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This is filed pursuant to Rule 497(c).
File Nos. 33-39350 and 811-06251.
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[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) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
(as amended November 1, 2000)
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus, dated November 1, 2000, 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...................
Portfolio Transactions...............................
General Information..................................
Report of Independent Auditors and
Financial Statements...............................
Appendix A (Description of Obligations
of U.S. Government Agencies or
Instrumentalities)................................. A-1
Appendix B (Bond and Commercial Paper
Ratings)........................................... B-1
Appendix C (Futures Contracts and Options
On Futures Contracts and Foreign Currencies)....... C-1
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Appendix D (Additional Information About
The United Mexican States)......................... D-1
Appendix E (Certain Employee Benefit Plans).......... E-1
______________________
(R): This registered service mark used under license from
the owner, Alliance Capital Management L.P.
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_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
Alliance Multi-Market Strategy Trust, Inc. (the "Fund")
is a non-diversified, open-end investment company. The Fund's
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 net assets may be invested in debt securities denominated
in a single currency other than the U.S. Dollar except for the
euro, in which the Fund may invest not more than 50% of its net
assets. 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
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investment strategy, allocating the Fund's investments among
securities denominated in the U.S. Dollar and the currencies of a
number of foreign countries and, within each such country, among
different types of debt securities. The Adviser adjusts the
Fund's exposure to each currency based on its perception of the
most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in
accordance with the Adviser's assessment of 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
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Guilder, European Currency Unit ("ECU"), French Franc, Irish
Pound, Italian Lira, Japanese Yen, New Zealand Dollar, Norwegian
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. ("Fitch") or
Duff 1 by Duff & Phelps Credit Rating Co. ("Duff & Phelps") 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
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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.
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.
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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
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.
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
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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.
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.
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
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
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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
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
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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
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 intends to conduct its
operations so as to qualify to be taxed 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". To so qualify, among other requirements, the Fund will
limit its investment 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
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(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. The Fund's investments in
U.S. Government securities are not subject to these limitations.
Because the Fund is a non-diversified investment
company, it may invest in a smaller number of individual issuer
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 issuer. 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.
U.S. GOVERNMENT SECURITIES. U.S. Government securities
may be backed by the full faith and credit of the United States,
supported only by the right of the issuer to borrow from the U.S.
Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S.
Treasury securities, which are backed by the full faith and
credit of the United States and differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence
issued at a discount and repaid at full face value upon
maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds
(generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are
supported by the full faith and credit of the U.S. Government,
such as securities issued by Government National Mortgage
Association ("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 Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC"), and governmental collateralized mortgage obligations
("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,
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normally provide for periodic payments of interest in fixed
amount with principal payments at maturity or specified call
dates.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain stripped
mortgage related securities ("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 interest only ("IO") class and a
principal only ("PO") Class. 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 the 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. For a further description of
obligations issued or guaranteed by 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
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.
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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
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
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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
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
13
<PAGE>
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
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
14
<PAGE>
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
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
15
<PAGE>
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 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
16
<PAGE>
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. The Fund may also borrow
through the use of reverse repurchase agreements.
Repurchase agreements may exhibit the characteristics of
loans by the Fund. During the term of the repurchase agreement,
the Fund retains the security subject to the repurchase agreement
as collateral securing the seller's repurchase obligation,
continually monitors on a daily basis the market value of the
security subject to the agreement and requires the seller to
deposit with the Fund collateral equal to any amount by which the
market value of the security subject to the repurchase agreement
falls below the resale amount provided under the repurchase
agreement.
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.
The Adviser 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. See "Dividends, Distributions and
Taxes" and "General Information--Portfolio Transactions."
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%
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<PAGE>
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
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. The Fund may borrow to
repurchase its shares or to meet redemption requests.
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
18
<PAGE>
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
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.
1940 ACT RESTRICTIONS
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 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 the 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%. 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 and
such sales could cause the Fund to incur related transaction
costs and to realize taxable gains.
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.
19
<PAGE>
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 may not be changed without
shareholder approval, which means the affirmative vote of the
holders of (i) 67% or more of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less.
The Fund may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;
2. Participate on a joint or joint and several basis
in any securities trading account;
3. Invest in companies for the purpose of exercising
control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount 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;
20
<PAGE>
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;
7. 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;
8. 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
9. 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
21
<PAGE>
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 business and affairs of the Fund are managed under
the direction of the Board of Directors. 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 of the following
persons is 1345 Avenue of the Americas, New York, New York 10105.
DIRECTORS
JOHN D. CARIFA,* 55, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1995.
RUTH BLOCK, 69, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable; Chairman and
Chief Executive Officer of Evlico; a Director of Avon, Tandem
Financial Group and Donaldson, Lufkin & Jenrette Securities
Corporation. She is currently a Director of Ecolab Incorporated
(specialty chemicals) and BP Amoco Corporation (oil and gas).
Her address is P.O. Box 4623, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 71, is an independent consultant.
Until December 1994 he was Senior Vice President of ACMC
responsible for mutual fund administration. Prior to joining
ACMC in 1984 he was Chief Financial Officer of Eberstadt Asset
Management since 1968. Prior to that he was a Senior Manager at
Price Waterhouse & Co. Member of American Institute of Certified
Public Accountants since 1953. His address is P.O. Box 167,
Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 58, is a consultant. Formerly, he was a
Senior Adviser (June 1999 - June 2000) and President (December
1989 - May 1999) of Historic Hudson Valley (historic
preservation). Previously, he was Director of the National
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
22
<PAGE>
Academy of Design. During 1988-92, he was a Director and
Chairman of the Audit Committee of ACMC. His address is P.O. Box
12, Annandale, New York, 12504.
WILLIAM H. FOULK, JR., 68, 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 1995. He was
formerly Deputy Comptroller of the State of New York and, prior
thereto, Chief Investment Officer of the New York Bank for
Savings. His address is Room 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 76, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1995. He was formerly President of New York University
and the New York Botanical Garden, Rector of the United Nations
University and Vice Chairman of the Board of the Federal Reserve
Bank of New York. His address is 25 Cleveland Lane, Princeton,
New Jersey 08540.
CLIFFORD L. MICHEL, 61, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1995. He is President and 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, 66, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe LLP since January 1995.
He was formerly a senior partner and a member of the Executive
Committee of that firm. He was also a member of the Municipal
Securities Rulemaking Board and Trustee of the Museum of the City
of New York. His address is 98 Hell's Peak Road, Weston, Vermont
05161.
OFFICERS
JOHN D. CARIFA, Chairman and President, see biography,
under "Directors" section above.
KATHLEEN A. CORBET, 40, Senior Vice President, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1995.
WAYNE D. LYSKI, 59, Senior Vice President, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1995.
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<PAGE>
DOUGLAS J. PEEBLES, 35, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1995.
EDMUND P. BERGAN, JR., 50, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1995.
ANDREW L. GANGOLF, 46, Assistant Secretary, is a Senior
Vice President and Assistant General Counsel of AFD, with which
he has been associated since prior to 1995.
DOMENICK PUGLIESE, 39, Assistant Secretary, is a Senior
Vice President and Assistant General Counsel of AFD, with which
he has been associated since May 1995. Previously, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1995.
MARK D. GERSTEN, 50, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS and a Vice President
of AFD, with which he has been associated since prior to 1995.
JUAN J. RODRIGUEZ, 43, Controller, is a Vice President
of AFS, with which he has been associated since prior to 1995.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended October 31, 1999, the
aggregate compensation paid to each of the Directors during
calendar year 1999 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.
24
<PAGE>
Total Number
of Investment
Companies Total Number
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- 49 107
Ruth Block $4,017 $154,263 38 83
David H. Dievler $4,135 $210,188 44 90
John H. Dobkin $4,137 $206,488 41 87
William H. Foulk, Jr. $4,138 $246,413 45 102
Dr. James M. Hester $4,140 $164,138 39 84
Clifford L. Michel $4,140 $183,388 39 86
Donald J. Robinson $2,984 $140,813 41 96
As of October 6, 2000, 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 adviser managing
client accounts with assets as of June 30, 2000 totaling more
than $388 billion (of which more than $185 billion represented
assets of investment companies). As of June 30, 2000, the
Adviser managed retirement assets for many of the largest public
and private employee benefit plans (including 29 of the nation's
FORTUNE 100 companies), for public employee retirement funds in
33 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 52
registered investment companies managed by the Adviser,
comprising 122 separate investment portfolios, currently have
approximately 6.1 million shareholder accounts.
ACMC is the general partner of the Adviser and a
wholly owned subsidiary of The Equitable Life Assurance
25
<PAGE>
Society of the United States ("Equitable"). Equitable, one
of the largest life insurance companies in the United
States, is the beneficial owner of an approximately 55.4%
partnership interest in the Adviser. Alliance Capital
Management Holding L.P. ("Alliance Holding") owns an
approximately 41.9% partnership interest in the Adviser.**
Equity interests in Alliance Holding are traded on the New
York Stock Exchange in the form of units. Approximately 98%
of such interests are owned by the public and management or
employees of the Adviser and approximately 2% are owned by
Equitable. Equitable is a wholly owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), a Delaware corporation
whose shares are traded on the New York Stock Exchange. AXA
Financial serves as the holding company for the Adviser,
Equitable and Donaldson, Lufkin & Jenrette, Inc., an
integrated investment and merchant bank. As of June 30,
1999, AXA, a French insurance holding company, owned
approximately 58.2% of the issued and outstanding shares of
common stock of AXA Financial.
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 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
____________________
** Until October 29, 1999, Alliance Holding served as
the investment adviser to the Fund. On that date,
Alliance Holding reorganized by transferring its
business to the Adviser. Prior thereto, the Adviser
had no material business operations. One result of
the organization was that the Advisory Agreement,
then between the Fund and Alliance Holding, was
transferred to the Adviser by means of a technical
assignment, and ownership of Alliance Fund
Distributors, Inc. and Alliance Fund Services, Inc.,
the Fund's principal underwriter and transfer agent,
respectively, also was transferred to the Adviser.
26
<PAGE>
prospectuses and other reports to shareholders and fees related
to registration with the Securities and Exchange 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
performed by third parties. In such event, the services will 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 $148,794 in respect of such services during
the fiscal year of the Fund ended in 1999.
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
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. The Advisory Agreement was approved for
another annual term by the Board of Directors, including a
majority of the Directors who are not "interested persons" as
defined in the 1940 Act, at their meeting held on July 14, 1999.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at the annual rate
of .60 of 1% of the average daily value of the Fund's adjusted
27
<PAGE>
total assets (i.e., the average daily value of the initial assets
of the Fund, minus the sum of accrued liabilities of the Fund,
other than the principal amount of money borrowed). For the
fiscal years ended October 31, 1999, October 31, 1998 and
October 31, 1997 the Adviser received from the Fund advisory fees
of $2,804,295, $681,090 and $861,400, 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 AFD Exchange Reserves, Alliance All-
Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Disciplined Value Fund, Inc., Alliance Bond Fund, Inc.,
Alliance Capital Reserves, Alliance Global Dollar Government
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance Health Care Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Institutional Funds, Inc., Alliance
Institutional Reserves, Inc., Alliance International Fund,
Alliance International Premier Growth Fund, Inc., Alliance
Limited Maturity Government Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
Alliance Municipal Trust, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc., Alliance
Premier Growth Fund, Inc., Alliance Quasar Fund, Inc., Alliance
Real Estate Investment Fund, Inc., Alliance Select Investor
Series, Inc., Alliance Technology Fund, Inc., Alliance Utility
Income Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance Fund,
Inc., The Alliance Portfolios and EQ Advisors 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
28
<PAGE>
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").
During the Fund's fiscal year ended October 31, 1999,
the Fund paid distribution services fees for expenditures under
the Agreement with respect to Class A shares, in amounts
aggregating $1,281,158 which constituted .30 of 1%, annualized,
of the Fund's aggregate 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
$627,347. Of the $1,908,505 paid by the Fund and the Adviser
under the Rule 12b-1 Plan with respect to Class A shares, $83,920
was spent on advertising, $6,770 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,388,801 for compensation to broker-dealers and other financial
intermediaries (including, $208,321 to the Fund's Principal
Underwriter), $37,475 for compensation to sales personnel and
$391,539 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, 1999,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class B shares, in amounts
aggregating $206,365, which constituted 1.00%, annualized, of the
Fund's aggregate average daily net assets attributable to Class B
shares during such fiscal year, and the Adviser made payments
from its own resources as described above, aggregating $445,331.
Of the $651,696 paid by the Fund and the Adviser under the Rule
12b-1 Plan with respect to Class B shares, $40,089 was spent on
29
<PAGE>
advertising, $6,159 on the printing and mailing of prospectuses
for persons other than current shareholders, $390,618 for
compensation to broker-dealers and other financial intermediaries
(including, $109,651 to the Fund's Principal Underwriter),
$11,917 for compensation to sales personnel, $191,415 was spent
on the printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $11,498 on interest
on Class B shares financing.
During the Fund's fiscal year ended October 31, 1999,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class C shares, in amounts
aggregating $197,205 which constituted 1.00%, annualized, of the
Fund's aggregate 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 $283,593.
Of the $480,798 paid by the Fund and the Adviser under the Rule
12b-1 Plan with respect to Class C shares, $23,683 was spent on
advertising, $5,116 on the printing and mailing of prospectuses
for persons other than current shareholders, $314,727 for
compensation to broker-dealers and other financial intermediaries
(including, $68,899 to the Fund's Principal Underwriter), $8,273
for compensation to sales personnel, $124,840 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $4,159 on interest
on Class C shares financing.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales 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.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares under the Rule 12b-1 Plan 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 fee payable under the Rule 12b-1
30
<PAGE>
Plan with respect to the class involved and, in the case of Class
B and Class C shares, payments received from contingent deferred
sales charges ("CDSCs"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan with respect to the class involved and, in
the case of Class B and Class C shares, payments subsequently
received through CDSCs, so long as the Rule 12b-1 Plan is in
effect.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal year, and
carried over of reimbursement in future years in respect of the
Class B and Class C shares of the Fund were, respectively,
$10,162,026 (56.05% of the net assets of Class B) and $903,092
(4.73% of the net assets of Class C).
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which
effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate
of all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement will continue in effect for successive
twelve-month periods (computed from each November 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)
31
<PAGE>
and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related
thereto. The Agreement was approved for another annual term by
the Board of Directors, including a majority of the Directors who
are not interested persons, as defined in the 1940 Act, at their
meeting held on July 14, 1999.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class A shares, Class B shares
or Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc. an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as each Fund's registrar, transfer agency
and dividend-disbursing agent for a fee based upon the number of
account holders 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, 1999, the Fund paid AFS
$1,340,730 pursuant to the Transfer Agency Agreement.
CODE OF ETHICS
The Fund, the Adviser and the Principal Underwriter have
each adopted codes of ethics pursuant ot Rule 17j-1 of the 1940
Act. These codes of ethics permit personnel subject to the codes
to invest in securities, including securities that may be
purchased or held by the Fund.
_________________________________________________________________
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."
32
<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 Richard Ellis, Inc. Generally, a fee-based program must
charge an asset-based or other similar fee and must invest at
least $250,000 in Advisor Class shares of the Fund in order to be
approved by 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
33
<PAGE>
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
selected dealers, agents or financial representatives, as
34
<PAGE>
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 (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value). 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.
35
<PAGE>
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the contingent 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.
36
<PAGE>
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares***
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 and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix E for
information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
shares.) Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
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.
____________________
*** Advisor Class shares are sold only to investors described
above in this section under "--General."
37
<PAGE>
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 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, 1999,
October 31, 1998 and October 31, 1997 the aggregate amount of
underwriting commission payable with respect to shares of the
Fund were $246,677, $58,630 and $106,736, respectively. Of such
amounts, the Fund's Principal Underwriter received $48,435,
$2,987 and $6,149, 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 1999, 1998 and 1997, the Principal
Underwriter received contingent deferred sales charges of $989,
$0 and $0, respectively, on Class A shares, $27,953, $12,234 and
$14,872, respectively, on Class B shares, and $2,484 $1,638 and
$1,764, 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,
39
<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.
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;
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<PAGE>
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Disciplined Value Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
41
<PAGE>
-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 Select Investors Series, Inc.
-Biotechnology Portfolio
-Premier Portfolio
-Technology Portfolio
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
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.
42
<PAGE>
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
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
43
<PAGE>
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
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
44
<PAGE>
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, 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
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; and
(vi) employer-sponsored qualified pension or profit-sharing plans
(including Section 401(k) plans), custodial accounts maintained
pursuant to Section 403(b)(7) retirement plans and individual
retirement accounts (including individual retirement accounts to
which simplified employee pension ("SEP") contributions are
made), if such plans or accounts are established or administered
under programs sponsored by administrators or other persons that
have been approved by the Principal Underwriter.
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<PAGE>
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
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).
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<PAGE>
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
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.
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<PAGE>
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
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
48
<PAGE>
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.
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, (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services - Systematic Withdrawal Plan" below), or
(v) sold through programs offered by financial intermediaries and
approved by AFD where such programs offer only shares which are
not subject to a contingent deferred sales charge and where the
financial intermediary establishes a single omnibus account for
each Fund.
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
49
<PAGE>
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 to
Class A shares of the Fund during the calendar month following
the month in which the Fund is informed of the occurrence of the
Conversion Event. The Fund will provide the shareholder with at
least 30 days' notice of the conversion. The failure of a
shareholder 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.
Advisor Class shares do not have any distribution services fee.
As a result, Class A shares have a higher expense ration and may
pay correspondingly lower dividends and have a lower net asset
value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
50
<PAGE>
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.
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
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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.
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
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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. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
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(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
Underwriter receives the proceeds from the investor's bank. In
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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
Prospectus for the Alliance Mutual Fund whose shares are being
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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. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
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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("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. Mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security.
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
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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 Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the 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 qualify to be
taxed as a "regulated investment company" under the Code. So
long as the Fund distributes 90% of its income, qualification as
a regulated investment company relieves the Fund of federal
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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 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,
(i) 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; and (ii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
conditions are met: (a) at least 50% of the value of the Fund's
assets is represented by cash, cash items, U.S. Government
Securities, securities of other regulated investment companies
and other securities with respect to which the Fund's investment
is limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment
companies).
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,
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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.
Distributions of net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him 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 gain, any loss recognized by the
shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent
of the distribution.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the
qualified plan.
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 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
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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
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
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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
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 income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. 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
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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
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
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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.
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.
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_________________________________________________________________
PORTFOLIO TRANSACTIONS
_________________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Portfolio securities
will not be purchased from or sold to Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), an affiliate of the
Adviser, or any other subsidiary or affiliate of Equitable.
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
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_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
CAPITALIZATION
The Fund is a Maryland Corporation organized in 1991.
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. Any issuance of shares of another series would
be governed by the 1940 Act and the law of the State of Maryland.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. 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.
Class A, Class B and Class C shares of the Fund have identical
voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses.
Each class of shares of the Fund votes separately with respect to
the Fund's Rule 12b-1 distribution plan and other matters for
which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are
entitled to receive the net assets of the Fund. Certain
additional matters relating to the Fund's organization are
discussed in this Statement of Additional Information.
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.
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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 October 6, 2000, there
were 55,958,305 shares of common stock of the Fund outstanding,
including 51,077,628 Class A shares, 2,156,609 Class B shares,
2,724,068 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 October 6, 2000:
No. of Shares
Name and Address of Class % of Class
Class A Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (977L4)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246 10,474,694 20.51%
Class B Shares
MLPF&S For the Sole Benefit
of Its Customers
Attn: Fund Admin (977L5)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246 391,749 18.17%
Class C Shares
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 376,306 13.81%
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-
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custodial agreements for the holding of the Fund's foreign
securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, the principal underwriter of
shares of the Fund, 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 LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, has been
appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time, the Fund advertises its "yield" and
"total return," which are computed separately for Class A,
Class B and Class C 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 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 the Fund's total return
disclose its average annual compounded total return for the
periods prescribed by the Commission. The Fund's total return
for each such period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
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assumed initial amount invested to the value of the investment at
the end of the period. For purpose of computing total return,
income dividends and capital gains distributions paid on shares
of the Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases and redemptions of
the Fund's shares are assumed to have been paid.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class, divides
the difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
The Fund's yields for the month ended April 30, 2000
were 4.05%, 3.49% and 3.54% for Class A shares, Class B shares
and Class C shares, respectively. The Fund's actual distribution
rates for the month ended April 30, 2000 were 5.99%, 5.55% and
5.55% for Class A shares, Class B shares and Class C shares,
respectively.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended April 30, 2000 (or since inception through that date, as
noted) was as follows:
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12 Months
Ended 5 Years Ended 10 Years Ended
4/30/00 4/30/00 4/30/00
_________ ____________ _______________
Class A 0.56% 8.00% 3.72%*
Class B (0.26)% 7.08% 3.18%*
Class C (0.26)% 7.13% 3.40%*
* Inception Dates: Class A - May 29, 1991
Class B - May 29, 1991
Class C - May 3, 1993
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, Inc. and Morningstar, Inc. (or
compare the Fund's performance to various indicies), 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."
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
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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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____________________________________________________________
REPORT OF INDEPENDENT AUDITORS
AND FINANCIAL STATEMENTS
___________________________________________________________
The financial statements and the report of Ernst & Young
LLP of Alliance Multi-Market Strategy Trust, Inc. are
incorporated herein by reference to its annual and semi-annual
report filings made with the SEC pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder. The annual report is dated
October 31, 1999 and the semi-annual report is dated April 30,
2000 and they were filed on January 6, 2000 and July 11, 2000,
respectively. They are available without charge upon request by
calling Alliance Fund Services, Inc. at (800) 227-4618.
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_____________________________________________________________
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.
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_____________________________________________________________
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
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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.
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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
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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
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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
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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,
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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.
C-5
<PAGE>
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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_________________________________________________________________
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 99.6 million in mid-2000, as reported by the
Consejo Nacional de Poblacion (Conapo).
Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, which in 1997 together accounted for
25% of the country's population and 2% of the land. 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 annual population growth rate from 3% in the early 1970s to
1.6% in the late 1990s.
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
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proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.
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 175
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
Cooperation 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
Until the July 2, 2000 elections, the Partido
Revolucionario Institucional ("PRI") had long been the dominant
political party in Mexico, although its dominance had been
weakened in recent years. Between 1929 and 2000 the PRI 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 two other major parties
in Mexico are the Partido Accion Nacional ("PAN") and the Partido
de la Revolucion Democratica ("PRD").
On July 2, 2000, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
2000. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PAN, Vicente Fox Quesada, won the Presidential election with
42.5% of the votes, the candidate of the PRI was second with
36.1% of the votes and the candidate of the Alianza por Mexico, a
five-party coalition headed by the PRD, was third with 16.6% of
the votes. With respect to the Congressional elections, no party
achieved a majority. The Alianza por el Cambio, which comprises
the PAN and a smaller party, now has 223 seats in the 500-member
Chamber of Deputies and 51 seats in the 128-member Senate; the
PRI now has 209 seats in the Chamber of Deputies and 60 seats in
the Senate; and the Alianza por Mexico, which comprises the PRD
and four smaller parties, now has 68 seats in the Chamber of
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Deputies and 17 seats in the Senate. The next general elections
are scheduled to occur in July 2003 (congressional).
The July 2, 2000 elections represented not only the end
of the PRI's seven-decade domination of Mexico's politics. They
also marked the first elections in Mexico's history that have
been widely viewed both inside and outside Mexico to have been
conducted democratically, in accordance with electoral reforms
adopted in 1996, when certain constitutional amendments, which
had been agreed to by the President and the leaders of the four
major political parties represented in Congress, were approved.
The amendments, 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 had been part of
the executive branch, is now part of the judicial branch.
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. For the next two years, there were sporadic,
unsuccessful negotiations with the insurgents, but incidents of
civil unrest continued. 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 parties signed another agreement on
February 16, 1996 that contained a series of measures aimed at
enhancing and guaranteeing the rights of the indigenous
population, but subsequent negotiations between the government
and the insurgents were unsuccessful, collapsing altogether in
September 1996.
An uneasy standoff between the insurgents and the
government in Chiapas has continued ever since 1996, and there
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have been additional incidents of violence, most notably on
December 22, 1997, which resulted in the death of 45 civilians,
mostly women and children. In the Fall of 1999, the government
attempted to resume negotiations, but the attempt failed.
Following the defeat of the PRI in both the July 2000
presidential elections and the August 2000 gubernatorial
elections in Chiapas, there is renewed hope that the negotiations
can be resumed. President-elect Vicente Fox has indicated that
the resumption of negotiations will be a top priority. He has
promised that after he takes office on December 1, 2000 he will,
among other things, pull the Mexican army out of the indigenous
villages and relocate manufacturing plants from the north to
Chiapas.
In addition to the civil unrest in Chiapas, other
developments have contributed to disillusionment among the
electorate with the institutions of government. These events
include the 1994 assassinations of Luis Donaldo Colosio and Jose
Francisco Ruiz Massieu, both high-ranking PRI officials. Links
between Mexico's drug cartels and high government and military
officials have also been discovered. These links could
jeopardize Mexico's status as an ally of the U.S. in the war
against narcotics smuggling. While Mexico is currently certified
by the President of the United States 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.
Shortly after President-elect Fox's electoral victory on
July 2, 2000, he announced the creation of the National
Transparency Commission to investigate unsolved major crimes and
to examine the misdeeds of previous governments. President-elect
Fox is planning other initiatives to reform the government's law
enforcement and judicial functions.
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.
New laws relating to Banco de Mexico's activities and
role within the Mexican economy became effective on April 1,
1994. The purpose of the new laws was to reinforce the
independence of Banco de Mexico, so that it can act as a
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counterbalance to the executive and legislative branches in
monetary policy matters. The new laws significantly strengthened
Banco de Mexico's authority with respect to monetary policy,
foreign exchange and related activities and the regulation of the
financial services industry. In 1999, President Zedillo proposed
granting full autonomy to Banco de Mexico over exchange rate
policy and has also proposed moving the National Banking and
Securities Commission from the Ministry of Finance to Banco de
Mexico, providing it with greater authority. These proposals
have not yet been approved.
Since Mexico's commercial banks were privatized in the
early 1990s, the banking industry has experienced a significant
amount of non-performing loans. In February 1996, the ratio of
bad debts to the banking system's total loan portfolio reached a
high of 19.2% from 8.3% at the end of 1994. In 1995, the
government began a series of programs to address the problem and
to avoid a systemic banking collapse. These programs have
included subsidies to certain debtors and taking over bad debts.
At the end of 1999, the liabilities absorbed by the government
under Fobaproa, the program designed to take over the bad debts
of Mexico's banks, totalled $89 billion, equivalent to 18.3% of
Mexico's GDP. Nonetheless, the government has had to intervene
and take control of a number of institutions for eventual sale,
most recently in November 1999, when the government took control
of BanCrecer, Mexico's fifth largest bank, at an estimated cost
of $10 billion. The overall cost of the government's programs to
aid the banking sector has been estimated at $100 billion. The
govenrment has also instituted new rules, which became effective,
on a phased-in basis, in January 2000, to shore up the capital of
Mexico's banks. Additionally, deposit insurance will gradually
be reduced beginning in 2005. By the beginning of 2000 only one
of the 18 banks privatized in the early 1990s remained in the
hands of its original owners, and eight banks were still under
the supervision of the National Banking and Securities
Commission. The government has begun the process of selling off
these institutions, most notably Banca Serfin in 2000.
Trade
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 an
agreement providing for 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.
Mexico entered into definitive free trade agreements with Costa
Rica in April 1994 and Nicaragua in December 1997. Negotiations
to reach free-trade agreements with the group formed by
Guatemala, Honduras and El Salvador are continuing. A free trade
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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 addition, Mexico and the European Union signed
an agreement in March 2000 that will end all tariffs on their
bilateral trade in industrial goods by 2007. Mexico is also in
negotiations with Belize, Panama, Ecuador, Trinidad, Tobago and
Peru and is taking steps to increase trade with Japan and other
Pacific Rim countries. 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.
In December 1998, Mexico lifted all remaining restrictions on
foreign ownership of its largest banks, which had been excluded
from the liberalization measures that became effective in 1994.
Economic Information Regarding Mexico
During the period from World War II through the mid-
1970s, Mexico experienced sustained economic growth. During the
mid 1970s, 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
the 1980s, 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 Mexican Peso has been central to the
performance of the Mexican economy. In 1989, the government
implemented a devaluation schedule, pursuant to which 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 Mexican
Peso/U.S. 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
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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 Mexican Peso/U.S. Dollar exchange rate reached
either the floor or the ceiling of the band.
Beginning on January 1, 1994, volatility in the Mexican
Peso/U.S. 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 Mexican Pesos to the U.S. Dollar, a
decline of approximately 8.69% from the high of 3.1050 pesos
reached in early February 1994. 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.
On December 20, 1994, increased pressure on the Mexican
Peso/U.S. 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 Mexican Peso continued to weaken
relative to the U.S. Dollar in the following days. There was
substantial volatility in the Mexican Peso/U.S. Dollar exchange
rate during the first quarter of 1995, with the exchange rate
falling to a low point of 7.588 Mexican 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 Mexican Peso/U.S. Dollar exchange rate fell
to a low for the year of 8.14 Mexican Pesos to the U.S. Dollar on
November 13, 1995.
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.
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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
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 were 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 was 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. In a series of repayments and prepayments beginning in
October 1995 and ending in January 1997, Mexico repaid all of its
borrowings under the agreements.
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
balance of Tesobonos (which are dollar denominated) 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 Mexican
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
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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 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 and (iii) fiscal and monetary
discipline in order to encourage an environment of greater price
stability and lower interest rates.
On December 31, 1997, the ACE expired. On February 24,
1998, the government and representatives of the labor,
agriculture and business sectors signed the Acuerdo de
Cooperacion y Consulta (Cooperation and Consultation Accord or
"ACC"). In the ACC, the government and the three economic
sectors agreed to increase productivity and competitiveness to
prepare Mexico for the globalization of the world economy. The
accord is based on the following commitments: (i) a pledge by
the government and the three economic sectors to periodically
examine the development of the Mexican economy and to create
subcommissions or working groups to analyze specific economic
problems; (ii) to allow the unimpeded negotiation of collective
bargaining agreements and to foster a cooperative environment to
achieve productivity and competitiveness goals, as well as the
equitable distribution of any resulting benefits; (iii) to set as
a priority workforce education and job training to increase
productivity and to facilitate worker transition to changing
production technology; and (iv) to catalyze capital investment,
infrastructure development and labor retraining in rural areas,
in order to increase productivity, competitiveness and the
standards of living in such areas.
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
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(v) avoid economic crises of the types suffered by Mexico during
the past 20 years.
The effects of the devaluation of the Mexican 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. Mexico's trade deficit decreased during 1995, the
value of imports decreasing by 8.7% between 1994 and 1995, to
$72.5 billion in 1995. Although the value of imports 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 continued to register a trade surplus
in 1996 and 1997 but the surplus decreased by approximately 7.9%
to $6.531 billion in 1996 and 90% to $624 million in 1997. In
1998, Mexico registered a $7.9 billion deficit in its trade
balance and in 1999, Mexico registered a $5.4 billion deficit in
its trade balance. During 1996 and 1997, Mexico's current
account balance registered a deficit of $2.330 billion and $7.448
billion, respectively, as compared with a deficit of $1.576
billion in 1995. In 1998 and 1999, Mexico's current account
balance registered a deficit of $15.723 billion and $14.013
billion, respectively. During the first quarter of 2000, the
current account balance registered a $4.2 billion deficit
compared to a deficit of $3.5 billion for the same period in
1999.
Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1999, Mexico's international
reserves amounted to $30.7 billion, as compared to $30.1 billion
on December 31, 1998, $28 billion on December 31, 1997, $17.5
billion at December 31, 1996, $15.7 billion at December 31, 1995
and $6.1 billion at December 31, 1994.
During 1995 real GDP decreased by 6.2%, as compared with
an increase of 4.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP has continued to grow since that
time, resulting in an overall GDP growth rate of 5.2% for 1996,
6.8% for 1997, 4.8% for 1998, 3.7% for 1999 and an estimated 7.9%
and 7.6% in the first and second quarters, respectively, of 2000.
Although the Mexican economy has stabilized since 1994, there can
be no assurance that the government's plan will lead to a full
recovery.
In early October 2000, President-elect Vicente Fox
outlined his economic agenda. He predicts a GDP growth rate of
4.0% to 4.5% in 2001, down from the 7.0% predicted for 2000, and
seeks to reduce annual inflation to 3% by 2003, down from the
current 9% and 7% predicted for 2001. Mr. Fox plans to present
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his first budget on December 2, 2000, the day after he takes
office.
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 announced by Banco de Mexico for
the payment of obligations denominated in dollars and payable in
Mexican Pesos within Mexico with respect to each year from 1989
to 1999.
Free Market Rate Controlled Rate
________________ _______________
End of End of
Period Average Period Average
______ ________ _______ _______
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 3.375 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.599 -- --
1997. . . . . . . 8.083 7.918 -- --
1998. . . . . . . 9.865 9.136 --
1999 9.499 9.577
* Through November 10, 1991.
Source: Banco de Mexico.
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INFLATION AND CONSUMER PRICES. Through much of the
1980s, 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
inflation, fiscal discipline and, in the case of accords entered
into prior to 1995, 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%. These policies lowered the consumer inflation
rate from 159.2% in 1987 to 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, as well
a decline in real wages for much of the population, during 1995,
when the inflation rate increased to 52.0%. Subsequent fiscal
and monetary policies succeeded in lowering inflation during 1996
and 1997 (as measured by the increase in the National Consumer
Price Index), to 27.7% and 15.7%, respectively. In 1998,
inflation rose to 18.6%, well over the government's target of
12%, but fell to 12.3% in 1999.
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 1989 through 1999 and for the
first eight months of 2000.
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Changes in
National Consumer
Price Index,
Increase Over
Previous Period
_________________
1989............................. 19.7
1990............................. 29.9
1991............................. 18.8
1992............................. 11.9
1993............................. 8.0
1994............................. 7.1
1995............................. 52.0
1996............................. 27.7
1997............................. 15.7
1998............................. 18.6
1999............................. 12.3
2000
January........................ 11.0
February....................... 10.5
March.......................... 10.1
April.......................... 9.7
May............................ 9.5
June........................... 9.4
July........................... 9.1
August......................... 9.1
Source: Banco de Mexico.
MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1991 through 1999 and for the first two quarters of 2000 at
current and constant prices.
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Gross Gross Change
Domestic Domestic from Prior
Product Product at Year at
at Current Constant Constant
Prices 1993 Prices(1) Prices
__________ ___________ __________
(millions of Mexican Pesos) (percent)
1991. . . . 949,148 1,189,017 4.2
1992. . . . 1,125,334 1,232,162 3.6
1993. . . . 1,256,196 1,256,196 2.0
1994. . . . 1,423,364 1,312,200 4.5
1995. . . . 1,840,431 1,230,608 (6.2)
1996. . . . 2,508,147 1,293,859 5.2
1997. . . . 3,178,953 1,381,352 6.8
1998 . . 3,791,191 1,447,945 4.8
1999 . . 4,622,789(2) 1,501,008(2) 3.7
2000
1st qtr. N/A N/A 7.9(2)
2nd qtr. N/A N/A 7.6(2)
(1) Constant Peso with purchasing power at December 31, 1993,
expressed in Pesos.
(2) Preliminary.
Source: Mexico's National Statistics, Geography and Informatics
Institute (INEGI).
INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day CETES,
which are peso-denominated Treasury bills, 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 _____ _____
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<PAGE>
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:
Jan.-June 20.8 22.2 20.8 23.2 23.2
July-Dec. 18.8 20.3 17.4 20.5 20.6
1998:
Jan.-June 18.8 19.9 17.2 20.6 20.7
July-Dec. 30.7 32.5 24.9 32.9 33.1
1999:
Jan.-June 24.3 24.7 22.3 27.2 27.3
July-Dec. 18.5 19.9 17.2 20.8 20.8
2000:
Jan.-May 14.6 15.6 13.8 16.7 16.6
(1) February-June average.
(2) Average for the last two weeks of March.
Source: Banco de Mexico.
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____________________________________________________________
APPENDIX E:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are intended to be
tax-qualified under section 401(a) of the Internal Revenue Code of
1986, as amended ("Tax Qualified Plans"), for which Merrill Lynch,
Pierce, Fenner & Smith Incorporated or an affiliate thereof
("Merrill Lynch") is recordkeeper (or with respect to which
recordkeeping services are provided pursuant to certain arrangements
as described in paragraph (ii) below) ("Merrill Lynch Plans") are
subject to specific requirements as to the Fund shares which they
may purchase. Notwithstanding anything to the contrary contained
elsewhere in this Statement of Additional Information, the following
Merrill Lynch Plans are not eligible to purchase Class A shares and
are eligible to purchase Class B shares of the Fund at net asset
value without being subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of
(A) and (B) to be determined by Merrill
Lynch in the normal course prior to the date
the plan is established as an active plan on
Merrill Lynch's recordkeeping system (an
"Active Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
by Merrill Lynch as of the date the plan
becomes an Active Plan.
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<PAGE>
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
E-2
00250182.BB3
