such option. However, gain
or loss realized upon the lapse or closing out of such options
that are written by the Fund will be treated as short-term
capital gain or loss. In general, if the Fund exercises an
option, or an option that the Fund has written is exercised, gain
or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of
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 paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or if such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
TAX STRADDLES
Any option, futures contract, interest rate swap, cap or
floor, forward foreign currency contract, or other position
entered into or held by the Fund in conjunction with any other
67
<PAGE>
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
TAXATION OF FOREIGN STOCKHOLDERS
The foregoing discussion relates only to U.S. federal
income tax law as it affects shareholders who are U.S. residents
or U.S. corporations. The effects of federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.
_______________________________________________________________
BROKERAGE AND 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
68
<PAGE>
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriter; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded 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.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
CAPITALIZATION
The authorized capital stock of the Fund currently
consists of 1,200,000,000 shares of Class A Common Stock, $.01
par value, 1,200,000,000 shares of Class B Common Stock, $.01 par
value, and 1,200,000,000 shares of Class C Common Stock, $.01 par
value 1,200,000,000 shares of Advisor Class Common Stock, $.01
par value. Class A, Class B, Class C and Advisor Class shares
each represent interests in the assets of the Fund and have
identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that expenses related to the
distribution of each class and transfer agency expenses of each
class are borne solely by each class and each class of shares has
exclusive voting rights with respect to provisions of any
applicable Rule 12b-1 distribution plan which pertain to a
particular class and other matters for which separate class
voting is appropriate under applicable law.
The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but
unissued shares of the Fund's Class A, Class B, Class C and
Advisor Class Common Stock.
69
<PAGE>
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Board in
the future, for reasons such as the desire to establish one or
more additional portfolios 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 law of the State of Maryland.
If shares of another series were issued in connection with the
creation of a second portfolio, each share of either portfolio
would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single
series 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.
As of the close of business on February 13, 1998, there
were 66,255,094 shares of common stock of the Fund outstanding.
Of this amount, 59,085,228 shares were Class A shares, 6,457,230
shares were Class B shares and 712,636 shares were Class C
shares. To the knowledge of the Fund, the following persons
owned of record, and no person owned beneficially, 5% or more of
the outstanding shares of the Fund as of February 13, 1998:
70
<PAGE>
NO. OF
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
Merrill Lynch for the Sole 13,240,526 22.41%
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246-6484
Merrill Lynch for the Sole 1,047,998 16.23%
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 360,333 50.55%
Securities Corp., Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Merrill Lynch for the Sole 63,146 8.86%
Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr East,
3rd Floor
Jacksonville, FL 32246-6484
CUSTODIAN
Brown Brothers Harriman & Co.("Brown Brothers"), 40
Water Street, Boston, Massachusetts 02109, will act as the Fund's
custodian for the assets of the Fund, but plays no part in
deciding on the purchase or sale of portfolio securities.
Subject to the supervision of the Fund's Directors, Brown
Brothers may enter into sub-custodial agreements for the holding
of the Fund's foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 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 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.
71
<PAGE>
COUNSEL
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, New
York, New York. Seward & Kissel has relied upon the opinion of
Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have 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 will
compute yield and total return figures separately for Class A,
Class B, Class C and Advisor Class shares. The Fund's yield for
any 30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Fund's
"actual distribution rate," which may be advertised in items of
sales literature, is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question are substituted for net investment income per share.
The actual distribution rate is computed separately for each
class of shares. Compounded separately for each class, the
Fund's "Total Return" is its average compounded total return for
its most recently completed one-, five- and ten-year periods (or,
if shorter, the period since the Fund's inception). The Fund's
total return for 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 in the value of such
investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions
paid on shares of the Fund are assumed to have been reinvested
when received and the maximum sales charge applicable to
purchases of Fund shares is assumed to have been paid.
The Fund's yield for the month ended October 31, 1997
was 4.80% for Class A shares, 4.27% for Class B shares and 4.32%
for Class C shares. The Fund's actual distribution rate for such
period was 7.48% for Class A shares, 7.05% for Class B shares and
7.05% for Class C shares. The Fund's total return for the one-
year period ended October 31, 1997 was 1.73% for Class A shares,
2.47% for Class B shares and 4.43% for Class C shares. For the
72
<PAGE>
five-year period through October 31, 1997, the Fund's total
return was 3.14% for Class A shares and 3.26% for Class B shares.
For the period May 5, 1989 (inception) through October 31, 1997,
the Fund's total return was 5.41% for Class A shares, for the
period February 5, 1990 (commencement of distribution) through
October 31, 1997, the Fund's total return was 4.72% for Class B
shares and for the period May 3, 1993 (commencement of
distribution) through October 31, 1997, the Fund's total return
was 3.13% for Class C shares.
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 or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. ("Lipper") and Morningstar, Inc. and advertisements
presenting the historical record of payments of income dividends
by the Fund may also from time to time be sent to investors or
placed in newspapers, magazines such as THE NEW YORK TIMES, THE
WALL STREET JOURNAL, BARRONS, INVESTOR's DAILY, MONEY MAGAZINE,
CHANGING TIMES, BUSINESS WEEK and FORBES or other media on behalf
of the Fund. The Fund has been ranked by Lipper in the category
known as "short world 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 or
under the Securities Act. Copies of the Registration Statement
may be obtained at a reasonable charge from the Commission or may
be examined, without charge, at the offices of the Commission in
Washington, D.C.
73
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ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ANNUAL REPORT
OCTOBER 31, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
AUSTRALIA-2.8%
GOVERNMENT OBLIGATION-2.8%
Republic of Australia
7.00%, 4/15/00 (a)
(cost $15,230,632) AU$ 20,000 $14,641,665
DENMARK-8.4%
GOVERNMENT OBLIGATION-8.4%
Kingdom of Denmark
9.00%, 11/15/98 (a)
(cost $54,596,699) DKK 277,000 44,112,439
FRANCE-3.5%
GOVERNMENT OBLIGATION-3.5%
Government of France
7.75%, 4/12/00 (a)
(cost $17,884,433) FRF 100,000 18,594,324
GERMANY-14.8%
DEBT OBLIGATIONS-7.5%
Bayerische Landesbank
6.00%, 10/15/98 (a) US$ 20,000 20,014,000
Bremer Landesbank
6.38%, 12/29/99 (a) 19,500 19,646,250
------------
39,660,250
GOVERNMENT OBLIGATION-7.3%
Government of Germany
5.75%, 8/22/00 (a) DEM 64,000 38,225,573
Total German Securities
(cost $77,229,178) 77,885,823
ITALY-10.1%
GOVERNMENT OBLIGATION-10.1%
Republic of Italy
6.00%, 2/15/00 (a)
(cost $50,571,339) ITL 89,000,000 53,220,056
MEXICO-4.9%
GOVERNMENT OBLIGATIONS-4.9%
Mexican Treasury Bills
20.05%, 9/24/98 (a)(b) MXP 48,506 4,798,487
23.30%, 2/04/98 (a)(b) 94,888 10,631,804
23.70%, 4/02/98 (a)(b) 97,377 10,562,327
Total Mexican Securities
(cost $28,159,713) 25,992,618
NETHERLANDS-2.5%
DEBT OBLIGATION-2.5%
Arkaig Finance FRN
5.658%, 3/19/99 (a)
(cost $12,999,016) US$ 13,000 12,998,700
NEW ZEALAND-7.6%
DEBT OBLIGATION-4.7%
International Bank For
Reconstruction & Development
7.00%, 9/18/00 (a) NZ$ 39,600 24,570,641
GOVERNMENT OBLIGATION-2.9%
Government of New Zealand
6.50%, 2/15/00 (a) 25,060 15,470,978
Total New Zealand Securities
(cost $41,097,393) 40,041,619
NORWAY-5.1%
GOVERNMENT OBLIGATION-5.1%
Kingdom of Norway
9.00%, 1/31/99 (a)
(cost $29,268,034) NOK 180,000 27,042,241
POLAND-3.9%
GOVERNMENT OBLIGATION-3.9%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $20,833,379) PLN 86,000 20,289,584
SPAIN-5.0%
GOVERNMENT OBLIGATION-5.0%
Government of Spain
6.75%, 4/15/00 (a)
(cost $25,260,748) ESP 3,705,000 26,396,680
SWEDEN-5.5%
GOVERNMENT OBLIGATION-5.5%
Kingdom of Sweden
10.25%, 5/05/00 (a)
(cost $28,778,269) SEK 198,000 29,176,276
6
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
UNITED STATES-25.5%
COMMERCIAL PAPER-6.9%
Abbey National Plc.
5.55%, 4/27/98 (a)(b) US$ 18,500 $ 17,995,181
Toronto Dominion Bank
5.57%, 1/26/98 (a)(b) 18,500 18,253,837
-------------
36,249,018
CERTIFICATE OF DEPOSIT-4.6%
Rabobank FRN
6.42%, 2/23/98 (a) 25,000 24,552,000
GOVERNMENT AGENCY OBLIGATION-4.2%
FNMA Global
7.00%, 9/26/00 (a) NZ$ 36,000 22,343,671
DEBT OBLIGATION-2.9%
Federal Business Development Bank
6.38%, 5/21/99 (a) US$ 15,000 15,124,035
TIME DEPOSITS-6.9%
Dresdner Bank
5.65%, 11/03/97 US$ 9,000 9,000,000
Rabobank
5.56%, 11/03/97 9,000 9,000,000
Union Bank of Switzerland
5.63%, 11/03/97 9,200 9,200,000
Wachovia Bank
5.57%, 11/03/97 9,000 9,000,000
36,200,000
Total United States Securities
(cost $134,759,470) 134,468,724
TOTAL INVESTMENTS-99.6%
(cost $536,668,303) 524,860,749
Other assets less liabilities-0.4% 2,201,187
NET ASSETS-100% $527,061,936
(a) Securities, or portion thereof, with an aggregate market value of
$488,660,749 have been segregated to collateralize forward exchange currency
contracts.
(b) Interest rate represents annualized yield to maturity at purchase date.
Glossary of terms:
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $536,668,303) $524,860,749
Cash, at value (cost $26,560) 26,664
Receivable for capital stock sold 14,664,966
Interest receivable 11,087,911
Total assets 550,640,290
LIABILITIES
Payable for capital stock redeemed 19,067,751
Unrealized depreciation of forward exchange currency contracts 2,633,553
Dividend payable 1,195,406
Advisory fee payable 250,030
Distribution fee payable 201,715
Accrued expenses 229,899
Total liabilities 23,578,354
NET ASSETS $527,061,936
COMPOSITION OF NET ASSETS
Capital stock, at par $ 694,019
Additional paid-in capital 614,356,550
Undistributed net investment income 2,217,645
Accumulated net realized loss on investments and foreign
currency transactions (75,868,122)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (14,338,156)
$527,061,936
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($434,273,084/
57,183,737 shares of capital stock issued and outstanding ) $7.59
Sales charge--4.25% of public offering price .34
Maximum offering price $7.93
CLASS B SHARES
Net asset value and offering price per share ($86,785,006/
11,427,581 shares of capital stock issued and outstanding ) $7.59
CLASS C SHARES
Net asset value and offering price per share ($6,003,846/
790,568 shares of capital stock issued and outstanding) $7.59
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes withheld of $13,706) $46,946,057
EXPENSES
Advisory fee $3,297,775
Distribution fee - Class A 1,225,436
Distribution fee - Class B 1,832,201
Distribution fee - Class C 78,809
Transfer agency 1,534,442
Custodian 513,112
Printing 167,527
Administrative 151,378
Audit and legal 132,241
Registration 81,786
Directors' fees 19,755
Miscellaneous 14,067
Total expenses 9,048,529
Less: expense offset arrangement (see Note B) (74,240)
Net expenses 8,974,289
Net investment income 37,971,768
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (893,134)
Net realized gain on foreign currency transactions 15,841,118
Net change in unrealized appreciation (depreciation) of:
Investments (14,553,531)
Foreign currency denominated assets and liabilities (1,869,387)
Net loss on investments and foreign currency transactions (1,474,934)
NET INCREASE IN NET ASSETS FROM OPERATIONS $36,496,834
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 37,971,768 $ 55,591,338
Net realized gain on investments and
foreign currency transactions 14,947,984 11,274,542
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (16,422,918) 21,264,259
Net increase in net assets from operations 36,496,834 88,130,139
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (26,750,517) (29,452,332)
Class B (10,757,851) (33,967,382)
Class C (463,400) (524,790)
Distributions in excess of net
investment income
Class A (5,444,465) -0-
Class B (2,290,363) -0-
Class C (99,203) -0-
CAPITAL STOCK TRANSACTIONS
Net decrease (133,313,290) (201,779,228)
Total decrease (142,622,255) (177,593,593)
NET ASSETS
Beginning of year 669,684,191 847,277,784
End of year (including undistributed net
investment income of $2,217,645) $ 527,061,936 $ 669,684,191
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund"), was incorporated in
the State of Maryland on February 17, 1989 as a non-diversified, open-end
management investment company. The Fund offers Class A, Class B and Class C
shares. Class A shares are sold with a front-end sales charge of up to 4.25%
for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000
or more, Class A shares redeemed within one year of purchase will be subject to
a contingent deferred sales charge of 1%. Class B shares are sold with a
contingent deferred sales charge which declines from 3% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares six years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge on
redemptions made within the first year after purchase. All three classes of
shares have identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on the day of valuation or,
if no such closing price is available, at the mean of the last bid and ask
price quoted on such day. However, readily marketable portfolio securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair value of such securities.
Options are valued at market value or 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. Securities for which market quotations are not readily
available and restricted securities are valued in good faith at fair value
using methods determined by the Board of Directors.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when earned or accrued.
Net realized gain on foreign currency transactions represents foreign exchange
gains and losses from sales and maturities of securities and forward exchange
currency contracts, holdings of foreign currencies, exchange gains and losses
realized between the trade and settlement dates on investment transactions, and
the difference between the amount of interest recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid. Net change in
unrealized appreciation (depreciation) of foreign currency denominated assets
and liabilities represents net currency gains and losses from valuing foreign
currency denominated assets and liabilities at period end exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
11
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency gains, resulted in a net increase in
undistributed net investment income and a corresponding increase in accumulated
net realized loss on investments and foreign currency transactions. This
reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.55 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $151,378 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, 1997.
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 $1,009,580 for the year ended October 31, 1997.
In addition, for the year ended October 31, 1997, the Fund's expenses were
reduced by $74,240 under an expense offset arrangement with Alliance Fund
Services. Transfer Agency fees reported in the statement of operation exclude
these credits.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $15,064 from the sale of Class A shares and $45,613,
and $4,299 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively for the year ended
October 31, 1997.
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 .30 of 1% of the average daily net assets attributable to the Class A
shares and 1% of the average daily net assets attributable to both Class B and
Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $25,420,759 and $1,475,235 for Class B and C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the agreement remains in effect. In accordance with the Agreement,
there is no provision for recovery of unreimbursed distribution costs incurred
by the Distributor beyond the current fiscal year for Class A shares. The
Agreement also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $530,871,557 and $580,208,797,
respectively, for the year ended October 31, 1997. There were purchases of
$49,753,906 and sales of $99,605,469 of U.S. government and government agency
obligations for the year ended October 31, 1997.
At October 31, 1997, the cost of investments for federal income tax purposes
was $537,699,201. Accordingly, gross unrealized appreciation of investments was
$5,699,801 and gross unrealized depreciation of investments was $18,538,253,
resulting in net unrealized depreciation of $12,838,452 (excluding foreign
currency transactions).
12
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
At October 31, 1997, the Fund had a capital loss carryforward of $75,868,122 of
which $35,161,555 expires in the year 2001, $20,009,696 expires in the year
2002, $19,803,737 expires in the year 2003, and $893,134 expires in the year
2004.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. 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.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
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. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At October 31, 1997, the Fund had outstanding forward exchange currency
contracts, as follows:
<TABLE>
<CAPTION>
U.S $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY BUY CONTRACTS
Deutsche Marks, expiring 11/07/97 37,450 $21,336,134 $21,720,947 $384,813
Indonesian Rupiah, expiring 1/16/98 40,944,500 16,237,760 11,077,308 (5,160,452)
Norwegian Kroner, expiring 11/03/97 189,422 26,235,172 27,028,030 792,858
FORWARD EXCHANGE CURRENCY SALE CONTRACTS
Australian Dollars, expiring 11/10/97-11/14/97 20,938 15,355,323 14,726,170 629,153
French Francs, expiring 11/06/97 140,281 23,592,425 24,335,644 (743,219)
Deutsche Marks, expiring 11/07/97-11/25/97 218,835 124,138,375 127,033,498 (2,895,123)
Indonesian Rupiah, expiring 1/16/98 40,944,500 15,885,970 11,077,308 4,808,662
Italian Lira, expiring 11/24/97 88,961,436 51,353,039 52,500,411 (1,147,372)
</TABLE>
13
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
U.S. $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
New Zealand Dollars, expiring 11/10/97 100,597 $64,795,293 $62,616,713 $ 2,178,580
Norwegian Kroner, expiring 11/03/97 189,422 26,729,319 27,028,030 (298,711)
Spanish Pesetas, expiring 11/06/97 60,000 401,177 411,758 (10,581)
Swedish Krona, expiring 12/04/97 225,599 29,645,035 30,052,743 (407,708)
Swiss Francs, expiring 12/08/97 34,445 23,903,262 24,667,715 (764,453)
------------
$(2,633,553)
</TABLE>
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the year ended October
31, 1997.
3. INTEREST RATE SWAP AGREEMENTS
The Fund enters into currency and interest rate swaps to protect itself from
foreign currency and interest rate fluctuations on the underlying debt
instruments. A swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the foreign securities or currencies.
14
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the value
of swap contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation of investments. Realized gains and losses from
terminated swaps are included in net realized gains on investment transactions.
There were no outstanding currency or interest rate swap contracts at October
31, 1997.
NOTE E: CAPITAL STOCK
There are 3,600,000,000 shares of $.01 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each Class consists of 1,200,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 20,007,841 1,644,560 $ 154,082,776 $ 14,914,054
Shares issued in
reinvestment of
dividends 1,857,373 1,871,073 14,312,559 14,187,089
Shares converted
from Class B 17,843,352 18,067,959 136,483,754 135,505,124
Shares redeemed (32,561,526) (14,414,336) (249,890,813) (109,253,251)
Net increase 7,147,040 7,169,256 $ 54,988,276 $ 55,353,016
CLASS B
Shares sold 803,873 1,642,627 $ 6,210,307 $ 12,447,906
Shares issued in
reinvestment of
dividends 796,386 1,874,160 6,151,796 14,192,671
Shares converted
to Class A (17,843,352) (18,067,959) (136,483,754) (135,505,124)
Shares redeemed (7,683,116) (20,143,299) (60,265,644) (154,702,486)
Net decrease (23,926,209) (34,694,471) $(184,387,295) $(263,567,033)
CLASS C
Shares sold 206,061 1,298,950 $ 1,587,233 $ 9,914,742
Shares issued in
reinvestment of
dividends 19,194 25,478 148,090 193,464
Shares redeemed (733,128) (482,972) (5,649,594) (3,673,417)
Net increase(decrease) (507,873) 841,456 $ (3,914,271) $ 6,434,789
15
FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.73 $7.47 $8.71 $9.25 $9.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .60(a) .46(a) .93 .92
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.04) .35 (.98) (.86) (.32)
Net increase (decrease) in net asset
value from operations .47 .95 (.52) .07 .60
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.56) (.69) -0- -0- (.60)
Distributions in excess from net
investment income (.05) -0- -0- -0- -0-
Tax return of capital -0- -0- (.72) (.61) -0-
Total dividends and distributions (.61) (.69) (.72) (.61) (.60)
Net asset value, end of year $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on net
asset value (b) 6.20% 13.23% (5.74)% .84% 6.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $434,273 $386,545 $320,333 $593,677 $953,571
Ratio to average net assets of:
Expenses 1.28%(c) 1.29% 1.23% 1.13% 1.16%
Net investment income 6.54% 7.85% 7.39% 7.28% 8.26%
Portfolio turnover rate 172% 208% 230% 109% 182%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.73 $7.47 $8.71 $9.25 $9.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45(a) .54(a) .41(a) .94 .87
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.04) .35 (.99) (.93) (.34)
Net increase (decrease) in net asset
value from operations .41 .89 (.58) .01 .53
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.63) -0- -0- (.53)
Distributions in excess from net
investment income (.10) -0- -0- -0- -0-
Tax return of capital -0- -0- (.66) (.55) -0-
Total dividends and distributions (.55) (.63) (.66) (.55) (.53)
Net asset value, end of year $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on net
asset value(b) 5.42% 12.34% (6.50)% .12% 5.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $86,785 $273,109 $523,530 $1,003,633 $1,742,703
Ratio to average net assets of:
Expenses 1.99%(c) 2.00% 1.95% 1.85% 1.87%
Net investment income 5.83% 7.14% 6.69% 6.58% 7.57%
Portfolio turnover rate 172% 208% 230% 109% 182%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------
MAY 3,1993(D)
YEAR ENDED OCTOBER 31, TO
---------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.73 $7.47 $8.71 $9.25 $9.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45(a) .51(a) .39(a) .58 .28
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.04) .38 (.97) (.57) .05
Net increase (decrease) in net asset
value from operations .41 .89 (.58) .01 .33
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.63) -0- -0- (.26)
Distributions in excess from net
investment income (.10) -0- -0- -0- -0-
Tax return of capital -0- -0- (.66) (.55) -0-
Total dividends and distributions (.55) (.63) (.66) (.55) (.26)
Net asset value, end of period $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on net
asset value(b) 5.42% 12.35% (6.49)% .12% 3.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,004 $10,031 $3,416 $8,136 $5,538
Ratio to average net assets of:
Expenses 1.99%(c) 1.98% 1.92% 1.83% 1.82%(e)
Net investment income 5.83% 7.15% 6.66% 6.50% 7.19%(e)
Portfolio turnover rate 172% 208% 230% 109% 182%
</TABLE>
(a) Based on average shares outstanding.
(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 a
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of the total
investment return. Total investment return calculated for a period of less than
one year is not annualized.
(c) Ratio reflects expense offset arrangement with the Transfer Agent. For the
year ended October 31, 1997, the net expense ratio was 1.27%, 1.98% and 1.98%
for Class A, B and C shares, respectively.
(d) Commencement of distribution.
(e) Annualized.
18
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund"), including the
portfolio of investments, as of October 31, 1997, 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, 1997, 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 Short-Term Multi-Market Trust, Inc. at October 31, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
New York, New York
December 10, 1997
19
74
<PAGE>
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
SEMI-ANNUAL REPORT
APRIL 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
DENMARK-8.8%
GOVERNMENT OBLIGATION-8.8%
Kingdom of Denmark
9.00%, 11/15/00 (a)
(cost $41,375,880) DKK 258,000 $ 41,491,819
FRANCE-3.7%
GOVERNMENT OBLIGATION-3.7%
Government of France
7.75%, 4/12/00 (a)
(cost $17,884,433) FRF 100,000 17,709,200
GERMANY-16.1%
DEBT OBLIGATIONS-8.3%
Bayerische Landesbank
6.00%, 10/15/98 (a) US$ 20,000 20,009,200
Bremer Landesbank
6.38%, 12/29/99 (a) 19,500 19,566,651
------------
39,575,851
GOVERNMENT OBLIGATION-7.8%
Government of Germany
5.75%, 8/22/00 (a) DEM 64,000 36,792,064
Total German Securities
(cost $77,236,330) 76,367,915
ITALY-10.9%
GOVERNMENT OBLIGATION-10.9%
Republic of Italy
6.00%, 2/15/00 (a)
(cost $50,637,325) ITL 89,000,000 51,474,148
MEXICO-6.1%
GOVERNMENT OBLIGATIONS-6.1%
Mexican Treasury Bills
17.325%, 3/11/99 (a)(b) MXP 116,630 11,686,312
20.05%, 9/24/98 (a)(b) 48,506 5,300,289
23.30%, 1/14/99 (a)(b) 113,113 11,680,470
Total Mexican Securities
(cost $29,236,464) 28,667,071
NETHERLANDS-2.7%
DEBT OBLIGATION-2.7%
Arkaig Finance FRN
5.66%, 3/19/99 (a)
(cost $12,999,369) US$ 13,000 12,998,700
NEW ZEALAND-7.4%
DEBT OBLIGATION-4.5%
International Bank For
Reconstruction & Development
7.00%, 9/18/00 (a) NZ$ 39,600 21,579,842
GOVERNMENT OBLIGATION-2.9%
Government of New Zealand
6.50%, 2/15/00 (a) 25,060 13,628,493
Total New Zealand Securities
(cost $41,155,618) 35,208,335
NORWAY-5.3%
GOVERNMENT OBLIGATION-5.3%
Kingdom of Norway
9.00%, 1/31/99 (a)
(cost $29,268,034) NOK 180,000 24,908,618
POLAND-4.9%
GOVERNMENT OBLIGATION-4.9%
Government of Poland
Treasury Bill
23.05%, 9/30/98 (a)(b)
(cost $23,138,999) PLN 86,000 23,175,563
SPAIN-5.3%
GOVERNMENT OBLIGATION-5.3%
Government of Spain
6.75%, 4/15/00 (a)
(cost $25,260,748) ESP 3,705,000 25,374,716
SWEDEN-5.9%
GOVERNMENT OBLIGATION-5.9%
Kingdom of Sweden
10.25%, 5/05/00 (a)
(cost $28,778,269) SEK 198,000 28,118,707
UNITED STATES-21.8%
DEBT OBLIGATION-3.2%
Federal Business Development Bank
6.38%, 5/21/99 (a) US$ 15,000 15,041,805
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
GOVERNMENT AGENCY
OBLIGATION-4.1%
FNMA Global
7.00%, 9/26/00 (a) NZ$ 36,000 $ 19,584,841
TIME DEPOSITS-14.5%
Deutsche Bank
5.56%, 5/01/98 US$ 17,200 17,200,000
Dresdner Bank
5.44%, 5/01/98 17,300 17,300,000
Republic National Bank
5.38%, 5/01/98 17,200 17,200,000
Wachovia National Bank
5.40%, 5/01/98 17,200 17,200,000
------------
68,900,000
Total United States Securities
(cost $106,676,341) 103,526,646
TOTAL INVESTMENTS-98.9%
(cost $483,647,810) $ 469,021,438
Other assets less liabilities-1.1% 5,424,204
NET ASSETS-100% $ 474,445,642
(a) Securities, or a portion thereof, with an aggregate market value of
$400,121,438 have been segregated to collateralize forward exchange currency
contracts.
(b) Interest rate represents annualized yield to maturity at purchase date.
Glossary of Terms:
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $483,647,810) $ 469,021,438
Cash, at value (cost $40,309) 40,321
Receivable for investment securities sold 88,212,894
Interest receivable 8,843,742
Receivable for capital stock sold 118,857
Prepaid expenses 22,618
Total assets 566,259,870
LIABILITIES
Payable for investment securities purchased 68,900,000
Payable for capital stock redeemed 19,915,617
Unrealized depreciation of forward exchange currency contracts 1,525,335
Dividend payable 1,035,012
Advisory fee payable 217,684
Distribution fee payable 142,745
Accrued expenses 77,835
Total liabilities 91,814,228
NET ASSETS $ 474,445,642
COMPOSITION OF NET ASSETS
Capital stock, at par $ 628,663
Additional paid-in capital 565,018,089
Distributions in excess of net investment income (629,345)
Accumulated net realized loss on investments and
foreign currency transactions (74,464,818)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (16,106,947)
$ 474,445,642
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($433,524,820 / 57,446,686 shares of
capital stock issued and outstanding ) $ 7.55
Sales Charge--4.25% of public offering price .34
Maximum offering price $ 7.89
CLASS B SHARES
Net asset value and offering price per share
($35,821,620 / 4,744,078 shares of
capital stock issued and outstanding ) $ 7.55
CLASS C SHARES
Net asset value and offering price per share
($5,099,202 / 675,492 shares of
capital stock issued and outstanding ) $ 7.55
See notes to financial statements.
7
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 19,988,866
EXPENSES
Advisory fee $ 1,368,903
Distribution fee - Class A 653,480
Distribution fee - Class B 283,478
Distribution fee - Class C 27,245
Transfer agency 630,351
Custodian 251,754
Printing 80,185
Audit and legal 68,439
Administrative 67,556
Registration 35,661
Directors' fees 11,294
Miscellaneous 7,909
Total expenses 3,486,255
Net investment income 16,502,611
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (1,513,847)
Net realized gain on foreign
currency transactions 2,917,151
Net change in unrealized depreciation of:
Investments (2,818,819)
Foreign currency denominated
assets and liabilities 1,050,028
Net loss on investments and
foreign currency transactions (365,487)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 16,137,124
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 16,502,611 $ 37,971,768
Net realized gain on investments and
foreign currency transactions 1,403,304 14,947,984
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (1,768,791) (16,422,918)
Net increase in net assets
from operations 16,137,124 36,496,834
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (17,190,896) (26,750,517)
Class B (1,965,696) (10,757,851)
Class C (193,009) (463,400)
Distributions in excess of net
investment income
Class A -0- (5,444,465)
Class B -0- (2,290,363)
Class C -0- (99,203)
CAPITAL STOCK TRANSACTIONS
Net decrease (49,403,817) (133,313,290)
Total decrease (52,616,294) (142,622,255)
NET ASSETS
Beginning of year 527,061,936 669,684,191
End of period (including
undistributed net investment
income of $2,217,645 at
October 31, 1997) $ 474,445,642 $ 527,061,936
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998 (UNAUDITED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term Multi-Market Trust, Inc. (the "Fund") was incorporated in
the State of Maryland on February 17, 1989 as a non-diversified, open-end
management investment company. The Fund offers Class A, Class B and Class C
shares. Class A shares are sold with a front-end sales charge of up to 4.25%
for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000
or more, Class A shares redeemed within one year of purchase will be subject to
a contingent deferred sales charge of 1%. Class B shares are sold with a
contingent deferred sales charge which declines from 3% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares six years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge on
redemptions made within the first year after purchase. All three classes of
shares have identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price, if there was no sale on such
day, the last bid price quoted on such day. If no bid prices are quoted, then
the security is valued at the mean of the bid and asked prices as obtained on
that day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the United States
over-the-counter market, securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked price provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities.
2. 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 earned or accrued.
Net realized gain or loss on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amount of interest recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
10
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.55 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $67,556 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended April 30, 1998.
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 $442,378 for the six months ended April 30, 1998.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
$55,500, $11,765 and $803 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively for the six months ended April 30, 1998.
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 .30 of 1% of the average daily net assets attributable to the Class A
shares and 1% of the average daily net assets attributable to both Class B and
Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $25,354,891 and $1,497,757 for Class B and C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the agreement remains in effect. In accordance with the Agreement,
there is no provision for recovery of unreimbursed distribution costs incurred
by the Distributor beyond the current fiscal year for Class A shares. The
Agreement also provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $55,950,389 and $69,712,138
respectively,
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
for the six months ended April 30, 1998. There were no purchases or sales of
U.S. government or government agency obligations for the six months ended April
30, 1998.
At April 30, 1998, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $1,237,719 and
gross unrealized depreciation of investments was $15,864,091 resulting in net
unrealized depreciation of $14,626,372 (excluding foreign currency
transactions).
At October 31, 1997, the Fund had a capital loss carryforward of $75,868,122 of
which $35,161,555 expires in the year 2001, $20,009,696 expires in the year
2002, $19,803,737 expires in the year 2003, and $893,134 expires in the year
2004.
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. 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.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
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. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At April 30, 1998, the Fund had outstanding forward exchange currency
contracts, as follows:
U.S. $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
-------- ----------- ------- --------------
FORWARD EXCHANGE
CURRENCY BUY
CONTRACTS
Deutsche Marks,
settling 6/17/98 27,500 $ 15,133,755 $ 15,365,060 $ 231,305
New Zealand Dollars,
settling 6/17/98 7,000 3,903,900 3,873,072 (30,828)
FORWARD EXCHANGE
CURRENCY SALE
CONTRACTS
British Pounds,
settling 5/18/98 6,900 11,632,851 11,532,291 100,560
Deutsche Marks,
settling 8/20/98 218,597 122,199,965 122,559,109 (359,144)
French Francs,
settling 7/15/98 140,281 23,099,055 23,434,246 (335,191)
Italian Lira,
settling 6/26/98 88,961,436 49,423,020 50,253,106 (830,086)
12
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
U.S. $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
-------- ----------- ------- --------------
Japanese Yen,
settling 6/17/98 1,959,375 $15,239,279 $ 14,890,690 $ 348,589
New Zealand Dollars,
settling 6/17/98 109,497 60,004,580 60,584,478 (579,898)
Swedish Krona,
settling 6/16/98 225,599 29,109,512 29,180,154 (70,642)
$ (1,525,335)
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, 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 written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
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 an unfavorable change
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. There were no transactions in written options for the six months ended
April 30, 1998.
3. INTEREST RATE SWAP AGREEMENTS
The Fund enters into currency and interest rate swaps to protect itself from
foreign currency and interest rate fluctuations on the underlying debt
instruments. A swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the foreign securities or currencies.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
be received or paid in the interest period. Net interest received or paid on
these contracts is recorded as interest income (or as an offset to interest
income). Fluctuations in the value of swap contracts are recorded for financial
statement purposes as unrealized appreciation or depreciation of investments.
Realized gains and losses from terminated swaps are included in net realized
gains on investment transactions. There were no outstanding currency or
interest rate swap contracts at April 30, 1998.
NOTE E: CAPITAL STOCK
There are 3,600,000,000 shares of $.01 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each Class consists of 1,200,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, APRIL 30, 1998 OCTOBER 31,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 46,410,522 20,007,841 $ 351,026,045 $ 154,082,776
Shares issued in
reinvestment of
dividends 1,031,378 1,857,373 7,807,225 14,312,559
Shares converted
from Class B 6,389,346 17,843,352 48,406,991 136,483,754
Shares redeemed (53,568,297) (32,561,526) (405,125,298) (249,890,813)
Net increase 262,949 7,147,040 $ 2,114,963 $ 54,988,276
CLASS B
Shares sold 317,760 803,873 $ 2,407,101 $ 6,210,307
Shares issued in
reinvestment of
dividends 138,923 796,386 1,052,393 6,151,796
Shares converted
to Class A (6,389,346) (17,843,352) (48,406,991) (136,483,754)
Shares redeemed (750,840) (7,683,116) (5,699,141) (60,265,644)
Net decrease (6,683,503) (23,926,209) $ (50,646,638) $(184,387,295)
CLASS C
Shares sold 601,412 206,061 $ 4,542,660 $ 1,587,233
Shares issued in
reinvestment of
dividends 8,561 19,194 64,813 148,090
Shares redeemed (725,049) (733,128) (5,479,615) (5,649,594)
Net decrease (115,076) (507,873) $ (872,142) $ (3,914,271)
14
FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.59 $7.73 $7.47 $8.71 $9.25 $9.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income .26(a) .51(a) .60(a) .46(a) .93 .92
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions -0- (.04) .35 (.98) (.86) (.32)
Net increase (decrease) in net asset
value from operations .26 .47 .95 (.52) .07 .60
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.56) (.69) -0- -0- (.60)
Distributions in excess of net
investment income -0- (.05) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.72) (.61) -0-
Total dividends and distributions (.30) (.61) (.69) (.72) (.61) (.60)
Net asset value, end of period $7.55 $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on net
asset value (b) 3.42% 6.20% 13.23% (5.74)% .84% 6.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $433,525 $434,273 $386,545 $320,333 $593,677 $953,571
Ratio to average net assets of:
Expenses 1.31%(c) 1.28%(d) 1.29% 1.23% 1.13% 1.16%
Net investment income 6.74%(c) 6.54% 7.85% 7.39% 7.28% 8.26%
Portfolio turnover rate 33% 172% 208% 230% 109% 182%
</TABLE>
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ---------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.59 $7.73 $7.47 $8.71 $9.25 $9.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income .21(a) .45(a) .54(a) .41(a) .94 .87
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .02 (.04) .35 (.99) (.93) (.34)
Net increase (decrease) in net asset
value from operations .23 .41 .89 (.58) .01 .53
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.27) (.45) (.63) -0- -0- (.53)
Distributions in excess of net
investment income -0- (.10) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.66) (.55) -0-
Total dividends and distributions (.27) (.55) (.63) (.66) (.55) (.53)
Net asset value, end of period $7.55 $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on
net asset value (b) 3.03% 5.42% 12.34% (6.50)% .12% 5.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $35,822 $86,785 $273,109 $523,530 $1,003,633 $ 1,742,703
Ratio to average net assets of:
Expenses 2.01%(c) 1.99%(d) 2.00% 1.95% 1.85% 1.87%
Net investment income 5.87%(c) 5.83% 7.14% 6.69% 6.58% 7.57%
Portfolio turnover rate 33% 172% 208% 230% 109% 182%
</TABLE>
See footnote summary on page 17.
16
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS MAY 3, 1993(E)
ENDED YEAR ENDED OCTOBER 31, TO
APRIL 30, 1998 -------------------------------------------------- OCTOBER 31,
(UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.59 $7.73 $7.47 $8.71 $9.25 $9.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income .22(a) .45(a) .51(a) .39(a) .58 .28
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .01 (.04) .38 (.97) (.57) .05
Net increase (decrease) in net asset
value from operations .23 .41 .89 (.58) .01 .33
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.27) (.45) (.63) -0- -0- (.26)
Distributions in excess of net
investment income -0- (.10) -0- -0- -0- -0-
Tax return of capital -0- -0- -0- (.66) (.55) -0-
Total dividends and distributions (.27) (.55) (.63) (.66) (.55) (.26)
Net asset value, end of period $7.55 $7.59 $7.73 $7.47 $8.71 $9.25
TOTAL RETURN
Total investment return based on net
asset value (b) 3.03% 5.42% 12.35% (6.49)% .12% 3.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,099 $6,004 $10,031 $3,416 $8,136 $5,538
Ratio to average net assets of:
Expenses 2.02%(c) 1.99%(d) 1.98% 1.92% 1.83% 1.82%(c)
Net investment income 6.05%(c) 5.83% 7.15% 6.66% 6.50% 7.19%(c)
Portfolio turnover rate 33% 172% 208% 230% 109% 182%
</TABLE>
(a) Based on average shares outstanding.
(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 a
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of the total
investment return. Total investment return calculated for a period of less than
one year is not annualized.
(c) Annualized.
(d) Ratio reflects expense offset arrangement with the Transfer Agent. For the
year ended October 31, 1997, the net expense ratio was 1.27%, 1.98% and 1.98%
for Class A, B and C shares, respectively.
(e) Commencement of distribution.
17
75
<PAGE>
________________________________________________________________
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.
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
<PAGE>
_______________________________________________________________
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 IBCA, INC. BOND RATINGS
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
B-1
<PAGE>
as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior through
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. A securities are strong investments and in many cases
of highly active market, but are not so heavily protected as the
two upper classes or possibly are of similar security but less
quickly salable. As a class they are more sensitive in standing
and market to material changes in current earnings of the
company. With favoring conditions such securities are likely to
work into a high rating, but in occasional instances changes
cause the rating to be lowered.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category
utilized by S&P, which uses the number 1+, 1, 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.
B-2
<PAGE>
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 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
<PAGE>
_______________________________________________________________
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
C-1
<PAGE>
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
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.
C-2
<PAGE>
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes, that use of such contracts will benefit the
Fund, if the Adviser's investment judgment 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
C-3
<PAGE>
fully invested it may purchase a call option on a futures
contract to hedge against a market advance due to declining
interest rates.
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
C-4
<PAGE>
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.
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
C-5
<PAGE>
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
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
C-6
<PAGE>
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
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
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requirements than in the United States, and (v) lesser trading
volume.
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_______________________________________________________________
APPENDIX D: ADDITIONAL INFORMATION ABOUT
THE UNITED MEXICAN STATES
_______________________________________________________________
Territory and Population
The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
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 91.1 million, as reported by the National Institute
of Statistics, Geography and Informatics in 1995.
Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1995 of
16.4 million, 3.3 million and 2.9 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas, have resulted in a reduction of
the population growth rate to a projected 1.6% in 1997.
Government
The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
establishes 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 17 ministries, the office of the Federal Attorney
General, the Federal District Department and the office of the
Attorney General of the Federal District.
Federal 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, four from
each state and four from 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 elected by a system of
proportional representation. The Constitution provides that the
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President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.
Federal Judicial authority is vested in the Supreme
Court of Justice, the Circuit and District courts, and the
Federal Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.
Mexico has diplomatic relations with approximately 176
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States, the
International Monetary Fund (the "IMF"), the World Bank, the
International Finance Corporation, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
Mexico became a member of the Organization for Economic
Corporation and Development (the "OECD") on April 14, 1994 and
the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).
Politics
The Partido Revolucionario Institucional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and until the 1997 Congressional
elections held a majority in 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 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with
16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD had the
third largest representation with 10 seats in the Senate and 70
seats in the Chamber of Deputies. The PRI won two additional
seats pursuant to proportional representation and the PAN and the
PRD each won one seat in extraordinary elections held on
April 30, 1995. In the mid-term Congressional elections on
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July 6, 1997, the PRI lost its majority in the Chamber of
Deputies and now holds 239 of its 500 seats. Elections will next
be held by 2000 (Presidential).
At the beginning of 1994 armed insurgents attacked (and
in some cases temporarily seized control of) several villages in
the southern state of Chiapas. While the Government responded by
providing support to the local authorities and publicly offering
to negotiate a peaceful resolution that would address the
underlying concerns of the local population, the conflict
remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the
spring of 1994, but subsequently were broken off. In December of
1994, the Congress approved the creation of a Congressional peace
commission, to be formed by members of both chambers of Congress,
which would be responsible for mediating the negotiations between
the Government and the insurgents. By the end of 1994, however,
the insurgents had not agreed to resume negotiations and there
were additional incidents of civil unrest.
In the Spring of 1995, the Government renewed its
efforts to resolve its differences with the insurgents in the
Chiapas region by facilitating their participation in the
political process. On March 9, 1995, Congress approved a law
granting temporary amnesty to insurgents who participate in peace
talks with the Government, and on March 13, 1995, the law
establishing the framework for these peace talks took effect. On
September 11, 1995, the Government and the insurgents reached an
agreement pursuant to which both sides accepted a common
political agenda and procedural rules, and agreed to the creation
of a working committee regarding the rights of indigenous
peoples. This agreement was expected to represent a first step
toward a comprehensive peace agreement between the parties. The
working committee began negotiations on October 17, 1995 and
concluded a second round of meetings on November 19, 1995 having
made significant progress in laying out the framework for a
plenary session that took place from January 10 through
January 19, 1996. The attendees at the plenary session drafted
an agreement on a series of measures aimed at enhancing and
guaranteeing the rights of the indigenous population. The
agreement was signed on February 16, 1996. Talks with the
insurgents are currently on hold.
On August 28, 1996, a newly formed group calling itself
the Popular Revolutionary Army attacked military and police
targets in small cities of some southern states of Mexico. It is
generally believed that this group does not enjoy popular
support, and its terrorists attacks have been condemned by both
Government and nongovernment representatives. The Government has
announced the apprehension of several alleged members of the
group.
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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
include 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. There have
also been mushrooming revelations linking Mexico's drug cartels
with high Government and military officials. These revelations
could jeopardize Mexico's status as an ally of the U.S. in the
war against narcotics smuggling. While Mexico is currently
certified as an ally there is no assurance that the certification
will be maintained. A loss of certification could result in the
termination of U.S. economic assistance to Mexico.
On January 17, 1995, the major political parties of
Mexico entered into a new accord to further the opening of the
political process in Mexico. On July 25, 1996, the Mexican
Government announced certain proposed constitutional amendments
aimed at reforming the electoral law that were ratified on
August 22, 1996. The amendments, which had been agreed to by the
President and the leaders of the four major political parties
represented in Congress, among other things, exclude the
President from the Federal Electoral Institute, an autonomous
agency charged with organizing elections; eliminate the Electoral
Committee of the Chamber of Deputies, which had been responsible
for determining the validity of presidential elections; impose
limits on expenditures on political campaigns and controls on the
source of and uses of funds contributed to a political party;
grant voting rights to Mexican citizens residing abroad; reduce
from 315 to 300 the maximum number of congressional
representatives who may belong to a single party, and establish
an electoral procedure intended to result in a more proportional
representation in the Senate. The Mexican Supreme Court is
empowered to determine the constitutionality of electoral laws
and the Mexican Federal Electoral Court, which has been part of
the executive branch, will become part of the judicial branch.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary authority 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
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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
monetary policy matters. The amendment significantly strengthens
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 became a member of the GATT in 1986 and has been
a member of the WTO since January 1, 1995, the date on which the
WTO superseded the GATT. 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 as a step toward
establishing a free-trade area by the end of 1997, 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 steep decline in oil prices
in 1981 and 1982, together with high international interest rates
and the credit markets' unwillingness to refinance maturing
external Mexican credits, led in 1982 to record inflation,
successive devaluations of the peso by almost 500% in total, a
pubic sector deficit of 16.9% of GDP and, in August 1982, a
liquidity crisis that precipitated subsequent restructurings of a
large portion of the country's external debt. Through much of
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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."
The value of the 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), and 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.
A fixed exchange rate was maintained from February to
December 1988. Thereafter, under a Government implemented
devaluation schedule, the intended annual rate of devaluation was
gradually lowered from 16.7% in 1989 to 11.4% in 1990, 4.5% in
1991 and 2.4% in 1992. From October 1992 through December 20,
1994, the peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, which
was the maximum selling rate, depreciated at a daily rate of
0.0004 pesos (equal to approximately 4.5% per year), while the
floor of the band, i.e., the minimum buying rate, remained fixed.
Banco de Mexico agreed to intervene in the foreign exchange
market to the extent that the peso/dollar exchange rate reached
either the floor or the ceiling of the band.
RECENT DEVELOPMENTS. Beginning on January 1, 1994,
volatility in the peso/dollar exchange rate began to increase,
with the value of the peso relative to the dollar declining at
one point to an exchange rate of 3.375 pesos to the U.S. Dollar,
a decline of approximately 8.69% from the high of 3.1050 pesos
reached in early February. This increased volatility was
attributed to a number of political and economic factors,
including a growing current account deficit, the relative
overvaluation of the peso, investor reactions to the increase in
U.S. interest rates, lower than expected economic growth in
Mexico in 1993, uncertainty concerning the Mexican Presidential
elections in August 1994 and certain related developments.
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On December 20, 1994, increased pressure on the
peso/dollar exchange rate led Mexico to increase the ceiling of
the Banco de Mexico intervention band. That action proved
insufficient to address the concerns of foreign investors, and
the demand for foreign currency continued. On December 22, the
Government adopted a free exchange rate policy, eliminating the
intervention band and allowing the peso to float freely against
the dollar. The value of the peso continued to weaken relative
to the dollar in the following days. There was substantial
volatility in the peso/dollar exchange during the first quarter
of 1995, with the peso/dollar exchange rate falling to a low
point of 7.588 pesos to the U.S. Dollar on March 13, 1995. By
the end of April and through September 1995, the exchange rate
began to stabilize; however, the exchange rate began to show
signs of renewed volatility in October and November 1995. The
peso/dollar exchange rate fell to a low for the year of 8.14
pesos to the U.S. Dollar on November 13, 1995. The peso/dollar
exchange rate announced by Banco de Mexico on October 27, 1997
(to take effect on the second business day thereafter) for the
payment of obligations denominated in dollars and payable in
pesos was 8.39 pesos to the U.S. Dollar.
In order to address the adverse economic situation that
developed at the end of 1994, the Government announced in January
1995 a new economic program and a new accord among the Government
and the business and labor sectors of the economy, which,
together with a subsequent program announced in March 1995 and
the international support package described below, formed the
basis of Mexico's 1995 economic plan (the "1995 Economic Plan").
The objectives of the 1995 Economic Plan were to stabilize the
financial markets, lay the foundation for a return to lower
inflation rates over the medium-term, preserve Mexico's
international competitiveness, maintain the solvency of the
banking system and attempt to reassure long-term investors of the
strong underlying fundamentals of the Mexican economy.
The central elements of the 1995 Economic Plan were
fiscal reform, aimed at increasing public revenues through price
and tax adjustments and reducing public sector expenditures;
restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining
the current floating exchange rate policy; reduction of the
current account deficit; introduction of certain financial
mechanisms to enhance the stability of the banking sector; and
maintenance and enhancement of certain social programs, to ease
the transition for the poorest segments of society.
In addition to the actions described above, in the
beginning of 1995, the Government engaged in a series of
discussions with the IMF, the World Bank, the Inter-American
Development Bank and the U.S. and Canadian Governments in order
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to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial
stability to Mexico's economy. The proceeds of the loans and
other financial support have been and will be used to refinance
public sector short-term debt, primarily Tesobonos, to restore
the country's international reserves and to support the banking
sector. The largest component of the international support
package is up to $20 billion in support from the United States
pursuant to four related agreements entered into on February 21,
1995. During 1995, the U.S. Government and the Canadian
Government disbursed $13.7 billion of proceeds to Mexico under
these agreements and the North American Framework Agreement
("NAFA"), the proceeds of which were used by Mexico to refinance
maturing short-term debt, including Tesobonos and $1 billion of
short-term swaps under the NAFA.
Using resources made available through the international
support package as well as operations by Banco de Mexico, in 1995
Mexico altered its debt profile significantly. The outstanding
Tesobono balance was reduced from $29.2 billion at December 31,
1994 to $16.2 billion at the end of the first quarter of 1995,
$10.0 billion at the end of the second quarter, $2.5 billion at
the end of the third quarter and $246 million at the end of the
fourth quarter. By February 16, 1996, Mexico had no Tesobonos
outstanding, and has not issued Tesobonos since that date. As of
December 31, 1996, 100% of Mexico's net internal debt was
denominated and payable in pesos, as compared with only 44.3% of
such debt at the end of 1994.
On May 31, 1995, the Government announced the Plan
Nacional de Desarrollo 1995-2000 (1995-2000 National Development
Plan, or the "Development Plan"). The Development Plan covers
five topics: sovereignty; the rule of law; democratic
development; social development; and economic growth. The
fundamental strategic objective of the Development Plan is to
promote vigorous and sustainable economic growth. Among other
things, the Development Plan calls for steps to increase domestic
savings, preferences for channeling foreign investment into
direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive
activities and further deregulation of the economy.
On October 29, 1995, the Government announced the
establishment of a new accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para la Recuperacion Economica (Alliance for Economic
Recovery or "ARE"). The chief objectives of the ARE, which was
replaced by the ACE (as defined below), were to stimulate
economic recovery and job creation, and to strengthen the basis
for gradual and sustainable economic growth.
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On October 26, 1996, the Government announced the
establishment of another accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para el Crecimiento Economico (Alliance for Economic
Growth or "ACE"). The chief objectives of the ACE are to foster
sustainable economic growth by emphasizing (i) the export sector,
particularly through domestic and foreign investment, (ii) public
investment, particularly in the hydrocarbon, electricity,
transportation and water sectors, private consumption and
(iii) fiscal and monetary discipline in order to encourage an
environment of greater price stability and lower interest rates.
On June 3, 1997, the Government announced the Programa
Nacional de Financiamiento del Desarrollo 1997-2000 (National
Development Financing Program 1997-2000, or "PRONAFIDE"). The
PRONAFIDE's goals are to: (i) achieve, on average, real GDP
growth of 5% per year, (ii) generate more than one million jobs
per year, (iii) increase real wages and salaries, (iv) strengthen
the capacity of the Government to respond to social needs and
(v) avoid an economic crisis of the type suffered by Mexico
during the past 20 years.
The effects of the devaluation of the peso, as well as
the Government's response to that and related events, were
apparent in the performance of the Mexican economy during 1995
and 1996. Recent trade figures show a reversal of Mexico's trade
deficit during 1995. The value of imports (including in-bond
industries) decreased by 8.7% between 1994 and 1995, to $72.5
billion in 1995. Although the value of imports (including in-
bond industries) in 1996 increased approximately 23.4% from 1995,
to $89.5 billion, exports increased by almost the same amount.
During 1995, Mexico registered a $7.089 billion trade surplus,
its first annual trade surplus since 1989. Mexico registered a
surplus in its trade balance of $6.531 billion during 1996, down
approximately 7.9% from 1995. During 1996, Mexico's current
account balance registered a deficit of $1.922 billion, as
compared with a deficit of $1.577 billion in 1995.
Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1996, Mexico's international
reserves amounted to $17,509 million, as compared to $15,741
million at December 31, 1995, $6,148 million at December 31, 1994
and $24,538 million at December 31, 1993.
During 1995 real GDP decreased by 6.9%, as compared with
a growth rate of 3.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP continued to grow in the third and
fourth quarters of 1996, resulting in an overall GDP growth rate
of 5.1% for 1996. According to preliminary estimates, the GDP
continued to grow by 5.1% during the first quarter of 1997,
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compared to the first quarter of 1996. The Government currently
projects a 4.5% increase in the GDP for 1997. Although the
Mexican economy has stabilized, there can be no assurance that
the government's plan will lead to a full recovery.
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 GDP
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 will 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 1996 and for each of the six months ended June 1997.
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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 3.222 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.598 -- --
1997
January 7.839 7.831 -- --
February 7.784 7.793 -- --
March 7.891 7.963 -- --
April 7.927 7.904 -- --
May 7.909 7.906 -- --
June 7.958 7.947 -- --
* 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 wages and prices (the "1987 accord"). The
1987 accord included the implementation of restrictive fiscal and
monetary policies, the elimination of trade barriers and the
reduction of import tariffs. After substantive increases in
public sector prices and utility rates, price controls were
introduced.
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The 1987 accord was succeeded by a series of additional
accords, each of which continued to stress the moderation of
inflation, fiscal discipline and a gradual devaluation of the
peso. There was a gradual reduction in the number of goods and
services whose prices were covered by such accords. The two most
recent of these accords also incorporated a reduction in the
income tax rate applicable to corporations and certain self-
employed individuals from 35% to 34% and a reduction in the
withholding tax applicable to interest payments on publicly
issued external debt and external debt payable to certain
financial institutions from 15% to 4.9%. Under the later of
these two accords, tax benefits were proposed for workers
receiving salaries not exceeding twice the minimum wage and asset
taxes to be reduced to 1.8%. 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, 8.0% in 1993, and 7.1% in
1994.
Over the medium-term, the Government is committed to
reversing the decline in real wages experienced in the last
decade through control of inflation, a controlled gradual upward
adjustment of wages and a reduction in income taxes for the lower
income brackets. Nonetheless, the effect of the devaluation of
the peso and the Government's response to that event and related
developments caused a significant increase in inflation in 1995,
as well a decline in real wages for much of the population during
1995. Inflation during 1995 (as measured by the increase in the
National Consumer Price Index), was 52.0%, as compared with 7.1%
during 1994. Inflation during 1996 was 27.7%. In May 1997, the
monthly consumer inflation rate was 0.9%, the first time the
monthly inflation rate was below 1% since December 1994. The
inflation rate during the first six months of 1997 was 8.7%,
compared to 15.3% during the first six months of 1996.
CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for the year
ended December 31 for the years 1981 through 1996 and for the six
months ended June 30, 1997.
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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................................... 9.7
1990................................... 29.9
1991................................... 18.8
1992................................... 11.9
1993................................... 8.0
1994................................... 7.1
1995................................... 52.0
1996................................... 27.7
1997(1)................................ 8.7
(1) For the six months ended June 30.
Source: Banco de Mexico.
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MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1990 through 1996 at historical and constant prices.
Gross Change from
Gross Domestic Product Prior Year at
Domestic Product at 1980 Prices(1) Constant Prices
________________ _________________ _______________
(millions of Mexican New Pesos) (percentage)
1991. . . . 865,166 5,463 3.6
1992. . . . 1,019,156 5,616 2.8
1993. . . . 1,145,382 5,659 0.7
1994. . 1,272,799 5,858 3.5
1995(2). 1,604,368 5,452 (6.9)
1996(2)(3) 2,285,266 1,270.4(4) 3.0
(1) Constant peso with purchasing power at December 31, 1980,
expressed in new pesos.
(2) Preliminary.
(3) Annualized.
(4) Constant peso with purchasing power at December 31, 1993.
Source: Ministry of Finance and Public Credit
D-14
<PAGE>
INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day Cetes, the
average weighted cost of term deposits for commercial banks
("CPP"), the average interest rate ("TIIP") and the equilibrium
interest rate ("TIIE") for the periods listed below:
Average Cetes and Interest Rates
_________________________________
28-Day 91-Day
Cetes Cetes CPP TIIP TIIE
_____ _____ _____ _____ _____
1990:
Jan.-June 41.2 40.7 43.2% _____ _____
July-Dec. 28.3 29.4 31.0 _____ _____
1991:
Jan.-June 21.2 21.7 24.3 _____ _____
July-Dec. 17.3 18.0 20.8 _____ _____
1992:
Jan.-June 13.8 13.8 16.9 _____ _____
July-Dec. 17.4 18.0 20.7 _____ _____
1993:
Jan.-June 16.4 17.3 20.9 20.4(1) _____
July-Dec. 13.5 13.6 16.2 16.1 _____
1994:
Jan.-June 13.0 13.5 14.2 15.3 _____
July-Dec. 15.2 15.7 16.8 20.4 _____
1995:
Jan.-June 55.0 54.3 49.6 63.6 71.2(2)
July-Dec. 41.9 42.2 40.7 44.5 44.5
1996:
Jan.-June 35.4 37.2 34.5 37.3 37.2
July-Dec. 27.4 28.6 26.9 30.2 30.1
1997:
January 23.6 24.6 24.1 25.9 26.0
February 19.8 22.0 21.1 22.2 22.1
March 21.7 22.3 21.1 24.0 24.0
April 21.4 22.4 21.1 23.8 24.0
May 18.4 20.6 18.7 20.6 20.7
June 20.2 21.4 18.8 22.5 22.5
(1) February-June average
(2) Average for the last two weeks of March
Source: Banco de Mexico
D-15
<PAGE>
Pro Forma Combined Financial
Information as of June 30, 1998
The following unaudited pro forma combined financial
information relates to the acquisition of the assets and
liabilities of Alliance World Income Trust, Inc. ("World Income")
and Alliance Short-Term Multi-Market Trust, Inc. ("Short-Term
Multi-Market") by and in exchange for shares of Alliance Multi-
Market Strategy Trust, Inc. ("Multi-Market Strategy") (the
"Transactions"). The information gives effect to the
Transactions as if they had occurred as of July 1, 1998 and
consists of a statement of the pro forma combined portfolio of
investments, a statement of assets and liabilities and a
statement of operations. The pro forma combined results of
operations are not indicative of future operations or actual
results had the combination been consummated as of July 1, 1998.
This unaudited information should be read in conjunction with the
separate financial statements of World Income, Short-Term Multi-
Market and Multi-Market Strategy.
D-16
<PAGE>
ALLIANCE WORLD INCOME TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
PRO-FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1998
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
- -------------------------------------------------------------------------
AUSTRALIA-7.2%
DEBT OBLIGATIONS-7.2%
Deutsche Bank AG
6.00%, 7/05/00 AU$ 8,000 $ 4,993,313
State Bank of South Wales
8.63%, 8/20/01 6,000 4,015,011
Total Australian Securities
(cost $10,461,572) 9,008,324
DENMARK-6.4%
GOVERNMENT OBLIGATION-6.4%
Kingdom of Denmark
9.00%, 11/15/00
(cost $9,941,782) DKK 50,000 8,022,725
FRANCE-4.0%
GOVERNMENT OBLIGATION-4.0%
Government of France
7.75%, 4/12/00
(cost $5,007,641) FRF 28,000 4,926,591
GERMANY-16.2%
DEBT OBLIGATIONS-11.9%
Bayerische Landesbank Girozentrale
5.75%, 2/28/01 US$ 5,000 4,991,765
Bayerische Vereinsbank Finansiering
5.25%, 5/17/01 DEM 7,400 4,207,694
Deutsche Hypothekenbank
5.75%, 10/02/01 10,000 5,766,510
------------
14,965,969
GOVERNMENT OBLIGATION-4.3%
Government of Germany
8.00%, 7/22/02 8,500 5,347,128
Total German Securities
(cost $21,838,906) 20,313,097
ITALY-11.6%
GOVERNMENT OBLIGATIONS-11.6%
Republic of Italy
6.00%, 2/15/00 ITL 10,400,000 5,997,947
6.25%, 5/15/02 14,400,000 8,574,841
Total Italian Securities
(cost $14,059,781) 14,572,788
MEXICO-6.4%
GOVERNMENT OBLIGATION-6.4%
Mexican Treasury Bill
17.95%, 6/03/99 (a)
(cost $8,361,538) MXP 89,121 8,083,839
NORWAY-4.1%
GOVERNMENT OBLIGATION-4.1%
Kingdom of Norway
7.00%, 5/31/01
(cost $6,198,983) NOK 38,000 5,177,772
POLAND-5.3%
GOVERNMENT OBLIGATION-5.3%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)
(cost $6,844,104) PLN 24,600 6,703,447
SWEDEN-8.3%
GOVERNMENT OBLIGATIONS-8.3%
Kingdom of Sweden
5.50%, 4/12/02 SEK 40,000 5,186,178
10.25%, 5/05/03 34,000 5,286,147
Total Swedish Securities
(cost $10,715,249) 10,472,325
UNITED STATES-29.1%
CERTIFICATES OF DEPOSIT-3.6%
Deutsche Bank AG
5.75%, 7/29/98 US$ 1,500 1,500,000
Morgan Guaranty Trust Co.
5.87%, 8/06/98 1,500 1,501,034
Westdeutsche Landesbank
5.72%, 8/26/98 1,500 1,500,000
------------
4,501,034
DEBT OBLIGATION-3.2%
Morgan Guaranty Trust Co.
6.38%, 3/26/01 4,000 4,046,492
GOVERNMENT AGENCY OBLIGATION-3.2%
FNMA Global
7.25%, 6/20/02 NZ$ 7,850 4,033,688
1
PORTFOLIO OF INVESTMENTS ALLIANCE WORLD INCOME TRUST
PRO-FORMA COMBINED (CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
- -------------------------------------------------------------------------
GOVERNMENT OBLIGATION-4.5%
U.S. Treasury Note
6.50%, 5/31/02 US$ 5,500 $ 5,683,904
TIME DEPOSITS-14.6%
Dresdner Bank
5.75%, 7/01/98 11,500 11,500,000
Toronto Dominion
5.88%, 7/01/98 6,800 6,800,000
-------------
18,300,000
Total United States Securities
(cost $37,847,953) 36,565,118
TOTAL INVESTMENTS-98.6%
(cost $131,277,509) $123,846,026
Other assets less liabilities-1.4% 1,677,626
NET ASSETS-100% $125,523,652
(a) Annualized yield to maturity at purchase date.
Glossary:
FNMA - Federal National Mortgage Association.
See notes to pro-forma combined financial statements.
2
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
WORLD MULTI-MARKET PRO-FORMA
INCOME TRUST STRATEGY TRUST ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value $17,833,563 $106,012,463 $ -0- $123,846,026
Cash, at value 35,182 17,237 -0- 52,419
Receivable for investment securities sold 11,501,757 6,901,078 -0- 18,402,835
Interest receivable 200,592 2,224,962 -0- 2,425,554
Receivable for capital stock 10 10,901 -0- 10,911
Prepaid expenses -0- 3,796 -0- 3,796
Total assets 29,571,104 115,170,437 -0- 144,741,541
LIABILITIES
Payable for investment securities purchased 11,500,000 6,800,000 -0- 18,300,000
Payable for capital stock redeemed 43,520 182,006 -0- 225,526
Unrealized depreciation of
forward currency contracts (490) (81,790) -0- (82,280)
Dividend payable 24,087 294,664 -0- 318,751
Advisory fee payable 7,613 54,144 -0- 61,757
Distribution fee payable 9,486 31,993 -0- 41,479
Accrued expenses and other liabilities 149,870 202,786 -0- 352,656
Total liabilities 11,734,086 7,483,803 -0- 19,217,889
NET ASSETS $17,837,018 $107,686,634 $ -0- $125,523,652
</TABLE>
See notes to pro-forma combined financial statements.
3
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1998 ALLIANCE WORLD INCOME TRUST
(UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
WORLD MULTI-MARKET PRO-FORMA
INCOME TRUST STRATEGY TRUST ADJUSTMENT(S) COMBINED*
--------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,824,997 $ 9,819,945 $ -0- $11,644,942
EXPENSES
Advisory fee 128,695(a) 733,382 28,855 890,932(b)
Distribution fee - Class A -0- 288,364 -0- 288,364(c)
Distribution fee - Class B -0- 250,630 -0- 250,630(d)
Distribution fee - Class C 178,600(a) 10,393 84,049 273,042(d)
Transfer agency 37,223 338,297 (30,520) 345,000(e)
Custodian 116,687 200,433 (101,620) 215,500(f)
Administrative fee 112,174 128,580 (116,754) 124,000(g)
Audit and legal 89,981 92,657 (83,638) 99,000(e)
Printing 17,768 49,156 3,076 70,000(e)
Registration 14,709 42,631 (11,340) 46,000(e)
Directors fees 20,886 23,706 (14,592) 30,000(e)
Miscellaneous 1,784 20,558 (16,842) 5,500(e)
Total expenses 718,507 2,178,787 (259,326) 2,637,968
Net investment income 1,106,490 7,641,158 259,326 9,006,974
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (6,382) (417,840) -0- (424,222)
Net realized gain on foreign currency
transactions 55,948 4,813,871 -0- 4,869,819
Net change in unrealized appreciation
(depreciation) of:
Investments 187 (1,358,610) -0- (1,358,423)
Foreign currency (121,968) (2,647,824) -0- (2,769,792)
Net gain (loss) on investments and
foreign currency transactions (72,215) 389,597 -0- 317,382
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS $ 1,034,275 $ 8,030,755 $ 259,326 $ 9,324,356
</TABLE>
* Based on net assets as of 6/30/98.
(a) Net of fees waived by adviser.
(b) Advisory fee based on an annual rate of .60% of the total combined average
net assets for the twelve months ended June 30, 1998.
(c) Distribution fee based on an annual rate of .30% of the total combined
average net assets for the twelve months ended June 30, 1998.
(d) Distribution fee based on an annual rate of 1.00% of the total combined
average net assets for the twelve months ended June 30, 1998.
(e) Expenses are based on one fund.
(f) Custodian fees are based on monthly fixed fees and on average net assets.
(g) Actual fee per year.
See notes to pro-forma combined financial statements.
4
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE A: GENERAL
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Alliance World Income Trust by Alliance Multi-Market Strategy
Trust ("the Fund") pursuant to a plan of reorganization. The acquisition would
be accomplished by a tax-free exchange of the assets of Alliance World Income
Trust for shares of Alliance Multi-Market Strategy Trust.
The Pro-Forma Statements of Investments, of Assets and Liabilities and of
Operations should be read in conjunction with the historical financial
statements of the Fund, included in the Statement of Additional Information.
The Pro-Forma Statement of Operations has been prepared under the assumption
that certain expenses would be lower for the combined entity as a result of the
reorganization.
NOTE B: SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price, or if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as
obtained on that day from one or more dealers regularly making a market in
that security. Securities traded on the over-the-counter market, securities
listed on a foreign securities exchange whose operations are similar to the
U.S. over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost, unless this method does not represent fair value. Securities for which
current market quotations are not readily available are valued at their fair
value as determined in good faith by, or in accordance with procedures approved
by, the Board of Directors. Fixed income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to
reflect the fair market value of such securities.
1. 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 realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
2. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
3. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. At June 30, 1998, the Fund's cost of investments for federal income
tax purposes was, on a pro-forma combined basis, substantially the same as for
financial reporting purposes.
5
D-17
<PAGE>
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET
STRATEGY TRUST
PRO-FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1998
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED ALLIANCE SHORT-TERM MULTI-MARKET TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
AUSTRALIA-1.5%
DEBT OBLIGATIONS-1.5%
Deutsche Bank AG 6.00%, 7/05/00 AU$ 8,000 $ 4,993,313
State Bank of South Wales
8.63%, 8/20/01 6,000 4,015,011
Total Australian Securities
(cost $10,461,572) 9,008,324
DENMARK-8.7%
GOVERNMENT OBLIGATION-8.7%
Kingdom of Denmark
9.00%, 11/15/00
(cost $51,317,662) DKK 308,000 49,419,983
FRANCE-4.0%
GOVERNMENT OBLIGATION-4.0%
Government of France
7.75%, 4/12/00
(cost $22,892,074) FRF 128,000 22,521,559
GERMANY-17.1%
DEBT OBLIGATIONS-9.7%
Bayerische Landesbank
6.00%, 10/15/98 US$ 20,000 20,007,600
Bayerische Landesbank
Girozentrale
5.75%, 2/28/01 5,000 4,991,765
Bayerische Vereinsbank Finansiering
5.25%, 5/17/01 DEM 7,400 4,207,694
Bremer Landesbank
6.38%, 12/29/99 US$ 19,500 19,591,065
Deutsche Hypothekenbank
5.75%, 10/02/01 DEM 10,000 5,766,510
-------------
54,564,634
GOVERNMENT OBLIGATIONS-7.4%
Government of Germany
8.00%, 7/22/02 8,500 5,347,128
5.75%, 8/22/00 64,000 36,710,399
-------------
42,057,527
Total German Securities
(cost $99,077,645) 96,622,161
ITALY-11.7%
GOVERNMENT OBLIGATIONS-11.7%
Republic of Italy
6.00%, 2/15/00 ITL 99,400,000 57,326,535
6.25%, 5/15/02 14,400,000 8,574,841
Total Italian Securities
(cost $64,719,459) 65,901,376
MEXICO-6.1%
GOVERNMENT OBLIGATIONS-6.1%
Mexican Treasury Bills
17.325%, 3/11/99 (a) MXP 116,630 11,130,754
17.95%, 6/03/99 (a) 77,930 7,068,804
20.05%, 9/24/98 (a) 48,506 5,131,272
23.30%, 1/14/99 (a) 113,113 11,172,853
Total Mexican Securities
(cost $37,460,584) 34,503,683
NETHERLANDS-2.3%
DEBT OBLIGATION-2.3%
Arkaig Finance FRN
5.66%, 3/19/99
(cost $12,999,488) US$ 13,000 12,998,700
NEW ZEALAND-5.9%
DEBT OBLIGATION-3.6%
International Bank for
Reconstruction & Development
7.00%, 9/18/00 NZ$ 39,600 20,348,287
GOVERNMENT OBLIGATION-2.3%
Government of New Zealand
6.50%, 2/15/00 25,060 12,903,051
Total New Zealand Securities
(cost $41,173,298) 33,251,338
NORWAY-5.2%
GOVERNMENT OBLIGATIONS-5.2%
Kingdom of Norway
9.00%, 1/31/99 NOK 180,000 24,031,616
7.00%, 5/31/01 38,000 5,177,772
Total Norwegian Securities
(cost $35,467,017) 29,209,388
1
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED ALLIANCE SHORT-TERM MULTI-MARKET TRUST
(CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
POLAND-5.2%
GOVERNMENT OBLIGATION-5.2%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)
(cost $29,935,998) PLN 107,600 $29,320,769
SPAIN-4.5%
GOVERNMENT OBLIGATION-4.5%
Government of Spain
6.75%, 4/15/00
(cost $25,260,748) ESP 3,705,000 25,241,892
SWEDEN-6.7%
GOVERNMENT OBLIGATIONS-6.7%
Kingdom of Sweden
5.50%, 4/12/02 SEK 40,000 5,186,178
10.25%, 5/05/00 198,000 27,403,057
10.25%, 5/05/03 34,000 5,286,147
Total Swedish Securities
(cost $39,493,518) 37,875,382
UNITED STATES-19.9%
DEBT OBLIGATIONS-3.4%
Federal Business Development Bank
6.38%, 5/21/99 15,000 15,058,755
Morgan Guaranty Trust Co.
6.38%, 3/26/01 4,000 4,046,492
-------------
19,105,247
GOVERNMENT AGENCY OBLIGATIONS-4.0%
FNMA Global
7.00%, 9/26/00 NZ$ 36,000 18,568,502
7.25%, 6/20/02 US$ 7,850 4,033,688
-------------
22,602,190
GOVERNMENT OBLIGATION-1.0%
U.S. Treasury Note
6.50%, 5/31/02 5,500 5,683,904
TIME DEPOSITS-11.5%
Dresdner Bank
5.75%, 7/01/98 14,500 14,500,000
Republic National Bank
5.50%, 7/01/98 14,600 14,600,000
Toronto Dominion
5.88%, 7/01/98 21,400 21,400,000
Wachovia National Bank
5.70%, 7/01/98 14,600 14,600,000
-------------
65,100,000
Total United States Securities
(cost $117,926,550) 112,491,341
TOTAL INVESTMENTS-98.8%
(cost $588,185,613) 558,365,896
Other assets less liabilities-1.2% 6,498,040
NET ASSETS-100% $564,863,936
(a) Annualized yield to maturity at purchase date.
Glossary of Terms:
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
See notes to pro-forma combined financial statements.
2
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE SHORT-TERM MULTI-MARKET TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
SHORT-TERM MULTI-MARKET PRO-FORMA
MULTI-MARKET TRUST STRATEGY TRUST ADJUSTMENTS COMBINED
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value $452,353,433 $106,012,463 $ -0- $558,365,896
Cash, at value 31,809 17,237 -0- 49,046
Receivable for investment securities sold 64,810,029 6,901,078 -0- 71,711,107
Interest receivable 8,990,612 2,224,962 -0- 11,215,574
Receivable for capital stock 79,696 10,901 -0- 90,597
Prepaid expenses 15,119 3,796 -0- 18,915
Total assets 526,280,698 115,170,437 -0- 641,451,135
LIABILITIES
Payable for investment securities purchased 58,300,000 6,800,000 -0- 65,100,000
Payable for capital stock redeemed 6,771,127 182,006 -0- 6,953,133
Unrealized appreciation (depreciation)
of forward currency contracts 2,530,068 (81,790) -0- 2,448,278
Dividend payable 1,007,650 294,664 -0- 1,302,314
Advisory fee payable 211,177 54,144 -0- 265,321
Distribution fee payable 135,162 31,993 -0- 167,155
Accrued expenses and other liabilities 148,212 202,786 -0- 350,998
Total liabilities 69,103,396 7,483,803 -0- 76,587,199
NET ASSETS $457,177,302 $107,686,634 $ -0- $564,863,936
</TABLE>
See notes to pro-forma combined financial statements.
3
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1998 ALLIANCE SHORT-TERM MULTI-MARKET TRUST
(UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
SHORT-TERM MULTI-MARKET PRO-FORMA
MULTI-MARKET TRUST STRATEGY TRUST ADJUSTMENTS COMBINED*
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 40,200,475 $ 9,819,945 $ -0- $ 50,020,420
EXPENSES
Advisory fee 2,824,665 733,382 256,552 3,814,599(a)
Distribution fee - Class A 1,299,772 288,364 -0- 1,588,136(b)
Distribution fee - Class B 745,656 250,630 -0- 996,286(c)
Distribution fee - Class C 57,196 10,393 -0- 67,589(c)
Transfer agency 1,297,747 338,297 (44,044) 1,592,000(d)
Custodian 447,880 200,433 2,087 650,400(e)
Printing 174,263 49,156 (65,419) 158,000(d)
Administrative fee 161,649 128,580 (166,229) 124,000(f)
Audit and legal 140,500 92,657 (134,157) 99,000(d)
Registration 59,160 42,631 (46,791) 55,000(d)
Directors fees 25,180 23,706 (18,886) 30,000(d)
Miscellaneous 46,427 20,558 (48,985) 18,000(d)
Total expenses 7,280,095 2,178,787 (265,872) 9,193,010
Net investment income 32,920,380 7,641,158 265,872 40,827,410
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURENCY TRANSACTIONS
Net realized loss on investment transactions (3,286,850) (417,840) -0- (3,704,690)
Net realized gain on foreign currency
transactions 7,579,072 4,813,871 -0- 12,392,943
Net change in unrealized appreciation
(depreciation) of:
Investments 483,584 (1,358,610) -0- (875,026)
Foreign currency (9,749,966) (2,647,824) -0- (12,397,790)
Net gain (loss) on investments and
foreign currency transactions (4,974,160) 389,597 -0- (4,584,563)
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 27,946,220 $8,030,755 $ 265,872 $ 36,242,847
</TABLE>
* Based on net assets as of 6/30/98.
(a) Advisory fee based on an annual rate of .60% of the total combined average
net assets for the twelve months ended June 30, 1998.
(b) Distribution fee based on an annual rate of .30% of the total combined
average net assets for the twelve months ended June 30, 1998.
(c) Distribution fee based on an annual rate of 1.00% of the total combined
average net assets for the twelve months ended June 30, 1998.
(d) Expenses are based on one fund.
(e) Custodian fees are based on monthly fixed fees and on average net assets.
(f) Actual fee per year.
See notes to pro-forma combined financial statements.
4
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE A: GENERAL
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Alliance Short-Term Multi-Market Trust by Alliance Multi-Market
Strategy Trust ("the Fund") pursuant to a plan of reorganization. The
acquisition would be accomplished by a tax-free exchange of the assets of
Alliance Short-Term Multi-Market Trust for shares of Alliance Multi-Market
Strategy Trust.
The Pro-Forma Statements of Investments, of Assets and Liabilities and of
Operations should be read in conjunction with the historical financial
statements of the Fund, included in the Statement of Additional Information.
The Pro-Forma Statement of Operations has been prepared under the assumption
that certain expenses would be lower for the combined entity as a result of the
reorganization.
NOTE B: SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price, or if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost, unless this method does not represent fair value. Securities for which
current market quotations are not readily available are valued at their fair
value as determined in good faith by, or in accordance with procedures approved
by, the Board of Directors. Fixed income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to
reflect the fair market value of such securities.
1. 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 realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
2. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
3. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. At June 30, 1998, the Fund's cost of investments for federal income
tax purposes was, on a pro-forma combined basis, substantially the same as for
financial reporting purposes.
5
D-18
<PAGE>
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE WORLD INCOME TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
PRO-FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1998
PORTFOLIO OF INVESTMENTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
PRO-FORMA COMBINED ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
AUSTRALIA-1.5%
DEBT OBLIGATIONS-1.5%
Deutsche Bank AG
6.00%, 7/5/00 AU$ 8,000 $ 4,993,313
State Bank of South Wales
8.63%, 8/20/01 6,000 4,015,011
Total Australian Securities
(cost $10,461,572) 9,008,324
DENMARK-8.5%
GOVERNMENT OBLIGATION-8.5%
Kingdom of Denmark
9.00%, 11/15/00
(cost $51,317,662) DKK 308,000 49,419,983
FRANCE-3.9%
GOVERNMENTOBLIGATION-3.9%
Government of France
7.75%, 4/12/00
(cost $22,892,074) FRF 128,000 22,521,559
GERMANY-16.6%
DEBT OBLIGATIONS-9.4%
Bayerische Landesbank
6.00%, 10/15/98 US$ 20,000 20,007,600
Bayerische Landesbank Girozentrale
5.75%, 2/28/01 5,000 4,991,765
Bayerische Vereinsbank Finansiering
5.25%, 5/17/01 DEM 7,400 4,207,694
Bremer Landesbank
6.38%, 12/29/99 US$ 19,500 19,591,065
Deutsche Hypothekenbank
5.75%, 10/02/01 DEM 10,000 5,766,510
-------------
54,564,634
GOVERNMENT OBLIGATIONS-7.2%
Government of Germany
8.00%, 7/22/02 8,500 5,347,128
5.75%, 8/22/00 64,000 36,710,399
-------------
42,057,527
Total German Securities
(cost $99,077,645) 96,622,161
ITALY-11.3%
GOVERNMENT OBLIGATIONS-11.3%
Republic of Italy
6.00%, 2/15/00 ITL 99,400,000 57,326,535
6.25%, 5/15/02 14,400,000 8,574,841
Total Italian Securities
(cost $64,719,459) 65,901,376
MEXICO-6.1%
GOVERNMENT OBLIGATIONS-6.1%
Mexican Treasury Bills
17.325%, 3/11/99 (a) MXP 116,630 11,130,754
17.95%, 6/03/99 (a) 89,121 8,083,839
20.05%, 9/24/98 (a) 48,506 5,131,272
23.30%, 1/14/99 (a) 113,113 11,172,853
Total Mexican Securities
(cost $38,510,488) 35,518,718
NETHERLANDS-2.2%
DEBT OBLIGATION-2.2%
Arkaig Finance FRN
5.66%, 3/19/99
(cost $12,999,488) US$ 13,000 12,998,700
NEW ZEALAND-5.7%
DEBT OBLIGATION-3.5%
International Bank for
Reconstruction & Development
7.00%, 9/18/00 NZ$ 39,600 20,348,287
GOVERNMENTOBLIGATION-2.2%
Government of NewZealand
6.50%, 2/15/00 25,060 12,903,051
Total New Zealand Securities
(cost $41,173,298) 33,251,338
NORWAY-5.0%
GOVERNMENT OBLIGATIONS-5.0%
Kingdom of Norway
9.00%, 1/31/99 NOK 180,000 24,031,616
7.00%, 5/31/01 38,000 5,177,772
Total Norwegian Securities
(cost $35,467,017) 29,209,388
1
PORTFOLIO OF INVESTMENTS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
PRO-FORMA COMBINED ALLIANCE WORLD INCOME TRUST
(CONTINUED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
POLAND-5.2%
GOVERNMENT OBLIGATION-5.2%
Government of Poland Treasury Bill
23.05%, 9/30/98 (a)
(cost $30,770,645) PLN 110,600 $ 30,138,263
SPAIN-4.3%
GOVERNMENT OBLIGATION-4.3%
Government of Spain
6.75%, 4/15/00
(cost $25,260,748) ESP 3,705,000 25,241,892
SWEDEN-6.5%
GOVERNMENT OBLIGATIONS-6.5%
Kingdom of Sweden
5.50%, 4/12/02 SEK 40,000 5,186,178
10.25%, 5/05/00 198,000 27,403,057
10.25%, 5/05/03 34,000 5,286,147
Total Swedish Securities
(cost $39,493,518) 37,875,382
UNITED STATES-22.1%
CERTIFICATES OF DEPOSIT-0.8%
Deutsche Bank AG
5.75%, 7/29/98 US$ 1,500 1,500,000
Morgan Guaranty Trust Co.
5.87%, 8/06/98 1,500 1,501,034
Westdeutsche Landesbank
5.72%, 8/26/98 1,500 1,500,000
-------------
4,501,034
DEBT OBLIGATIONS-3.3%
Federal Business Development Bank
6.38%, 5/21/99 US$ 15,000 15,058,755
Morgan Guaranty Trust Co.
6.38%, 3/26/01 4,000 4,046,492
-------------
19,105,247
GOVERNMENT AGENCY OBLIGATIONS-3.9%
FNMA Global
7.00%, 9/26/00 NZ$ 36,000 18,568,502
7.25%, 6/20/02 7,850 4,033,688
-------------
22,602,190
GOVERNMENT OBLIGATION-1.0%
U.S. Treasury Note
6.50%, 5/31/02 US$ 5,500 5,683,904
TIME DEPOSITS-13.1%
Dresdner Bank
5.75%, 7/01/98 26,000 26,000,000
Republic National Bank
5.50%, 7/01/98 14,600 14,600,000
Toronto Dominion
5.88%, 7/01/98 21,400 21,400,000
Wachovia National Bank
5.70%, 7/01/98 14,600 14,600,000
-------------
76,600,000
Total United States Securities
(cost $133,927,584) 128,492,375
TOTAL INVESTMENTS-98.9%
(cost $606,071,198) 576,199,459
Other assets less liabilities-1.1% 6,501,495
NET ASSETS-100% $582,700,954
(a) Annualized yield to maturity at purchase date.
Glossary of Terms:
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
See notes to pro-forma combined financial statements.
2
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
ALLIANCE SHORT-TERM MULTI-MARKET
WORLD INCOME MULTI-MARKET STRATEGY PRO-FORMA
TRUST TRUST TRUST ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value $ 17,833,563 $452,353,433 $106,012,463 $ -0- $576,199,459
Cash, at value 35,182 31,809 17,237 -0- 84,228
Receivable for investment securities sold 11,501,757 64,810,029 6,901,078 -0- 83,212,864
Interest receivable 200,592 8,990,612 2,224,962 -0- 11,416,166
Receivable for capital stock 10 79,696 10,901 -0- 90,607
Prepaid expenses -0- 15,119 3,796 -0- 18,915
Total assets 29,571,104 526,280,698 115,170,437 -0- 671,022,239
LIABILITIES
Payable for investment securities purchased 11,500,000 58,300,000 6,800,000 -0- 76,600,000
Payable for capital stock redeemed 43,520 6,771,127 182,006 -0- 6,996,653
Unrealized appreciation (depreciation)
of currency contracts (490) 2,530,068 (81,790) -0- 2,447,788
Dividend payable 24,087 1,007,650 294,664 -0- 1,326,401
Advisory fee payable 7,613 211,177 54,144 -0- 272,934
Distribution fee payable 9,486 135,162 31,993 -0- 176,641
Accrued expenses and other liabilities 149,870 148,212 202,786 -0- 500,868
Total liabilities 11,734,086 69,103,396 7,483,803 -0- 88,321,285
NET ASSETS $ 17,837,018 $457,177,302 $107,686,634 $ -0- $582,700,954
</TABLE>
See notes to pro-forma combined financial statements.
3
STATEMENT OF OPERATIONS ALLIANCE SHORT-TERM MULTI-MARKET TRUST
TWELVE MONTHS ENDED JUNE 30, 1998 ALLIANCE WORLD INCOME TRUST
(UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
ALLIANCE SHORT-TERM MULTI-MARKET
WORLD INCOME MULTI-MARKET STRATEGY PRO-FORMA
TRUST TRUST TRUST ADJUSTMENTS COMBINED*
--------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,824,997 $ 40,200,475 $ 9,819,945 $ -0- $ 51,845,417
EXPENSES
Advisory fee 128,695(a) 2,824,665 733,382 285,446 3,972,188(b)
Distribution fee - Class A -0- 1,299,772 288,364 -0- 1,588,136(c)
Distribution fee - Class B -0- 745,656 250,630 -0- 996,286(d)
Distribution fee - Class C 178,600(a) 57,196 10,393 84,047 330,236(d)
Transfer agency 37,223 1,297,747 338,297 (41,267) 1,632,000(e)
Custodian 116,687 447,880 200,433 (114,600) 650,400(g)
Printing 17,768 174,263 49,156 (76,187) 165,000(e)
Administrative fee 112,174 161,649 128,580 (278,403) 124,000(f)
Audit and legal 89,981 140,500 92,657 (224,138) 99,000(e)
Registration 14,709 59,160 42,631 (61,500) 55,000(e)
Directors fees 20,886 25,180 23,706 (39,772) 30,000(e)
Miscellaneous 1,784 46,427 20,558 (50,769) 18,000(e)
Total expenses 718,507 7,280,095 2,178,787 (517,143) 9,660,246
Net investment income 1,106,490 32,920,380 7,641,158 517,143 42,185,171
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments transactions (6,382) (3,286,850) (417,840) -0- (3,711,072)
Net realized gain on foreign currency
transactions 55,948 7,579,072 4,813,871 -0- 12,448,891
Net change in unrealized appreciation
(depreciation) of:
Investments 187 483,584 (1,358,610) -0- (874,839)
Foreign currency (121,968) (9,749,966) (2,647,824) -0- (12,519,758)
Net gain (loss) on investments and foreign
currency transactions (72,215) (4,974,160) 389,597 -0- (4,656,778)
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 1,034,275 $ 27,946,220 $ 8,030,755 $ 517,143 $ 37,528,393
</TABLE>
* Based on net assets as of 6/30/98.
(a) Net of fees waived by adviser.
(b) Advisory fee based on an annual rate of .60% of the total combined average
net assets for the twelve months ended June 30, 1998.
(c) Distribution fee based on an annual rate of .30% of the total combined
average net assets for the twelve months ended June 30, 1998.
(d) Distribution fee based on an annual rate of 1.00% of the total combined
average net assets for the twelve months ended June 30, 1998.
(e) Expenses are based on one fund.
(f) Actual fee per year.
(g) Custodian fees are based on monthly fixed fees and on average net assets.
See notes to pro-forma combined financial statements.
4
NOTES TO PRO-FORMA COMBINED ALLIANCE SHORT-TERM MULTI-MARKET TRUST
FINANCIAL STATEMENTS ALLIANCE WORLD INCOME TRUST
JUNE 30, 1998 (UNAUDITED) ALLIANCE MULTI-MARKET STRATEGY TRUST
_______________________________________________________________________________
NOTE A: GENERAL
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Alliance Short-Term Multi-Market Trust and Alliance World Income
Trust by Alliance Multi-Market Strategy Trust ("the Fund") pursuant to a plan
of reorganization. The acquisition would be accomplished by a tax-free exchange
of the assets of Alliance Short-Term Multi-Market Trust and Alliance World
Income Trust for shares of Alliance Multi-Market Strategy Trust.
The Pro-Forma Statements of Investments, of Assets and Liabilities and of
Operations should be read in conjunction with the historical financial
statements of the Fund, included in the Statement of Additional Information.
The Pro-Forma Statement of Operations has been prepared under the assumption
that certain expenses would be lower for the combined entity as a result of the
reorganization.
NOTE B: SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price, or if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost, unless this method does not represent fair value. Securities for which
current market quotations are not readily available are valued at their fair
value as determined in good faith by, or in accordance with procedures approved
by, the Board of Directors. Fixed income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to
reflect the fair market value of such securities.
1. 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 realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net change in unrealized appreciation (depreciation) of foreign currency
denominated assets and liabilities represents net currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates.
2. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
3. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required. At June 30, 1998, the Fund's cost of investments for federal income
tax purposes was, on a pro-forma combined basis, substantially the same as for
financial reporting purposes.
5
D-19
<PAGE>
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
PART C
Item 15. Indemnification.
__________________________
Incorporated by reference to Item 27 of Post Effective
Amendment No. 19 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-39350 and 811-06251), filed February 27, 1998.
Item 16. Exhibits.
___________________
(1)(a) Articles of Incorporated by reference to
Amendment and Exhibit 1(a) to Post-Effective
Restatement of Amendment No. 18 to Registrant's
Incorporation of Registration Statement on Form
the Registrant N-1A, (File Nos. 33-39350 and
811-06251) (the "Registrant's
Form N-1A"), filed October 31,
1997.
(1)(b) Articles Filed herewith.
Supplementary dated
April 29, 1993
(1)(c) Articles of Filed herewith.
Transfer dated May 5,
1995
(1)(d) Certificate of Filed herewith.
Correction of Articles
of Transfer dated
May 15, 1995
(2) By-Laws Incorporated by reference to
Exhibit 2 to Post-Effective
Amendment No. 18 to the
Registrant's Form N-1A filed
October 31, 1997.
(3) Not applicable
20
<PAGE>
(4)(a) Plan of Filed herewith as Exhibit A to
Reorganization and Part A.
Liquidation relating
to Alliance Short-Term
Multi-Market Trust,
Inc.
(4)(b) Plan of Filed herewith.
Reorganization and
Liquidation relating
to Alliance World
Income Trust, Inc.
(6) Investment Advisory Incorporated by reference to
Agreement between the Exhibit 5 to Post-Effective
Alliance Capital Amendment No. 18 to the
Management L.P. Registrant's Form N-1A, filed
October 31, 1997.
(7)(a) Distribution Services Incorporated by reference to
Agreement between the Exhibit 6(a) to Post-Effective
Registrant and Amendment No. 18 to the
Alliance Fund Registrant's Form N-1A, filed
Distributors, Inc. October 31, 1997.
("AFD")
Amendment to Incorporated by reference to
Distribution Services Exhibit 6(a) to Post-Effective
Agreement between the Amendment No. 15 to the
Registrant and Registrant's Form N-1A, filed
AFD October 31, 1996.
(7)(b) Form of Selected Incorporated by reference to
Dealer Agreement Exhibit 6(c) to Post-Effective
between AFD and Amendment No. 18 to the
selected dealers Registrant's Form N-1A filed
offering shares of October 31, 1997.
the Registrant
(7)(c) Form of Selected Incorporated by reference to
Agent Agreement Exhibit 6(d) to Post-Effective
between AFD and Amendment No. 18 to the
selected agents Registrant's Form N-1A filed
making available October 31, 1997.
shares of the
Registrant
(8) Not applicable
21
<PAGE>
(9)(a) Custodian Contract Incorporated by reference to
between the Exhibit 8 to Post-Effective
Registrant and Amendment No. 18 to the
Brown Brothers Registrant's Form N-1A, filed
Harriman & Co. October 31 1997.
(10) Rule 12b-1 Plan See 7(a) above.
Amended and Restated Incorporated by reference to
Rule 18f-3 Plan Exhibit 18 to Post-Effective
Amendment No. 15 to Registrant's
Form N-1A, filed on October 31,
1996.
(11)(a) Opinion of Seward & Filed herewith.
Kissel as to the
legality of the
securities being
registered
(11)(b) Opinion of Venable, Filed herewith.
Baetjer and Howard,
LLP as to the
legality of the
securities being
registered
(12) Opinions of Seward & To be filed by means of a
Kissel as to tax Post-Effective Amendment
consequences hereto.
(13) Transfer Agency Incorporated by reference to
Agreement between Exhibit 9 to Post-Effective
the Registrant and Amendment No. 19 to the
Alliance Fund Registrant's Form N-1A, filed
Services, Inc. February 27, 1998.
(14) Consent of Ernst Filed herewith.
& Young LLP,
independent auditors
for Multi-Market
Strategy, World
Income and Short-Term
Multi-Market
(15) Not applicable
(16) Powers of Attorney Filed herewith.
22
<PAGE>
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c) under the Securities Act of 1933 (17
CFR 230.145c), the reoffering prospectus will contain
the information called for by the applicable
registration form for reofferings by persons who may be
deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed
as a part of an amendment to the Registration Statement
and will not be used until the amendment is effective,
and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities
offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant agrees to file a copy of
each tax opinion required to be filed as an exhibit to
the Registration Statement by Item 16(12) of Form N-14
under the Securities Act of 1933, as amended, by means
of a post-effective amendment to the Registration
Statement.
23
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this
Registration Statement has been signed on behalf of the
Registrant in the City and State of New York, on the 27th day of
July, 1998.
ALLIANCE MULTI-MARKET STRATEGY
TRUST, INC.
By: /s/ John D. Carifa
______________________
John D. Carifa
Chairman and President
As required by the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature Title Date
_________ _____ ____
1) Principal
Executive Officer
Chairman July 27, 1998
/s/ John D. Carifa and President
____________________
John D. Carifa
2) Principal Financial
and Accounting Officer
/s/ Mark D. Gersten Treasurer July 27, 1998
____________________
Mark D. Gersten
3) Directors
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
24
<PAGE>
/s/ Edmund P. Bergan, Jr. July 27, 1998
_________________________
By: Edmund P. Bergan, Jr.
(Attorney-in-fact)
25
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(1)(b) Articles of Supplementary,
dated April 29, 1993
(1)(c) Articles of Transfer,
dated May 5, 1995
(1)(d) Certificate of Correction
of Articles of Transfer,
dated May 15, 1995
(4)(b) Plan of Reorganization and
Liquidation relating to
Alliance World Income
Trust, Inc.
(11)(a) Opinion of Seward & Kissel
as to the legality of the
securities being
registered
(11)(b) Opinion of Venable,
Baetjer and Howard, LLP as
to the legality of the
securities being
registered
(14) Consent of Ernst & Young
LLP, independent auditors
for Multi-Market Strategy,
World Income and Short-
Term Multi-Market
(16) Powers of Attorney
26
00250243.AA9
<PAGE>
Exhibit 1(b)
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
ARTICLES SUPPLEMENTARY
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC., a Maryland
corporation having its principal office in the City of Baltimore
(hereinafter called the "Corporation"), certifies that:
FIRST: The Board of Directors of the Corporation hereby
increases the aggregate number of shares of capital stock that
the Corporation has authority to issue by 3,000,000,000 shares
and hereby classifies such shares as 3,000,000,000 shares of
Class C Common Stock.
SECOND: The shares of the Class C Common Stock as so
classified by the Corporation's Board of Directors shall have the
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption set forth in Article FIFTH of
the Corporation's Articles of Amendment and Restatement (other
than those provisions of Article FIFTH which by their terms are
applicable solely to the Class A Common Stock or the Class B
Common Stock of the Corporation) and shall be subject to all
provisions of the Articles of Amendment and Restatement relating
to stock of the Corporation generally, and those set forth as
follows:
(1) The assets belonging to the Class C Common
Stock shall be invested in the same investment portfolio of the
Corporation as the assets belonging to the Class A Common Stock
and the Class B Common Stock.
(2) The dividends and distributions of investment
income and capital gains with respect to the Class C Common Stock
shall be in such amount as may be declared from time to time by
the Board of Directors, and such dividends and distributions may
vary from dividends and distributions of investment income and
capital gains with respect to the Class A Common Stock and Class
B Common Stock to reflect differing allocations of the expenses
of the Corporation among the holders of the three classes and any
resultant differences among the net asset values per share of the
three classes, to such extent and for such purposes as the Board
of Directors may deem appropriate. The allocation of investment
income or capital gains and expenses and liabilities of the
Corporation among the Class A Common Stock, the Class B Common
Stock, and the Class C Common Stock shall be determined by the
Board of Directors in a manner that is consistent with the order
<PAGE>
dated January 8, 1990 (Investment Company Act of 1940 Release No.
17295) issued by the Securities and Exchange Commission in
connection with the application for exemption filed by Alliance
Capital Management L.P., et al., and any existing or future
amendment to such order or any rule or interpretation under the
Investment Company Act of 1940 that modifies or supersedes such
order.
(3) Except as may otherwise be required by law
pursuant to any applicable order, rule or interpretation issued
by the Securities and Exchange Commission, or otherwise, the
holders of the Class C Common Stock shall have (i) exclusive
voting rights with respect to any matter submitted to a vote of
stockholders that affects only holders of the Class C Common
Stock, including without limitation, the provisions of any
distribution plan adopted by the Corporation pursuant to Rule
12b-1 under the Investment Company Act of 1940 (a "Plan")
applicable to the Class C Common Stock and (ii) no voting rights
with respect to the provisions of any Plan applicable to the
Class A Common Stock or Class B Common Stock or with regard to
any other matter submitted to a vote of stockholders which does
not affect holders of the Class C Common Stock.
(4) The proceeds of the redemption of a share
(including a fractional share) of Class C Common Stock shall be
reduced by the amount of any contingent deferred sales charge
payable on such redemption pursuant to the terms of issuance of
such share.
THIRD: A. Immediately before the increase in
authorized capital stock provided for herein, the total number of
shares of stock of all classes which the Corporation had
authority to issue was 6,000,000,000 shares, the par value of
each class of stock being $.001 per share, with an aggregate par
value of $6,000,000, of which 3,000,000,000 shares were
classified as shares of Class A Common Stock and 3,000,000,000
shares were classified as shares of Class B Common Stock.
B. Immediately after the increase in authorized
capital stock provided for herein, the total number of shares of
stock of all classes which the Corporation has authority to issue
is 9,000,000,000 shares, the par value of each class of stock
being $.001 per share, with an aggregate par value of $9,000,000,
of which 3,000,000,000 shares are classified as shares of Class A
Common Stock, 3,000,000,000 shares are classified as shares of
Class B Common Stock, and 3,000,000,000 shares are classified as
shares of Class C Common Stock.
FOURTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940.
2
<PAGE>
FIFTH: The total number of shares that the Corporation
has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SIXTH: The shares aforesaid have been duly classified
by the Corporation's Board of Directors pursuant to authority and
power contained in the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, Alliance Multi-Market Strategy
Trust, Inc. has caused these Articles Supplementary to be
executed by its Chairman of the Board and attested by its
Secretary and its corporate seal to be affixed on this 29th day
of April, 1993. The Chairman of the Board of the Corporation who
signed these Articles Supplementary acknowledges them to be the
act of the Corporation and states under the penalties of perjury
that, to the best of his knowledge, information and belief, the
matters and facts set forth herein relating to authorization and
approval hereof are true in all material respects.
ALLIANCE MULTI-MARKET
STRATEGY TRUST, INC.
[CORPORATE SEAL] By:/s/David H. Dievler
____________________
David H. Dievler,
Chairman of the Board
Attested: /s/Edmund P. Bergan, Jr.
____________________
Edmund P. Bergan, Jr.,
Secretary
3
00250243.AC1
<PAGE>
Exhibit 1(c)
ARTICLES OF TRANSFER
ACM Managed Multi-Market Trust, Inc., a Maryland
corporation (hereinafter the "Transferor"), and Alliance
Multi-Market Strategy Trust, Inc., a Maryland corporation
(hereinafter the "Transferee"), hereby certify that:
FIRST: The Transferor agrees to transfer all of
its property and assets to the Transferee.
SECOND: The address and principal place of
business of the Transferee is 1345 Avenue of the Americas,
New York, New York 10105. The Transferee was incorporated
on March 7, 1991, under the laws of the State of Maryland.
The Transferor was incorporated on November 17, 1989, under
the laws of the State of Maryland.
THIRD: The principal office in Maryland of both
the Transferor and Transferee is located in Baltimore City,
Maryland.
FOURTH: Neither the Transferor nor Transferee owns
an interest in land in any county in the State of Maryland.
FIFTH: The nature and amount of the consideration
to be paid by the Transferee for the assets of the
Transferor will be determined as follows: In exchange for
all of the assets of the Transferor, the Transferee will
<PAGE>
transfer to the Transferor a number of full and fractional
shares of Class A common stock of the Transferee
("Transferee shares") with a net asset value equal to the
net asset value of the assets transferred. The number of
Transferee shares to be received by the Transferor will be
determined by multiplying the number of Transferor shares by
an exchange ratio, determined by dividing the net asset
value per share of the Transferor's shares by the net asset
value per share of the Transferee shares. The exchange
ratio will be carried to the fourth decimal place; the
product of the multiplication will be carried to the third
decimal place. In each case such net asset values will be
determined on a consistent basis as of the close of business
on the last business day preceding the closing. The
Transferee will assume certain liabilities of the
Transferor. The assets to be transferred, the liabilities
to be assumed and the terms of the transfer are more
particularly described in the Agreement and Plan of
Reorganization and Liquidation dated as of February 21,
1995, as amended as of April 20, 1995 (the "Agreement"),
between the Transferor and the Transferee.
SIXTH: The stock transfer records of the
Transferor were closed immediately following the close of
regular trading on the New York Stock Exchange, Inc. on
2
<PAGE>
April 28, 1995 for the period through May 5, 1995, except to
the extent necessary to permit the recordation thereafter of
settlements of trades in shares of the Transferor occurring
on or prior to April 28, 1995. The stock transfer records
of the Transferor shall be closed permanently as of the
Closing, as defined in Section 2(b) of the Agreement, on May
5, 1995.
SEVENTH: The terms and conditions of the
transaction set forth in these Articles of Transfer were
advised, authorized and approved by the Transferor and the
Transferee in the manner and by the vote required by their
respective charters and the laws of Maryland. The manner of
approval by the Transferor and the Transferee of the
transaction set forth in these Articles of Transfer is as
follows:
(a) The Board of Directors of the Transferor
adopted a resolution which declared that the transaction set
forth in these Articles of Transfer is advisable on
substantially the terms and conditions set forth in these
Articles of Transfer, and directed that the transaction be
submitted for consideration by the shareholders at a Special
Meeting held on March 24, 1995 which was adjourned to
April 21, 1995. The transaction was approved by the
stockholders on April 21, 1995.
3
<PAGE>
(b) The Board of Directors of the Transferee
approved the transaction set forth in these Articles of
Transfer at a meeting held on December 7, 1994.
IN WITNESS WHEREOF, as of the 4th day of May, 1995,
the Transferor and the Transferee have caused these Articles
of Transfer to be signed in their respective corporate names
and on their behalf by their respective Senior Vice
Presidents, who acknowledge that these Articles of Transfer
are the corporate act of the Transferor and Transferee and
that to the best of their knowledge, information and belief
and under the penalties of perjury, all matters and facts
with respect to authorization and approval of the transfer
contained in these Articles of Transfer are true in all
material respects.
ATTEST: ACM MANAGED MULTI-MARKET TRUST, INC.
/s/ Edmund P. Bergan, Jr. /s/ Robert M. Sinche
_____________________ By: _______________________(SEAL)
Title: Secretary Senior Vice President
ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
/s/ Edmund P. Bergan, Jr. /s/ Robert M. Sinche
_____________________ By: _______________________(SEAL)
Title: Senior Vice President
4
00250243.AC2
<PAGE>
Exhibit 1(d)
CERTIFICATE OF CORRECTION
Alliance Multi-Market Strategy Trust, Inc., a
Maryland corporation having its principal office in Maryland
in Baltimore City, Maryland and ACM Managed Multi-Market
Trust, Inc., a Maryland corporation having its principal
office in Maryland in Baltimore City, Maryland, hereby
certify to the State Department of Assessments and Taxation
of Maryland that:
FIRST: The title of the document being
corrected is:
"ARTICLES OF TRANSFER"
SECOND: The only parties to the document being
corrected are Alliance Multi-Market Strategy Trust, Inc.
(the "Transferee") and ACM Managed Multi-Market Trust, Inc.
(the "Transferor").
THIRD: The document being corrected was filed
with the State Department of Assessments and Taxation of
Maryland on May 5, 1995, and, pursuant to its terms, became
effective at 5:00 p.m. EDT on that date.
<PAGE>
FOURTH: A. Article SEVENTH, Paragraph (b) of
the Articles of Transfer as filed on May 5, 1995 reads:
The Board of Directors of the Transferee
approved the transaction set forth in these Articles of
Transfer at a meeting held on December 7, 1994.
B. As corrected, Article SEVENTH,
paragraph (b) of the Articles of Transfer reads:
The Board of Directors of the Transferee
approved the transaction set forth in these Articles of
Transfer at a meeting held on December 6, 1994.
IN WITNESS WHEREOF, as of the 15th day of May,
1995, the Transferor and the Transferee have caused this
Certificate of Correction to be signed in their respective
corporate names and on behalf of each by their respective
Senior Vice Presidents, who acknowledge that this
Certificate of Correction is the corporate act of the
Transferor and Transferee and that, to the best of their
knowledge, information and belief and under the penalties of
perjury, all matters and facts set forth herein with respect
2
<PAGE>
to the authorization and approval hereof are true in all
material respects.
ACM MANAGED MULTI-MARKET TRUST,
INC.
By: /s/ Robert M. Sinche (SEAL)
---------------------------
Senior Vice President
ATTEST:
/s/ Edmund P. Bergan, Jr.
- --------------------------
Secretary
ALLIANCE MULTI-MARKET STRATEGY TRUST,
INC.
By: /s/ Robert M. Sinche (SEAL)
---------------------------
Senior Vice President
ATTEST:
3
<PAGE>
Edmund P. Bergan, Jr.
- ----------------------
Secretary
00250243.AC3
4
<PAGE>
[S&K Draft -- 7/22/98]
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
dated as of [ ], 1998 between Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") and Alliance World
Income Trust, Inc. ("World Income"), each, a Maryland
corporation.
In consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Shareholder Approval
A meeting of the shareholders of World Income shall be
called and held for the purpose of acting upon this Agreement and
the transactions contemplated herein. Multi-Market Strategy
shall furnish to World Income such data and information relating
to Multi-Market Strategy as shall be reasonably requested by
World Income for inclusion in the information to be furnished to
shareholders of World Income in connection with the meeting for
the purpose of acting upon this Agreement and the transactions
contemplated herein. Approval by the shareholders of World
Income of this Agreement and the transactions contemplated herein
shall, to the extent necessary to permit the consummation of the
transactions contemplated herein without violating any investment
objective, policy or restriction of World Income, be deemed to
constitute approval by the shareholders of a temporary amendment
of any investment objective, policy or restriction that would
otherwise be inconsistent with or violated upon the consummation
of such transactions solely for the purpose of consummating such
transactions.
2. Reorganization
The transactions described in this section are
hereinafter collectively referred to as the "Reorganization."
(a) Plan of Reorganization and Liquidation.
(i) World Income agrees to and will grant,
bargain, sell, convey, assign, transfer and deliver to
Multi-Market Strategy at the closing provided for in Section
2(b) (the "Closing") all of the assets, rights, claims and
businesses of every kind, character and description (whether
tangible or intangible, whether real, personal or mixed,
whether absolute, accrued, contingent or otherwise, whether
or not determinable at the time of the Closing, and wherever
A-1
<PAGE>
located) of World Income to the extent they exist on or
after the Closing. In consideration thereof, at the
Closing, Multi-Market Strategy agrees to and will (A) assume
and pay, to the extent that they exist on the Closing, all
liabilities of World Income and (B) deliver to World Income
the number of full and fractional shares of Class C Common
Stock of Multi-Market Strategy, par value $.001 per share
(the "Multi-Market Strategy Shares") equal in number to the
number of full and fractional shares of World Income, par
value $.002 per share (the "World Income Shares"),
determined by multiplying the number of World Income Shares
by the exchange ratio as computed as set forth below, the
product of such multiplication to be carried to the third
decimal place. The exchange ratio of World Income Shares
shall be the number determined by dividing the net asset
value per share of World Income Shares by the net asset
value per share of Class C shares of the Multi-Market
Strategy Shares. In each case such net asset values are to
be determined on a consistent basis by the appropriate
officers of World Income or Multi-Market Strategy, as the
case may be, as of the close of regular trading on the New
York Stock Exchange, Inc. (the "Exchange") next preceding
the Closing. The exchange ratio shall be carried to the
fourth decimal place.
(ii) At the Closing, World Income will
liquidate and distribute pro rata to the holders of record
of World Income Shares as of the Closing the Multi-Market
Strategy Shares received by World Income pursuant to this
Section 2(a). Such liquidation and distribution will be
accompanied by the establishment of an open account on the
share records of Multi-Market Strategy in the name of each
holder of the World Income Shares and representing the
number of Multi-Market Strategy Shares due such shareholder.
Fractional Multi-Market Strategy Shares will be carried to
the third decimal place. Simultaneously with such crediting
of the Multi-Market Strategy Shares to the shareholders, the
World Income Shares held by such shareholders shall be
canceled. Certificates representing Multi-Market Strategy
Shares will be issued in accordance with the then-current
Multi-Market Strategy prospectus; provided, however, that
any certificate representing Multi-Market Strategy Shares to
be issued in replacement of a certificate representing the
World Income Shares shall be issued only upon the surrender
of such latter certificate.
(iii) Following the Closing, World Income
will dissolve.
(b) Closing. The Closing shall occur at the later of
(i) the final adjournment of the meeting of the holders of World
A-2
<PAGE>
Income Shares at which this Agreement and the transactions
contemplated hereby will be considered and (ii) such later time
or times as may be agreed.
3. Articles of Incorporation; By-Laws; Board of Directors;
Officers
Multi-Market Strategy hereby covenants and agrees as
follows:
(a) Charter. The Charter of Multi-Market Strategy in
effect at the Closing shall continue to be the Charter of Multi-
Market Strategy until altered, amended or repealed as provided by
law.
(b) By-Laws. The By-laws of Multi-Market Strategy in
effect at the Closing shall continue to be the By-laws of Multi-
Market Strategy until the same shall thereafter be altered,
amended or repealed in accordance with the Articles of
Incorporation or By-laws of Multi-Market Strategy.
(c) Directors. The directors of Multi-Market Strategy
at the Closing shall continue to be the directors of Multi-Market
Strategy until they resign or their successors shall have been
elected and qualified.
(d) Officers. Subject to the provisions of the By-laws
of Multi-Market Strategy, the officers of Multi-Market Strategy
at the Closing shall continue to be the officers of Multi-Market
Strategy until they resign or their successors shall have been
elected and qualified.
(e) Vacancies. If at the Closing a vacancy shall exist
on the Board of Directors or in any of the offices of Multi-
Market Strategy, such vacancy may thereafter be filled in the
manner provided by the By-laws of Multi-Market Strategy,
consistent with the provisions of Section 16 of the Investment
Company Act of 1940, as amended (the "Act").
4. Representations, Warranties and Covenants of
Multi-Market Strategy
Multi-Market Strategy represents and warrants to, and
covenants with, World Income, as follows:
(a) Organization, Existence, Etc. Multi-Market
Strategy is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has the
power to carry on its business as it is now being conducted and
as described in its currently effective Registration Statement on
Form N-1A. Multi-Market Strategy is qualified to do business
A-3
<PAGE>
under the laws of every jurisdiction in which such qualification
is required, except where the failure to so qualify would not
have a material adverse effect on Multi-Market Strategy. Multi-
Market Strategy has all necessary federal, state and local
authorizations to own all of its properties and assets and to
carry on its business as now being conducted and as described in
its currently effective Registration Statement on Form N-1A.
(b) Registration as Investment Company. Multi-Market
Strategy is registered under the Act as an open-end investment
company of the management type; such registration has not been
revoked or rescinded and is in full force and effect.
(c) Capitalization. The authorized capital stock of
Multi-Market Strategy consists of 3,000,000,000 shares of Class A
common stock, 3,000,000,000 shares of Class B common stock and
3,000,000,000 shares of Class C Common Stock, each having a par
value $.001 per share. As of [ ], 1998, there were
outstanding [ ] shares of Class A Common Stock, [ ]
shares of Class B Common Stock and [ ] shares of Class C
Common Stock. All of the outstanding shares of common stock of
Multi-Market Strategy have been duly authorized and are validly
issued, fully paid and nonassessable. Because Multi-Market
Strategy is an open-end investment company engaged in the
continuous offering and redemption of its shares, the number of
outstanding Multi-Market Strategy Shares may change prior to the
Closing.
(d) Financial Statements. The financial statements of
Multi-Market Strategy for the year ended October 31, 1997, which
are audited, and for the six months ended April 30, 1998, which
are unaudited (the "Multi-Market Strategy Financial Statements"),
previously delivered to World Income, fairly present the
financial position of Multi-Market Strategy as of the dates
thereof and the results of its operations and changes in its net
assets for the periods indicated.
(e) Shares to be Issued Upon Reorganization. The
Multi-Market Strategy Shares to be issued in connection with the
Reorganization have been duly authorized and upon consummation of
the Reorganization will be validly issued, fully paid and
nonassessable, and no shareholder of Multi-Market Strategy has
any preemptive right to subscribe or purchase in respect thereof.
(f) Authority Relative to this Agreement. Multi-Market
Strategy has the power to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by Multi-Market
Strategy's Board of Directors and no other action by Multi-Market
Strategy is necessary to authorize its officers to effectuate
A-4
<PAGE>
this Agreement and the transactions contemplated hereby. Multi-
Market Strategy is not subject to any provision of its Charter or
By-laws, nor is Multi-Market Strategy a party to or obligated
under any charter, by-law, indenture or contract provision or any
other commitment or obligation, or subject to any order or
decree, that would be violated by its executing and carrying out
this Agreement and the transactions contemplated hereby.
(g) Liabilities. There are no liabilities of Multi-
Market Strategy, whether or not determined or determinable, other
than liabilities disclosed or provided for in the Multi-Market
Strategy Financial Statements and liabilities incurred in the
ordinary course of business or otherwise previously disclosed in
writing to World Income.
(h) Litigation. To the knowledge of Multi-Market
Strategy, there are no claims, actions, suits or proceedings
pending against Multi-Market Strategy. In addition, to the
knowledge of Multi-Market Strategy, there are no claims, actions,
suits or proceedings threatened against Multi-Market Strategy
that would materially adversely affect Multi-Market Strategy or
its assets or business or which would prevent or hinder
consummation of the transactions contemplated hereby.
(i) Contracts. Except for contracts, agreements,
franchises, licenses or permits entered into or granted in the
ordinary course of its business or disclosed in its current
Registration Statement on Form N-1A filed under the Act, in each
case under which no default exists, Multi-Market Strategy is not
a party to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit of any
kind or nature whatsoever.
(j) Taxes. The federal income tax returns of Multi-
Market Strategy have been filed for all taxable years to and
including the taxable year ended October 31, 1997 and all taxes
payable pursuant to such returns have been paid. The federal
income tax return of Multi-Market Strategy for the taxable year
ending October 31, 1998 will be filed, and any taxes payable
pursuant thereto will be paid, prior to their due date. Multi-
Market Strategy has qualified as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"),
in respect of each taxable year since the commencement of its
operations and has no reason to believe that it will not so
qualify in respect of its current fiscal year.
(k) Registration Statement. Multi-Market Strategy
shall file with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-14 (the
"Registration Statement") under the Securities Act of 1933 (the
"Securities Act") relating to the Multi-Market Strategy shares
A-5
<PAGE>
issuable hereunder. At the time it becomes effective, the
Registration Statement (i) will comply in all material respects
with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder (the "Regulations") and
(ii) will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at
the time the Registration Statement becomes effective, at the
time of the shareholders' meeting referred to in Section 1 hereof
and at the Closing, the prospectus (the "Prospectus") and
statement of additional information included therein (the
"Statement of Additional Information"), as amended or
supplemented by any amendments or supplements filed with the
Commission by Multi-Market Strategy and delivered to World
Income, will not contain an untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, however, that none of the
representations and warranties in this subsection (k) shall apply
to statements in or omissions from the Registration Statement,
Prospectus or Statement of Additional Information made in
reliance upon and in conformity with information furnished by
World Income for use in the Registration Statement, Prospectus or
Statement of Additional Information as provided in Section 5(k).
(l) No Material Adverse Change. Since October 31,
1997, there has been no material adverse change in the financial
condition, results of operations, business, properties or assets
of Multi-Market Strategy.
(m) Operations in the Ordinary Course. Except as
otherwise contemplated by this Agreement, Multi-Market Strategy
will conduct its business in the ordinary course.
5. Representations, Warranties and Covenants of World Income
World Income represents and warrants to, and covenants
with, Multi-Market Strategy as follows:
(a) Organization, Existence, Etc. World Income is a
corporation duly organized and validly existing under the laws of
the State of Maryland and has the power to carry on its business
as it is now being conducted and as described in its current
effective Registration Statement on Form N-1A. World Income is
qualified to do business under the laws of every jurisdiction in
which such qualification is required, except where the failure to
so qualify would not have a material adverse effect on World
Income. World Income has all necessary federal, state and local
authorizations to own all of its properties and assets and to
carry on its business as now being conducted and as described in
its current effective Registration Statement on Form N-1A.
A-6
<PAGE>
(b) Registration as Investment Company. World Income
is registered under the Act as an open-end investment company of
the management type; such registration has not been revoked or
rescinded and is in full force and effect.
(c) Capitalization. The authorized capital stock of
World Income consists of 3,000,000,000 shares of Common Stock,
par value $.002. As of [ ], 1998, there were [ ]
outstanding shares of Common Stock. All of the outstanding
shares of World Income have been duly authorized and are validly
issued, fully paid and nonassessable. Because World Income is an
open-end investment company engaged in the continuous offering
and redemption of its shares, the number of outstanding shares of
World Income may change prior to the Closing.
(d) Financial Statements. The financial statements of
World Income for the year ended October 31, 1997, which are
audited and for the six months ended April 30, 1998, which are
unaudited (the "World Income Financial Statements"), and were
previously delivered to Multi-Market Strategy, fairly present the
financial position of World Income as of the date thereof and the
results of its operations and changes in its net assets for the
periods indicated.
(e) Authority Relative to this Agreement. World Income
has the power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of
World Income and, except for approval by the shareholders of
World Income, no other action by World Income is necessary to
authorize its officers to effectuate this Agreement and the
transactions contemplated hereby. World Income is not subject to
any provision of its Articles of Incorporation or its By-laws,
nor is World Income a party to or obligated under any charter,
by-law, indenture or contract provision or any other commitment
or obligation, or subject to any order or decree, that would be
violated by its executing and carrying out this Agreement and the
transactions contemplated hereby.
(f) Liabilities. There are no liabilities of World
Income, whether or not determined or determinable, other than
liabilities disclosed or provided for in the World Income
Financial Statements and liabilities incurred in the ordinary
course of business subsequent to April 30, 1998 or otherwise
previously disclosed in writing to Multi-Market Strategy.
(g) Litigation. To the knowledge of World Income there
are no claims, actions, suits or proceedings pending against
World Income. In addition, to the knowledge of World Income,
there are no claims, actions, suits or proceedings threatened
A-7
<PAGE>
against World Income that would materially adversely affect World
Income or its assets or business or which would prevent or hinder
consummation of the transactions contemplated hereby.
(h) Contracts. Except for contracts, agreements,
franchises, licenses or permits entered into or granted in the
ordinary course of its business, in each case under which no
default exists, World Income is not a party to or subject to any
material contract, debt instrument, employee benefit plan, lease,
franchise, license or permit of any kind or nature whatsoever.
(i) Taxes. The federal income tax returns of World
Income, previously delivered to Multi-Market Strategy, have been
filed for all taxable years to and including the taxable year
ended October 31, 1997, and all taxes payable pursuant to such
returns have been paid. The federal income tax returns of World
Income for the taxable year ending October 31, l998 will be
filed, and any taxes payable pursuant thereto will be paid, prior
to their due date. World Income has qualified as a regulated
investment company under the Code in respect of each taxable year
since the commencement of its operations and has no reason to
believe that it will not so qualify in respect of its current
fiscal year.
(j) Portfolio Securities. World Income will prepare
and deliver to Multi-Market Strategy at the Closing a Schedule of
Investments (the "Schedule") listing all the assets owned by
World Income as of the Closing. All assets to be listed on the
Schedule as of the Closing will be owned by World Income free and
clear of any liens, claims, charges, options and encumbrances,
except as indicated in the Schedule, and, except as so indicated,
none of such assets is, or after the Reorganization as
contemplated hereby, will be, subject to any restrictions, legal
or contractual, on the disposition thereof (including
restrictions as to the public offering or sale thereof under the
Securities Act) and, except as so indicated, all such assets are
or will be readily marketable.
(k) Registration Statement. In connection with the
Registration Statement, World Income will cooperate with Multi-
Market Strategy and will furnish to Multi-Market Strategy, as
reasonably requested by Multi-Market Strategy, the information
relating to World Income required by the Securities Act and the
Regulations to be set forth in the Registration Statement
(including the Prospectus and Statement of Additional
Information). At the time the Registration Statement becomes
effective, the Registration Statement, insofar as it relates to
World Income, (i) will comply in all material respects with the
provisions of the Securities Act and the Regulations and
(ii) will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
A-8
<PAGE>
necessary to make the statements therein not misleading; and at
the time the Registration Statement becomes effective, at the
time of the shareholders' meeting referred to in Section 1 hereof
and at the Closing, the Prospectus and Statement of Additional
Information, as amended or supplemented by any amendments or
supplements filed with the Commission by Multi-Market Strategy
and delivered to World Income, insofar as they relate to World
Income, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations
and warranties in this subsection (k) shall apply only to
statements in or omissions from the Registration Statement,
Prospectus or Statement of Additional Information made in
reliance upon and in conformity with information furnished by
World Income for use in the Registration Statement, Prospectus or
Statement of Additional Information as provided in this
subsection (k).
(l) No Material Adverse Change. Since October 31, 1997
there has been no material adverse change in the financial
condition, results of operations, business, properties or assets
of World Income.
(m) Operations in the Ordinary Course. Except as
otherwise contemplated by this Agreement, World Income will
conduct its business in the ordinary course.
6. Conditions to Obligations of World Income
The obligations of World Income hereunder with respect
to the consummation of the Reorganization as it relates to World
Income are subject to the satisfaction of the following
conditions:
(a) Approval by Shareholders. This Agreement and the
transactions contemplated by the Reorganization shall have been
approved by the affirmative vote of a majority of the outstanding
shares of World Income entitled to be voted with respect thereto.
(b) Covenants, Warranties and Representations. Multi-
Market Strategy shall have complied with each of its covenants
contained herein, each of the representations and warranties of
Multi-Market Strategy contained herein shall be true in all
material respects as of the Closing, there shall have been no
material adverse change in the financial condition, results of
operations, business, properties or assets of Multi-Market
Strategy since October 31, 1997 and World Income shall have
received a certificate of the President of Multi-Market Strategy
satisfactory in form and substance to World Income so stating.
A-9
<PAGE>
(c) Regulatory Approval. The Registration Statement
shall have been declared effective by the Commission and no stop
order under the Securities Act pertaining thereto shall have been
issued; all necessary orders or exemptions under the Act with
respect to the transactions contemplated hereby shall have been
granted by the Commission; and all necessary approvals,
registrations, and exemptions under federal and state laws shall
have been obtained.
(d) Tax Opinion. World Income shall have received the
opinion of Seward & Kissel, dated as of the Closing, addressed to
it and in form and substance satisfactory to World Income, as to
certain of the federal income tax consequences of the
Reorganization under the Code to Multi-Market Strategy, World
Income and the shareholders of World Income. For purposes of
rendering the opinion, Seward & Kissel may rely exclusively and
without independent verification as to factual matters upon the
statements made in this Agreement and the Registration Statement,
and upon such other written representations as to matters of fact
as an executive officer of each of World Income and Multi-Market
Strategy will have verified as of the Closing. The opinion of
Seward & Kissel will be to the effect that, based on the facts
and assumptions stated therein, for federal income tax purposes:
(i) the Reorganization will constitute a reorganization within
the meaning of section 368(a)(1)(C) of the Code and that World
Income and Multi-Market Strategy will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) neither World Income nor Multi-Market Strategy will
recognize any gain or loss upon the transfer of all the assets of
World Income to Multi-Market Strategy in exchange for Multi-
Market Strategy Shares and the assumption by Multi-Market
Strategy of the liabilities of World Income pursuant to this
Agreement and upon distribution (whether actual or constructive)
of Multi-Market Strategy Shares to shareholders of World Income
in exchange for their World Income Shares; (iii) the shareholders
of World Income who receive Multi-Market Strategy Shares pursuant
to the Reorganization will not recognize any gain or loss upon
the exchange (whether actual or constructive) of their World
Income Shares for Multi-Market Strategy Shares (including any
fractional share interests they are deemed to have received) in
the Reorganization; (iv) the aggregate tax basis of the Multi-
Market Strategy Shares received (whether actually or
constructively) by each shareholder of World Income will be the
same as the aggregate tax basis of the World Income Shares
surrendered in the exchange; (v) the holding period of Multi-
Market Strategy Shares received (whether actually or
constructively) by each shareholder of World Income will include
the holding period of the World Income Shares that are
surrendered in exchange therefor, provided that the World Income
Shares constitute capital assets of such shareholder at the
Closing; (vi) the holding period and tax basis of the assets of
A-10
<PAGE>
World Income acquired by Multi-Market Strategy will be the same
as the holding period and tax basis that World Income had in such
assets immediately prior to the Reorganization; and (vii) Multi-
Market Strategy will succeed to the capital loss carryovers of
World Income, if any, pursuant to section 381 of the Code, but
the use by Multi-Market Strategy of any such capital loss
carryovers may be subject to limitation under section 383 of the
Code.
(e) Opinion of Counsel. World Income shall have
received the opinion of Seward & Kissel, as counsel for Multi-
Market Strategy, dated as of the Closing, addressed to and in
form and substance satisfactory to World Income, to the effect
that: (i) Multi-Market Strategy is a corporation duly organized
and validly existing under the laws of the State of Maryland;
(ii) Multi-Market Strategy is a non-diversified, open-end
investment company of the management type registered under the
Act; (iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been duly
authorized and approved by requisite action of Multi-Market
Strategy, and this Agreement has been duly executed and delivered
by Multi-Market Strategy and is a valid and binding obligation of
Multi-Market Strategy, subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally,
and to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity); (iv) the Registration Statement has been declared
effective under the Securities Act and to Seward & Kissel's
knowledge no stop order has been issued or threatened suspending
its effectiveness; (v) to Seward & Kissel's knowledge, no
consent, approval, order or other authorization of any federal or
state court or administrative or regulatory agency, other than
the acceptance of Articles of Transfer by the Maryland State
Department of Assessments and Taxation, is required for Multi-
Market Strategy to enter into this Agreement or carry out its
terms that will not have been obtained by the Closing, [other
than as may be required under the securities or "blue sky" laws
of any state] and other than where the failure to obtain any such
consent, approval, order or authorization would not have a
material adverse effect on the operations of Multi-Market
Strategy; and (vi) the Class C shares of Multi-Market Strategy to
be issued in the Reorganization have been duly authorized and
upon issuance thereof in accordance with this Agreement will be
validly issued, fully paid and nonassessable, and no shareholder
of Multi-Market Strategy has any preemptive right to subscribe or
purchase in respect thereof.
(f) Non-Termination. The parties shall not have
terminated this Agreement pursuant to Section 8(c) hereof.
A-11
<PAGE>
(g) Further Assurances. World Income shall have
received such further assurances, including, but not limited to,
further assurances from Multi-Market Strategy or any other
person, concerning the performance of its obligations hereunder
and the consummation of the Reorganization as it shall deem
necessary, advisable or appropriate.
7. Conditions to Obligations of Multi-Market Strategy
The obligations of Multi-Market Strategy hereunder with
respect to the consummation of the Reorganization are subject to
the satisfaction of the following conditions:
(a) Approval by Shareholders. This Agreement and the
transactions contemplated by the Reorganization shall have been
approved by the affirmative vote of a majority of the outstanding
shares of World Income entitled to be voted with respect thereto.
(b) Covenants, Warranties and Representations. World
Income shall have complied with each of its covenants contained
herein. Each of the representations and warranties of World
Income contained herein shall be true in all material respects as
of the Closing, there shall have been no material adverse change
in the financial condition, results of operations, business,
properties or assets of World Income since October 31, 1997, and
Multi-Market Strategy shall have received a certificate of the
President of World Income satisfactory in form and substance to
Multi-Market Strategy so stating.
(c) Portfolio Securities. All securities and other
assets to be acquired by Multi-Market Strategy in the
Reorganization shall have been approved for acquisition by the
investment adviser of Multi-Market Strategy as consistent with
the investment policies of Multi-Market Strategy, and all such
securities and other assets on the books of World Income that are
not readily marketable shall be valued on the basis of an
evaluation acceptable to World Income and Multi-Market Strategy
at the expense of World Income.
(d) Regulatory Approval. The Registration Statement
shall have been declared effective by the Commission and no stop
order under the Securities Act pertaining thereto shall have been
issued; all necessary orders of exemption under the Act with
respect to the transactions contemplated hereby shall have been
granted by the Commission, and all necessary approvals,
registrations, and exemptions under federal and state laws shall
have been obtained.
(e) Tax Opinion. Multi-Market Strategy shall have
received the opinion of Seward & Kissel, counsel to World Income,
dated as of the Closing, addressed to and in form and substance
A-12
<PAGE>
satisfactory to Multi-Market Strategy, as to certain of the
federal income tax consequences of the Reorganization under the
Code to Multi-Market Strategy, World Income and the shareholders
of World Income. For purposes of rendering the opinion, Seward &
Kissel may rely exclusively and without independent verification
as to factual matters upon the statements made in this Agreement
and the Registration Statement, and upon such other written
representations as to matters of fact as an executive officer of
each of World Income and Multi-Market Strategy will have verified
as of the Closing. The opinion of Seward & Kissel will be to the
effect that, based on the facts and assumptions stated therein,
for federal income tax purposes: (i) the Reorganization will
constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code and that World Income and Multi-Market
Strategy will each be "a party to a reorganization" within the
meaning of section 368(b) of the Code; (ii) neither World Income
nor Multi-Market Strategy will recognize any gain or loss upon
the transfer of all the assets of World Income to Multi-Market
Strategy in exchange for Multi-Market Strategy Shares and the
assumption by Multi-Market Strategy of the liabilities of World
Income pursuant to this Agreement and upon the distribution
(whether actual or constructive) of Multi-Market Strategy Shares
to shareholders of World Income in exchange for their respective
World Income Shares; (iii) the holding period and tax basis of
the assets of World Income acquired by Multi-Market Strategy will
be the same as the holding period and tax basis that World Income
had in such assets immediately prior to the Reorganization; and
(iv) Multi-Market Strategy will succeed to the capital loss
carryovers of World Income, if any, pursuant to section 381 of
the Code, but the use by Multi-Market Strategy of any such
capital loss carryovers may be subject to limitation under
section 383 of the Code.
(f) Opinion of Counsel. Multi-Market Strategy shall
have received the opinion of Seward & Kissel, as counsel for
World Income, dated as of the Closing, addressed to and in form
and substance satisfactory to Multi-Market Strategy, to the
effect that (i) World Income is a corporation duly organized
under the laws of the State of Maryland; (ii) World Income is a
non-diversified, open-end investment company of the management
type registered under the Act; (iii) this Agreement and the
Reorganization provided for herein and the execution of this
Agreement have been duly authorized and approved by requisite
action of World Income, and this Agreement has been duly executed
and delivered by World Income, and is a valid and binding
obligation of World Income, subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally,
and to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity); (iv) the Reorganization has been approved by the
A-13
<PAGE>
requisite vote of the shareholders of World Income; and (v) to
Seward & Kissel's knowledge, no consent, approval, order or other
authorization of any federal or state court or administrative or
regulatory agency, other than the acceptance of Articles of
Transfer by the Maryland State Department of Assessments and
Taxation, is required for World Income to enter into this
Agreement or carry out its terms that will not have been obtained
by the Closing other than where the failure to obtain any such
consent, approval, order or authorization would not have a
material adverse effect on the operations of World Income.
(g) Non-Termination. The parties shall not have
terminated this Agreement pursuant to Section 8(c) hereof.
(h) Further Assurances. Multi-Market Strategy shall
have received such further assurances, including, but not limited
to, further assurances from World Income or any other person,
concerning the performance of their obligations hereunder and the
consummation of the Reorganization as it shall deem necessary,
advisable or appropriate.
8. Amendments; Waivers; Termination; Survival; Cooperation
(a) Amendments. World Income and Multi-Market Strategy
may, by agreement in writing authorized by their respective
Boards of Directors, amend this Agreement at any time before or
after approval hereof by the shareholders of World Income, but
after such approval, no amendment shall be made that materially
alters the obligations of any party hereto.
(b) Waivers. At any time prior to the Closing, any
party may by written instrument signed by it (i) waive the effect
of any inaccuracies in the representations and warranties made to
it contained herein and (ii) waive compliance with any of the
covenants or conditions made for its benefit contained herein.
(c) Termination. Each party may terminate this
Agreement at any time prior to the Closing by notice to the other
party if (i) a material condition to its performance hereunder or
a material covenant of the other party contained herein shall not
be fulfilled on or before the date specified for the fulfillment
thereof or (ii) a material default or material breach of this
Agreement shall be made by the other party. This Agreement may
be terminated at any time prior to the Closing, whether before or
after approval by the shareholders of World Income, without
liability on the part of either party hereto or its respective
Board of Directors, officers or shareholders, by any party on
notice to the other party in the event that the Board of
Directors of the party giving such notice determines that
proceeding with this Agreement is not in the best interest of
that party's shareholders. Unless the parties hereto shall
A-14
<PAGE>
otherwise agree in writing, this Agreement shall terminate,
without liability to any party, as of the close of business on
October 31, 1999 if the Closing is not held on or prior to such
date.
(d) Survival. No representations, warranties or
covenants in or pursuant to this Agreement (including
certificates of officers) shall survive the Reorganization.
(e) Cooperation. Each of the parties hereto will
cooperate with the other in fulfilling its obligations under this
Agreement and will provide such information and documentation as
is reasonably requested by the other in carrying out the terms
hereof.
9. Expenses
Alliance Capital Management L.P., the investment adviser
to each party hereto, will bear all expenses incurred in
connection with this Agreement, and all transactions contemplated
hereby, whether or not the Reorganization is consummated;
provided, however, that World Income shall bear any cost or
expense incurred through the time of the Closing for purposes of
satisfying the conditions set forth in Section 7(c) above.
10. General
This Agreement supersedes all prior agreements between
the parties (written or oral), is intended as a complete and
exclusive statement of the terms of the Agreement between the
parties and may not be changed or terminated orally. This
Agreement may be executed in counterparts, which shall be
considered one and the same agreement, and shall become effective
when the counterparts have been executed by World Income and
Multi-Market Strategy and delivered to each of the parties
hereto. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Nothing in this
Agreement, expressed or implied, is intended to confer upon any
other person any rights or remedies under or by reason of this
Agreement. This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
A-15
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
ALLIANCE WORLD INCOME TRUST, INC.
By________________________
ALLIANCE MULTI-MARKET STRATEGY
TRUST, INC.
By________________________
Accepted and agreed to as to Section 9:
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation, Its General Partner
By______________________________
A-16
00250243.AB0
<PAGE>
EXHIBIT 11(a)
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
Telephone: (212) 574-1200
Facsimile: (212) 480-8421
July 24, 1998
Alliance Multi-Market Strategy Trust, Inc.
1345 Avenue of the Americas
New York, New York 10105
Ladies and Gentlemen:
We have acted as counsel to Alliance Multi-Market
Strategy Trust, Inc., a Maryland corporation ("Multi-Market
Strategy"), in connection with the proposed transfer of all the
assets and liabilities of Alliance World Income Trust, Inc.
("World Income"), and Alliance Short-Term Multi-Market Trust,
Inc. ("Short-Term Multi-Market"), each a Maryland corporation, to
Multi-Market Strategy and the issuance of shares ("Shares") of
Multi-Market Strategy's Class A Common Stock, Class B Common
Stock and Class C Common Stock, each such class having a $.001
par value per share (each a "Class"), pursuant to proposed
Agreements and Plans of Reorganization and Liquidation (the
"Agreements") between Multi-Market Strategy and Short-Term Multi-
Market and Multi-Market Strategy and World Income, respectively.
We have examined the Charter and By-Laws of Multi-Market
Strategy, its Registration Statement on Form N-14 to be filed
with the Securities and Exchange Commission (the "Registration
Statement") and the Agreements in the form approved by the Board
of Directors of Multi-Market Strategy. In addition, we have
examined and relied upon a certificate of the Assistant Secretary
of Multi-Market Strategy certifying that the Agreements presented
to us are in the form approved by the Board of Directors of
Multi-Market Strategy and further certifying the resolutions of
the Board of Directors of Multi-Market Strategy approving the
Agreements and authorizing the issuance of the Shares pursuant
thereto. We have also examined and relied upon such corporate
records of Multi-Market Strategy and other documents and
certificates with respect to factual matters as we have deemed
<PAGE>
necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals, and the conformity with originals of all documents
submitted to us as copies.
Based on such examination, we are of the opinion and so
advise you that:
1. Multi-Market Strategy is validly existing as a
corporation in good standing under the laws of the State of
Maryland; and
2. The Shares of Multi-Market Strategy to be issued in
accordance with the terms of the Agreements, to the extent
that the number of Shares of each Class to be issued by
Multi-Market Strategy and distributed to shareholders of
World Income and Short-Term Multi-Market does not exceed the
number of authorized and unissued shares of the Class on the
issuance date, when so issued, will constitute validly
issued, fully paid and nonassessable shares under the laws
of the State of Maryland.
We hereby consent to the filing of this opinion letter
with the Securities and Exchange Commission as an exhibit to the
Registration Statement and to the reference to our firm under the
captions "Synopsis - Tax Consequences of the Transactions" and
"Information About the Transactions - Federal Income Tax
Consequences of the Transactions" in the Prospectus/Proxy
Statement included therein, and under the caption "General
Information - Counsel" contained in the Statements of Additional
Information of Multi-Market Strategy, World Income and Short-Term
Multi-Market, each dated February 27, 1998, also included
therein.
Please be advised that we are opining as set forth above
as members of the bars of the State of New York. This opinion
does not extend to the securities or "blue sky" laws of any
state. As to the matters of Maryland law underlying the
foregoing opinion, we have relied on the opinion of Venable,
Baetjer and Howard, LLP, dated July 22, 1998, a copy of which is
included in the Registration Statement as Exhibit 11(b).
Very truly yours,
/s/ SEWARD & KISSEL
2
00250243.AA6
<PAGE>
Exhibit 11(b)
Venable, Baetjer and Howard, LLP
2 Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201-2978
Tel: (410) 244-7400
Fax: (410) 244-7742
July 24, 1998
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
Re: Alliance Multi-Market Strategy Trust, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Alliance
Multi-Market Strategy Trust, Inc., a Maryland corporation
("Multi-Market"), in connection with (i) the proposed acquisition
of all of the assets and known liabilities of Alliance World
Income Trust, Inc., a Maryland corporation ("World Income"), by
Multi-Market, in exchange for shares of Class C Common Stock of
Multi-Market, par value $.001 per share; and (ii) the proposed
acquisition of all of the assets and known liabilities of
Alliance Short-Term Multi-Market" Trust, Inc., a Maryland
corporation ("Short-Term"), by Multi-Market, in exchange for
shares of Class A Common Stock, Class B Common Stock, and Class C
Common Stock, each of Multi-Market, par value $.001 per share.
The aforementioned proposed acquisitions are referred to
herein collectively as the "Reorganization." This opinion
relates only to the Class A Common Stock, Class B Common Stock,
and Class C Common Stock, each of the Multi-Market, par value
$.001 per share, to be issued in the Reorganization (collectively
the "Shares").
We have examined the Combined Proxy Statement and
Prospectus contained in Multi-Market's Registration Statement on
Form N-14 with respect to the Reorganization (the "Registration
Statement") substantially in the form in which it is to become
effective, Multi-Market's Charter and Bylaws, and the forms of
Agreement and Plan of Reorganization between Multi-Market and
World Income, and between Multi-Market and Short-Term (the
<PAGE>
"Agreements"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and
Taxation to the effect that Multi-Market is duly incorporated and
existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate
records of Multi-Market, a certificate of the Assistant Secretary
of Multi-Market with respect to the relevant actions of its Board
of Directors and certain factual and other matters, and such
other documents as we have deemed necessary to render the opinion
expressed herein.
We have assumed, without independent verification, the
genuineness of all signatures on documents submitted to us, the
authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as
copies. We have further assumed that upon their execution and
delivery by World Income and Short-Term, each of the Agreements
will constitute legal, valid and binding obligations, enforceable
against World Income and Short-Term in accordance with their
terms.
Based upon the foregoing and subject to the
qualifications set forth below, we are of the opinion that:
1. Multi-Market is a corporation validly existing and
in good standing under the laws of the State of Maryland.
2. Assuming that the issuance of the Shares is in
accordance with the terms of the Agreements and that the number
of Shares to be issued by Multi-Market and distributed to the
stockholders of World Income and Short-Term does not exceed the
number of authorized and unissued shares of Multi-Market on the
issuance date, the Shares, when issued pursuant to the Agreements
and in the manner referred to in the Registration Statement, will
constitute validly issued shares, fully paid and nonassessable,
under the laws of the State of Maryland.
This letter expresses our opinion with respect to the
Maryland General Corporation Law governing matters such as the
authorization and issuance of stock. It does not extend to the
securities or "blue sky" laws of Maryland, to federal securities
laws or to other laws.
You may rely upon our foregoing opinion in rendering
your opinion to Multi-Market that is to be filed as an exhibit to
the Registration Statement. We consent to the filing of this
opinion as an exhibit to the Registration Statement. This
2
<PAGE>
opinion may not be relied upon by any other person or for any
other purpose without our prior written consent.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
3
00250243.AD3
<PAGE>
Exhibit 14
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" in the Prospectus and "Shareholder
Services - Statements and Reports" and "General Information -
Independent Auditors" in the Statements of Additional
Information, dated March 2, 1998 and to the use of our reports,
each dated December 10, 1997, on the financial statements of
Alliance World Income Trust, Inc., Alliance Multi-Market Strategy
Trust, Inc. and Alliance Short-Term Multi-Market Trust, Inc.
included in this Registration Statement on Form N-14 of Alliance
Multi-Market Strategy Trust, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
July 23, 1998
00250243.AB4
<PAGE>
Exhibit 16
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ David H. Dievler
___________________________
David H. Dievler
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ John H. Dobkin
___________________________
John H. Dobkin
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Clifford L. Michel
___________________________
Clifford L. Michel
Dated: July 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the
Registration Statement, and any amendments thereto, on Form
N-14 of Alliance Multi-Market Strategy Trust, Inc., and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: July 15, 1998
00250243.AA7
