<PAGE>
<PAGE>
The Alliance
----------------------------------
Bond Funds
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
PROSPECTUS AND APPLICATION
November 1, 1994
U.S. Government Funds Global Bond Funds
-Alliance Short-Term U.S. -Alliance North American
Government Fund Government Income Trust
-U.S. Government Portfolio -Alliance Global Dollar
Government Fund
Mortgage Funds
-Alliance Mortgage Strategy Corporate Bond Fund
Trust -Corporate Bond Portfolio
-Alliance Mortgage Securities
Income Fund
Multi-Market Funds
-Alliance World Income Trust
-Alliance Short-Term
Multi-Market Trust
-Alliance Multi-Market Strategy
Trust
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
The Funds at a Glance................................................... 2
Expense Information..................................................... 4
Financial Highlights.................................................... 7
Glossary................................................................ 13
Description of the Funds................................................ 14
Investment Objectives and Policies.................................... 14
Additional Investment Practices....................................... 20
Certain Fundamental Investment Policies............................... 30
Risk Considerations................................................... 32
Purchase and Sale of Shares............................................. 36
Management of the Funds................................................. 38
Dividends, Distributions and Taxes...................................... 40
General Information..................................................... 41
Appendix A: Bond Ratings................................................ A-1
Appendix B: General Information About Canada,
Mexico and Argentina.................................................. B-1
</TABLE>
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Funds invest in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.
Each Fund offers three classes of shares that may be purchased at the investor's
choice at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"), except that Alliance
World Income Trust offers only one class of shares which may be purchased at a
price equal to its net asset value without any initial or contingent deferred
sales charge. See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO OF ALLIANCE APPEARS HERE]
(R)/SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
<PAGE>
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT MANAGER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 100 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $123 billion in
assets under management. Alliance provides investment management services to 28
of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
Seeks . . . High current income consistent with preservation of capital.
Invests primarily in . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
Seeks . . . As high a level of current income as is consistent with safety of
principal.
Invests solely in . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
MORTGAGE FUNDS
MORTGAGE STRATEGY TRUST
Seeks . . . The highest level of current income, consistent with low
volatility of net asset value, that is available from a portfolio of
mortgage-related securities of the highest quality.
Invests primarily in . . . A diversified portfolio of adjustable and
fixed-rate mortgage-related securities that are U.S. Government securities or
rated AAA by S&P or Aaa by Moody's or, if not rated, are of equivalent
investment quality. The Fund's portfolio is structured to achieve low
volatility of net asset value approximating that of a portfolio investing
exclusively in two-year U.S. Treasury securities.
MORTGAGE SECURITIES INCOME FUND
Seeks . . . A high level of current income consistent with prudent investment
risk.
Invests primarily in . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
WORLD INCOME TRUST
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated
securities.
SHORT-TERM MULTI-MARKET TRUST
Seeks . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the
Fund normally will maintain a substantial portion of its assets in debt
securities denominated in foreign currencies, the Fund will invest at least
25% of its net assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
Seeks . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
Invests primarily in . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may
be invested in debt securities denominated in a single currency other than
the U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
Seeks . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
Invests primarily in . . . A non-diversified portfolio of government
securities denominated in the U.S. Dollar, the Canadian Dollar and the
Mexican Peso. The Fund expects to maintain at least 25% of its assets in
securities denominated in the U.S. Dollar.
2
<PAGE>
GLOBAL DOLLAR GOVERNMENT FUND
Seeks . . . Primarily a high level of current income and, secondarily,
capital appreciation.
Invests primarily in . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated
securities.
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
Seeks . . . Primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment;
secondarily, the Fund will attempt to increase its capital through appreciation
of its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment.
Invests primarily in . . . A diversified portfolio of corporate bonds issued
by domestic and foreign issuers that give promise of relatively attractive
yields.
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. Price
fluctuation may be caused by changes in the general level of interest rates or
changes in bond credit quality ratings. Changes in interest rates have a greater
effect on bonds with longer maturities than those with shorter maturities. The
prices of non-U.S. Dollar denominated bonds also fluctuate with changes in
foreign exchange rates. Investment in the Global Bond Funds, the Multi-Market
Funds and any other Fund that may invest a significant amount of its assets in
non-U.S. securities involves risks not associated with funds that invest
primarily in securities of U.S. issuers. While the Funds invest principally in
bonds and fixed-income securities, in order to achieve their investment
objectives, the Funds may at times use certain types of derivative instruments,
such as options, futures, forwards and swaps. These involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. These risks are fully discussed in this Prospectus. See
"Description of the Funds--Additional Investment Practices" and "--Risk
Considerations."
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares of each Fund
can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:
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AUTOMATIC REINVESTMENT
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AUTOMATIC INVESTMENT PROGRAM
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RETIREMENT PLANS
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SHAREHOLDER COMMUNICATIONS
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DIVIDEND DIRECTION PLANS
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AUTO EXCHANGE
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SYSTEMATIC WITHDRAWALS
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CHECK-WRITING
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A CHOICE OF PURCHASE PLANS
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TELEPHONE TRANSACTIONS
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24 HOUR INFORMATION
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[LOGO OF ALLIANCE APPEARS HERE]
(R)/SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
3
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Expense Information
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in a Fund, other than WORLD INCOME, and annual expenses for each
class of shares of each Fund. WORLD INCOME, which has only one class of shares,
has no sales charge on purchases or reinvested dividends, deferred sales charge,
redemption fee or exchange fee. For each Fund, the "Examples" to the right of
the table below show the cumulative expenses attributable to a hypothetical
$1,000 investment in each class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price). . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.25%(a) None None
Sales charge imposed on dividend reinvestments . . . . . . . . . . . . None None None
Deferred sales charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower). . . . . . . . . . . None 3.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
third year (b)
Exchange fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None None
</TABLE>
- --------------------------------------------------------------------------------
(a) Reduced for larger purchases. See "Purchase and Sale of Shares--How to Buy
Shares" -page 36.
(b) Class B shares of each Fund automatically convert to Class A shares after
six years. See "Purchase and Sale of Shares--How to Buy Shares" -page 36.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------------------- --------------------------------------------------------------
Short-Term U.S.
Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(b)(after
waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66
Other expenses(a)(b)(after After 5 years $116 $113 $113 $113
reimbursement) 1.10% 1.10% 1.10% After 10 years $203 $209 $209 $243
---- ---- ----
Total fund operating
expenses(b) 1.40% 2.10% 2.10%
==== ==== ====
<CAPTION>
U.S. Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .54% .54% .54% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54
Other expenses(a) .18% .18% .16% After 5 years $ 96 $ 93 $ 93 $ 92
---- ---- ---- After 10 years $162 $167 $167 $201
Total fund operating
expenses 1.02% 1.72% 1.70%
==== ==== ====
<CAPTION>
Mortgage Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .65% .65% .65% After 1 year $ 58 $ 53 $ 23 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 89 $ 81 $ 71 $ 70
Other expenses(a) .59% .61% .59% After 5 years $123 $121 $121 $120
---- ---- ---- After 10 years $218 $225 $225 $257
Total fund operating
expenses 1.54% 2.26% 2.24%
==== ==== ====
<CAPTION>
Mortgage Securities
Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .52% .52% .52% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses(a) .18% .18% .18% After 5 years $ 95 $ 92 $ 92 $ 92
---- ---- ---- After 10 years $160 $165 $165 $201
Total fund operating
expenses 1.00% 1.70% 1.70%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 5.
4
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------------- ----------------------------------------------------------------
World Income
<S> <C> <C> <C>
Management fees(c)(after waiver) .49% After 1 year $ 16
12b-1 fees(c)(after waiver) .68% After 3 years $ 49
Other expenses(a) .37% After 5 years $ 84
Total fund operating ---- After 10 years $183
expenses(c) 1.54%
====
<CAPTION>
Short-Term
Multi-Market Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .55% .55% .55% After 1 year $ 54 $ 49 $ 19 $ 19
12b-1 fees .30% 1.00% 1.00% After 3 years $ 78 $ 69 $ 59 $ 58
Other expenses(a) .31% .32% .31% After 5 years $104 $101 $101 $101
Total fund operating ---- ---- ---- After 10 years $177 $184 $184 $218
expenses 1.16% 1.87% 1.86%
==== ==== ====
<CAPTION>
Multi-Market
Strategy Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(d) .67% .67% .67% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 92 $ 82 $ 82
Other expenses After 5 years $143 $140 $140 $140
Interest expense .53% .53% .53% After 10 years $259 $265 $265 $297
Other operating expenses(a) .44% .44% .44%
---- ---- ----
Total other expenses .97% .97% .97%
---- ---- ----
Total fund operating
expenses(e) 1.94% 2.64% 2.64%
==== ==== ====
<CAPTION>
North American
Government Income Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(f) .67% .67% .67% After 1 year $ 58 $ 53 $ 23 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 91 $ 82 $ 72 $ 72
Other expenses After 5 years $126 $124 $124 $124
Interest expense .28% .27% .27% After 10 years $225 $231 $231 $265
Other operating expenses(a) .36% .37% .37%
---- ---- ----
Total other expenses .64% .64% .64%
---- ---- ----
Total fund operating
expenses(g) 1.61% 2.31% 2.31%
==== ==== ====
<CAPTION>
Global Dollar Government Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(h) .75% .75% .75% After 1 year $ 58 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 92 $ 83 $ 73 $ 73
Other expenses After 5 years $127 $126 $126 $125
Interest expense 0.00% 0.00% 0.00% After 10 years $228 $234 $234 $268
Other operating expenses(a) .58% .60% .59%
---- ---- ----
Total other expenses .58% .60% .59%
---- ---- ----
Total fund operating
expenses 1.63% 2.35% 2.34%
==== ==== ====
<CAPTION>
Corporate Bond Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .37% .37% .36% After 5 years $111 $108 $108 $107
---- ---- ---- After 10 years $193 $198 $198 $232
Total fund operating
expenses 1.30% 2.00% 1.99%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
++ Assumes no redemption at end of period and, with respect to shares held ten
years, conversion of Class B shares to Class A shares after six years.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(b) Net of voluntary fee waivers and expense reimbursements. Absent such waivers
and reimbursements, annualized management fees would have been .55%,
annualized other expenses would have been 2.10% for Class A, 2.05% for Class
B and 2.09% for Class C and annualized total fund operating expenses would
have been 2.95% for Class A, 3.60% for Class B and 3.64% for Class C.
(c) Net of voluntary fee waivers. Absent such waivers, management fees would
have been .65%, Rule 12b-1 fees would have been .90% and total fund
operating expenses would have been 1.92%.
(d) Represents .60 of 1% of the average daily value of the Fund's adjusted total
assets.
(e) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.41%, for Class B, 2.11% and for Class C, 2.11%.
(f) Represents .65 of 1% of the average daily value of the Fund's adjusted total
assets.
(g) Excluding interest expense, total fund operating expenses would have been
for Class A, 1.33%, for Class B, 2.04% and for Class C, 2.04%.
(h) Reflects management fee in effect during the Fund's current fiscal year.
5
<PAGE>
The purpose of the table on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See "Management of the Funds--
Distribution Services Agreements." The Rule 12b-1 fee for each class comprises a
service fee not exceeding .25% of the aggregate average daily net assets of the
Fund attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of MULTI-MARKET
STRATEGY and NORTH AMERICAN GOVERNMENT INCOME, "interest expense" represents
interest paid by the Fund on borrowings for the purpose of making additional
portfolio investments. Such borrowings are intended to enable each of those
Funds to produce higher net yields to shareholders than the Funds could pay
without such borrowings. See "Risk Considerations--Effects of Borrowing."
Excluding interest expense, total fund operating expenses of each of MULTI-
MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME would be lower (see notes
(e) and (g) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The information shown in the table for
SHORT-TERM U.S. GOVERNMENT reflects annualized expenses based on the Fund's most
recent fiscal period. "Other Expenses" for Class C shares of MORTGAGE STRATEGY,
MORTGAGE SECURITIES INCOME, SHORT-TERM MULTI-MARKET and NORTH AMERICAN
GOVERNMENT INCOME are based on estimated amounts for each Fund's current fiscal
year. The management fee rate of GLOBAL DOLLAR GOVERNMENT is higher than that
paid by most other investment companies, but Alliance believes the fee is
comparable to those paid by investment companies of similar investment
orientation. The expense ratios for Class B and Class C shares of MULTI-MARKET
STRATEGY and NORTH AMERICAN GOVERNMENT INCOME are higher than the expense ratios
of most other mutual funds, but are comparable to the expense ratios of mutual
funds whose shares are similarly priced. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. The Examples should not be
considered representative of past or future expenses; actual expenses may be
greater or less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for SHORT-TERM U.S. GOVERNMENT has been audited by
Price Waterhouse LLP, the independent accountants for the Fund, and for U.S.
GOVERNMENT, MORTGAGE STRATEGY, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-
TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
GLOBAL DOLLAR GOVERNMENT and CORPORATE BOND has, except as noted otherwise, been
audited by Ernst & Young LLP, the independent auditors for each Fund. A report
of Price Waterhouse LLP or Ernst & Young LLP, as the case may be, on the
information with respect to each Fund appears in the Fund's Statement of
Additional Information. The following information for each Fund should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "Literature" telephone number
shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94***...... $ 9.77 $ .14 $ (.09) $ .05 $ (.12) $ 0.00
Year Ended 4/30/94........... 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93........... 10.00 .46 .34 .80 (.46) (.12)
Class B
Period Ended 8/31/94***...... $ 9.88 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
Year Ended 4/30/94........... 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93........... 10.00 .38 .33 .71 (.38) (.02)
Class C
Period Ended 8/31/94***...... $ 9.87 $ .10 $ (.07) $ .03 $ (.11) $ 0.00
8/2/93++ to 4/30/94.......... 10.34 .26 (.42) (.16) (.25) 0.00
U.S. Government
Class A
Year Ended 6/30/94........... $ 8.64 $ .65 $ (.80) $(.15) $(.65) $ 0.00
Year Ended 6/30/93........... 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92........... 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91........... 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90........... 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89........... 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88........... 8.90 .93 (.39) .54 (.93) 0.00
Year Ended 6/30/87........... 9.24 .98 (.34) .64 (.98) 0.00
12/1/85+ to 6/30/86.......... 9.45 .63 (.21) .42 (.63) 0.00
Class B
Year Ended 6/30/94........... $ 8.64 $ .59 $ (.80) $(.21) $ (.59) $ 0.00
Year Ended 6/30/93........... 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 ........ 8.25 .49 .09 .58 (.49) 0.00
Class C
Year Ended 6/30/94........... $ 8.64 $ .59 $ (.81) $(.22) $ (.59) $ 0.00
4/30/93++ to 6/30/93......... 8.56 .10 .08 .18 (.10) 0.00
Mortgage Securities Income
Class A
Six Months Ended 6/30/94**... $ 9.29 $ .29 $ (.91) $(.62) $ (.30) $ 0.00
Year Ended 12/31/93.......... 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92.......... 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91.......... 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90.......... 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89.......... 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88.......... 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87.......... 9.74 1.00 (.68) .32 (1.00) (.03)
Year Ended 12/31/86.......... 9.97 1.06 (.02) 1.04 (1.06) (.21)
Year Ended 12/31/85.......... 9.54 1.22 .43 1.65 (1.22) 0.00
2/29/84+ to 12/31/84......... 9.50 1.02 .04 1.06 (1.02) 0.00
Class B
Six Months Ended 6/30/94**... $ 9.29 $ .27 $ (.92) $(.65) $ (.27) $ 0.00
Year Ended 12/31/93.......... 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92........ 9.16 .68 (.08) .60 (.68) 0.00
Class C
Six Months Ended 6/30/94**... $ 9.29 $ .26 $ (.91) $(.65) $ (.27) $ 0.00
5/3/93++ to 12/31/93......... 9.30 .40 0.00 .40 (.40) 0.00
Mortgage Strategy
Class A
Six Months Ended 5/31/94**... $ 9.94 $ .23 $ (.20) $ .03 $ (.26) $ (.01)
Year Ended 11/30/93.......... 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92.......... 10.00 .35 (.17) .18 (.34) 0.00
Class B
Six Months Ended 5/31/94**... $ 9.94 $ .20 $ (.20) $0.00 $ (.23) $ (.01)
Year Ended 11/30/93.......... 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92.......... 10.00 .31 (.17) .14 (.30) 0.00
Class C
Six Months Ended 5/31/94**... $ 9.94 $ .20 $ (.20) $0.00 $ (.23) $ (.01)
5/3/93++ to 11/30/93......... 9.98 .27 (.03) .24 (.28) 0.00
World Income
Six Months Ended 4/30/94**... $ 1.90 $ .12 $ (.11) $ .01 $ (.04) $ 0.00
Year Ended 10/31/93.......... 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92.......... 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91......... 2.00 .14 (.03) .11 (.13) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on Page 12.
8
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
in Excess Total Investment At End Of Ratio
of Net Dividends Net Asset Return Period of Expenses
Investment and Value End Based on Net (000's To Average
Fiscal Year or Period Income Distributions of Period Asset Value (b) omitted) Net Assets
--------------------- ------------- ------------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94***...... $ (.03)(a) $ (.15)(c) $ 9.67 .53% $ 2,272 1.40%(d)
Year Ended 4/30/94........... (.09)(a) (.51)(c) 9.77 .52 2,003 1.27(d)
5/4/92+ to 4/30/93........... 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d)
Class B
Period Ended 8/31/94***...... $ (.02)(a) $ (.13)(c) $ 9.78 .28% $ 6,281 2.10%(d)
Year Ended 4/30/94........... (.09)(a) (.44)(c) 9.88 .03 7,184 2.05(d)
5/4/92+ to 4/30/93........... 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d)
Class C
Period Ended 8/31/94***...... $ (.02)(a) $ (.13)(c) $ 9.77 .28% $ 7,128 2.10%(d)
8/2/93++ to 4/30/94.......... (.06)(a) (.31)(c) 9.87 (1.56) 8,763 2.10*(d)
U.S. Government
Class A
Year Ended 6/30/94........... $ 0.00 $ (.65) $ 7.84 (1.93)% $ 482,595 1.02%
Year Ended 6/30/93........... 0.00 (.68) 8.64 12.23 527,968 1.10
Year Ended 6/30/92........... 0.00 (.72) 8.34 13.52 492,448 1.12
Year Ended 6/30/91........... 0.00 (.83) 8.01 8.97 491,910 1.07
Year Ended 6/30/90........... 0.00 (.83) 8.14 5.99 510,675 1.09
Year Ended 6/30/89........... 0.00 (.88) 8.49 10.87 532,525 1.11
Year Ended 6/30/88........... 0.00 (.93) 8.51 6.41 529,909 1.14
Year Ended 6/30/87........... 0.00 (.98) 8.90 7.00 496,600 1.07(d)
12/1/85+ to 6/30/86.......... 0.00 (.63) 9.24 4.53 128,870 1.01*(d)
Class B
Year Ended 6/30/94........... $ 0.00 $ (.59) $ 7.84 (2.63)% $ 756,282 1.72%
Year Ended 6/30/93........... 0.00 (.62) 8.64 11.45 552,471 1.81
9/30/91++ to 6/30/92 ........ 0.00 (.49) 8.34 6.95 32,227 1.80*
Class C
Year Ended 6/30/94........... $ 0.00 $ (.59) $ 7.83 (2.75)% $ 231,859 1.70%
4/30/93++ to 6/30/93......... 0.00 (.10) 8.64 2.12 67,757 1.80*
Mortgage Securities Income
Class A
Six Months Ended 6/30/94**... $0.00 $ (.30) $8.37 (6.75)% $ 694,561 .98%*
Year Ended 12/31/93.......... (.02) (.69)(c) 9.29 10.14 848,069 1.00
Year Ended 12/31/92.......... 0.00 (.81) 9.08 7.73 789,898 1.18
Year Ended 12/31/91.......... 0.00 (.87) 9.21 15.44 544,171 1.16
Year Ended 12/31/90.......... 0.00 (.87) 8.79 11.01 495,353 1.12
Year Ended 12/31/89.......... 0.00 (.97) 8.76 10.98 556,077 1.13
Year Ended 12/31/88.......... 0.00 (.98) 8.81 8.64 619,572 1.11
Year Ended 12/31/87.......... 0.00 (1.03) 9.03 3.49 682,650 1.15
Year Ended 12/31/86.......... 0.00 (1.27) 9.74 11.18 756,730 1.00
Year Ended 12/31/85.......... 0.00 (1.22) 9.97 18.35 609,566 .87
2/29/84+ to 12/31/84......... 0.00 (1.02) 9.54 12.19 316,614 .66*
Class B
Six Months Ended 6/30/94**... $0.00 $ (.27) $8.37 (7.09)% $1,181,987 1.69%*
Year Ended 12/31/93.......... (.02) (.62)(c) 9.29 9.38 1,454,303 1.70
1/30/92++ to 12/31/92........ 0.00 (.68) 9.08 7.81 1,153,957 1.67*
Class C
Six Months Ended 6/30/94**... $0.00 $ (.27) $8.37 (7.08)% $ 88,349 1.68%*
5/3/93++ to 12/31/93......... (.01) (.41)(c) 9.29 4.38 91,724 1.67*
Mortgage Strategy
Class A
Six Months Ended 5/31/94**... $ 0.00 $ (.27) $ 9.70 .33% $ 79,197 1.22%*(e)
Year Ended 11/30/93.......... 0.00 (.58) 9.94 7.02 59,215 1.54 (e)
6/1/92+ to 11/30/92.......... 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e)
Class B
Six Months Ended 5/31/94**... $ 0.00 $ (.24) $ 9.70 (.02)% $ 177,627 1.93%*(e)
Year Ended 11/30/93.......... 0.00 (.51) 9.94 6.27 168,157 2.26 (e)
6/1/92+ to 11/30/92.......... 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e)
Class C
Six Months Ended 5/31/94**... $ 0.00 $ (.24) $ 9.70 (.02)% $ 218,889 1.92%*(e)
5/3/93++ to 11/30/93......... 0.00 (.28) 9.94 2.40 228,703 1.58*(e)
World Income
Six Months Ended 4/30/94**... $ 0.00 $ (.04) $ 1.87 .53% $ 110,666 1.57%*(d)
Year Ended 10/31/93.......... 0.00 (.07) 1.90 3.51 149,623 1.54 (d)
Year Ended 10/31/92.......... 0.00 (.09) 1.91 1.26 318,716 1.59 (d)
12/3/90+ to 10/31/91......... 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d)
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Investment
Income (Loss) Portfolio
To Average Turnover
Fiscal Year or Period Net Assets Rate
--------------------- ------------ ---------
<S> <C> <C>
Short-Term U.S. Government/+/
Class A
Period Ended 8/31/94***...... 3.98% 144%
Year Ended 4/30/94........... 4.41 55
5/4/92+ to 4/30/93........... 4.38* 294
Class B
Period Ended 8/31/94***...... 3.22% 144%
Year Ended 4/30/94........... 3.12 55
5/4/92+ to 4/30/93........... 3.36* 294
Class C
Period Ended 8/31/94***...... 3.26% 144%
8/2/93++ to 4/30/94.......... 2.60* 55
U.S. Government
Class A
Year Ended 6/30/94........... 7.76% 198%
Year Ended 6/30/93........... 8.04 386
Year Ended 6/30/92........... 8.43 418
Year Ended 6/30/91........... 10.02 402
Year Ended 6/30/90........... 10.35 455
Year Ended 6/30/89........... 10.70 148
Year Ended 6/30/88........... 10.70 149
Year Ended 6/30/87........... 10.36 255
12/1/85+ to 6/30/86.......... 9.30* 193
Class B
Year Ended 6/30/94........... 7.04% 198%
Year Ended 6/30/93........... 7.25 386
9/30/91++ to 6/30/92 ........ 7.40* 418
Class C
Year Ended 6/30/94........... 6.97% 198%
4/30/93++ to 6/30/93......... 6.00* 386
Mortgage Securities Income
Class A
Six Months Ended 6/30/94**... 6.68%* 227%
Year Ended 12/31/93.......... 7.20 622
Year Ended 12/31/92.......... 8.56 555
Year Ended 12/31/91.......... 9.92 439
Year Ended 12/31/90.......... 10.09 393
Year Ended 12/31/89.......... 11.03 328
Year Ended 12/31/88.......... 10.80 239
Year Ended 12/31/87.......... 10.79 211
Year Ended 12/31/86.......... 10.86 190
Year Ended 12/31/85.......... 12.30 164
2/29/84+ to 12/31/84......... 12.86* 111
Class B
Six Months Ended 6/30/94**... 5.97%* 227%
Year Ended 12/31/93.......... 6.47 622
1/30/92++ to 12/31/92........ 5.92* 555
Class C
Six Months Ended 6/30/94**... 5.97%* 227%
5/3/93++ to 12/31/93......... 5.92* 622
Mortgage Strategy
Class A
Six Months Ended 5/31/94**... 4.74%* 238%
Year Ended 11/30/93.......... 5.66 499
6/1/92+ to 11/30/92.......... 6.58*(d) 101
Class B
Six Months Ended 5/31/94**... 4.06%* 238%
Year Ended 11/30/93.......... 4.98 499
6/1/92+ to 11/30/92.......... 6.01*(d) 101
Class C
Six Months Ended 5/31/94**... 4.06%* 238%
5/3/93++ to 11/30/93......... 3.70* 499
World Income
Six Months Ended 4/30/94**... 3.76%*(d) N/A
Year Ended 10/31/93.......... 5.14 (d) N/A
Year Ended 10/31/92.......... 7.21 (d) N/A
12/3/90+ to 10/31/91......... 7.29*(d) N/A
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 12.
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment
Fiscal Year or Period Period Income (Loss) Investments From Operations Income
--------------------- ------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Short-Term Multi-Market
Class A
Six Months Ended 4/30/94**...... $ 9.25 $ .46 $ (.49) $ (.03) $ (.30)
Year Ended 10/31/93............. 9.25 .92 (.32) .60 (.60)
Year Ended 10/31/92............. 9.94 .91 (.86) .05 (.72)
Year Ended 10/31/91............. 9.89 .97 .06 1.03 (.97)
Year Ended 10/31/90............. 9.69 1.09 .19 1.28 (1.08)
5/5/89+ to 10/31/89............. 9.70 .53 (.01) .52 (.53)
Class B
Six Months Ended 4/30/94**...... $ 9.25 $ .44 $ (.50) $ (.06) $ (.27)
Year Ended 10/31/93............. 9.25 .87 (.34) .53 (.53)
Year Ended 10/31/92............. 9.94 .84 (.86) (.02) (.65)
Year Ended 10/31/91............. 9.89 .89 .07 .96 (.90)
2/5/90++ to 10/31/90............ 9.77 .74 .12 .86 (.74)
Class C
Six Months Ended 4/30/94**...... $ 9.25 $ .28 $ (.34) $ (.06) $ (.27)
5/3/93++ to 10/31/93............ 9.18 .28 .05 .33 (.26)
Multi-Market Strategy
Class A
Six Months Ended 4/30/94**...... $ 8.94 $ .40 $ (.61) $ (.21) $ (.33)
Year Ended 10/31/93............. 8.85 1.02 (.26) .76 (.67)
Year Ended 10/31/92............. 9.91 1.00 (1.23) (.23) (.81)
5/29/91+ to 10/28/91............ 10.00 .42 (.09) .33 (.42)
Class B
Six Months Ended 4/30/94**...... $ 8.94 $ .38 $ (.62) $ (.24) $ (.30)
Year Ended 10/31/93............. 8.85 .92 (.22) .70 (.61)
Year Ended 10/31/92............. 9.91 1.04 (1.34) (.30) (.74)
5/29/91+ to 10/28/91............ 10.00 .39 (.09) .30 (.39)
Class C
Six Months Ended 4/30/94**...... $ 8.94 $ .23 $ (.47) $ (.24) $ (.30)
5/3/93++ to 10/31/93............ 8.76 .32 .16 .48 (.30)
North American Government Income
Class A
Six Months Ended 5/31/94**...... $10.35 $ .48 $(1.08) $ (.60) $ (.50)
Year Ended 11/30/93............. 9.70 1.09 .66 1.75 (1.09)
3/27/92+ to 11/30/92............ 10.00 .69 (.31) .38 (.68)
Class B
Six Months Ended 5/31/94**...... $10.35 $ .45 $(1.07) $ (.62) $ (.47)
Year Ended 11/30/93............. 9.70 1.01 .67 1.68 (1.02)
3/27/92+ to 11/30/92............ 10.00 .64 (.31) .33 (.63)
Class C
Six Months Ended 5/31/94**...... $10.34 $ .45 $(1.07) $ (.62) $ (.47)
5/3/93++ to 11/30/93............ 10.04 .58 .30 .88 (.58)
Global Dollar Government
Class A
2/25/94+ to 8/31/94............. $10.00 $ .45 $ (.86) $ (.41) $ (.45)
Class B
2/25/94+ to 8/31/94............. $10.00 $ .42 $ (.86) $ (.44) $ (.42)
Class C
2/25/94+ to 8/31/94............. $10.00 $ .42 $ (.86) $ (.44) $ (.42)
Corporate Bond
Class A
Year Ended 6/30/94.............. $14.15 $1.11 $(1.36) $ (.25) $(1.11)
Year Ended 6/30/93.............. 12.01 1.25 2.13 3.38 (1.24)
Year Ended 6/30/92.............. 11.21 1.06 .82 1.88 (1.08)
Year Ended 6/30/91.............. 11.39 1.11 (.06) 1.05 (1.23)
Year Ended 6/30/90.............. 12.15 1.24 (.86) .38 (1.14)
Year Ended 6/30/89.............. 11.82 1.12 .32 1.44 (1.11)
Year Ended 6/30/88.............. 12.24 1.10 (.38) .72 (1.14)
Nine Months Ended 6/30/87....... 12.25 .86 (.06) .80 (.81)
Year Ended 9/30/86.............. 11.52 1.20 .73 1.93 (1.20)
Year Ended 9/30/85.............. 10.50 1.24 1.04 2.28 (1.26)
Year Ended 9/30/84.............. 11.11 1.25 (.60) .65 (1.26)
Class B
Year Ended 6/30/94.............. $14.15 $1.02 $(1.37) $ (.35) $(1.04)
1/8/93++ to 6/30/93............. 12.47 .49 1.69 2.18 (.50)
Class C
Year Ended 6/30/94.............. $14.15 $1.02 $(1.37) $ (.35) $(1.05)
5/30/93++ to 6/30/93............ 13.63 .16 .53 .69 (.17)
</TABLE>
<TABLE>
<CAPTION>
Distributions
From Net
Fiscal Year or Period Realized Gains
--------------------- --------------
<S> <C>
Short-Term Multi-Market
Class A
Six Months Ended 4/30/94**...... $0.00
Year Ended 10/31/93............. 0.00
Year Ended 10/31/92............. (.02)
Year Ended 10/31/91............. (.01)
Year Ended 10/31/90............. 0.00
5/5/89+ to 10/31/89............. 0.00
Class B
Six Months Ended 4/30/94**...... $0.00
Year Ended 10/31/93............. 0.00
Year Ended 10/31/92............. (.02)
Year Ended 10/31/91............. (.01)
2/5/90++ to 10/31/90............ 0.00
Class C
Six Months Ended 4/30/94**...... $0.00
5/3/93++ to 10/31/93............ 0.00
Multi-Market Strategy
Class A
Six Months Ended 4/30/94**...... $0.00
Year Ended 10/31/93............. 0.00
Year Ended 10/31/92............. (.02)
5/29/91+ to 10/28/91............ 0.00
Class B
Six Months Ended 4/30/94**...... $0.00
Year Ended 10/31/93............. 0.00
Year Ended 10/31/92............. (.02)
5/29/91+ to 10/28/91............ 0.00
Class C
Six Months Ended 4/30/94**...... $0.00
5/3/93++ to 10/31/93............ 0.00
North American Government Income
Class A
Six Months Ended 5/31/94**...... $(.12)
Year Ended 11/30/93............. (.01)
3/27/92+ to 11/30/92............ 0.00
Class B
Six Months Ended 5/31/94**...... $(.12)
Year Ended 11/30/93............. (.01)
3/27/92+ to 11/30/92............ 0.00
Class C
Six Months Ended 5/31/94**...... $(.12)
5/3/93++ to 11/30/93............ 0.00
Global Dollar Government
Class A
2/25/94+ to 8/31/94............. $0.00
Class B
2/25/94+ to 8/31/94............. $0.00
Class C
2/25/94+ to 8/31/94............. $0.00
Corporate Bond
Class A
Year Ended 6/30/94.............. $(.25)
Year Ended 6/30/93.............. 0.00
Year Ended 6/30/92.............. 0.00
Year Ended 6/30/91.............. 0.00
Year Ended 6/30/90.............. 0.00
Year Ended 6/30/89.............. 0.00
Year Ended 6/30/88.............. 0.00
Nine Months Ended 6/30/87....... 0.00
Year Ended 9/30/86.............. 0.00
Year Ended 9/30/85.............. 0.00
Year Ended 9/30/84.............. 0.00
Class B
Year Ended 6/30/94.............. $(.25)
1/8/93++ to 6/30/93............. 0.00
Class C
Year Ended 6/30/94.............. $(.25)
5/30/93++ to 6/30/93............ 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 12.
10
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
in Excess Total Investment At End Of
of Net Dividends Net Asset Return Period
Investment and Value End Based on Net (000's
Fiscal Year or Period Income Distributions of Period Asset Value (b) omitted)
--------------------- ------------- ------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Short-Term Multi-Market
Class A
Six Months Ended 4/30/94**...... $ 0.00 $ (.30) $ 8.92 (.34)% $ 744,979
Year Ended 10/31/93............. 0.00 (.60) 9.25 6.67 953,571
Year Ended 10/31/92............. 0.00 (.74) 9.25 .49 1,596,903
Year Ended 10/31/91............. 0.00 (.98) 9.94 10.91 2,199,393
Year Ended 10/31/90............. 0.00 (1.08) 9.89 13.86 1,346,035
5/5/89+ to 10/31/89............. 0.00 (.53) 9.69 5.57 210,294
Class B
Six Months Ended 4/30/94**...... $ 0.00 $ (.27) $ 8.92 (.70)% $1,336,312
Year Ended 10/31/93............. 0.00 (.53) 9.25 5.91 1,742,703
Year Ended 10/31/92............. 0.00 (.67) 9.25 (.24) 2,966,071
Year Ended 10/31/91............. 0.00 (.91) 9.94 10.11 3,754,003
2/5/90++ to 10/31/90............ 0.00 (.74) 9.89 9.07 1,950,330
Class C
Six Months Ended 4/30/94**...... $ 0.00 $ (.27) $ 8.92 (.70)% $ 12,079
5/3/93++ to 10/31/93............ 0.00 (.26) 9.25 3.66 5,538
Multi-Market Strategy
Class A
Six Months Ended 4/30/94**...... $ 0.00 $ (.33) $ 8.40 (2.38)% $ 66,388
Year Ended 10/31/93............. 0.00 (.67) 8.94 9.01 82,977
Year Ended 10/31/92............. 0.00 (.83) 8.85 (2.80) 141,526
5/29/91+ to 10/28/91............ 0.00 (.42) 9.91 3.68 143,594
Class B
Six Months Ended 4/30/94**...... $ 0.00 $ (.30) $ 8.40 (2.73)% $ 335,181
Year Ended 10/31/93............. 0.00 (.61) 8.94 8.25 431,186
Year Ended 10/31/92............. 0.00 (.76) 8.85 (3.51) 701,465
5/29/91+ to 10/28/91............ 0.00 (.39) 9.91 3.36 662,981
Class C
Six Months Ended 4/30/94**...... $ 0.00 $ (.30) $ 8.40 (2.72)% $ 2,248
5/3/93++ to 10/31/93............ 0.00 (.30) 8.94 5.54 718
North American Government Income
Class A
Six Months Ended 5/31/94**...... $ 0.00 $ (.63) $ 9.12 (6.04)% $ 318,943
Year Ended 11/30/93............. 0.00 (1.10) 10.35 18.99 268,233
3/27/92+ to 11/30/92............ 0.00 (.68) 9.70 3.49 61,702
Class B
Six Months Ended 5/31/94**...... $ 0.00 $ (.60) $ 9.13 (6.28)% $1,744,859
Year Ended 11/30/93............. 0.00 (1.03) 10.35 18.15 1,313,591
3/27/92+ to 11/30/92............ 0.00 (.63) 9.70 3.30 216,317
Class C
Six Months Ended 5/31/94**...... $ 0.00 $ (.60) $ 9.12 (6.28)% $ 430,992
5/3/93++ to 11/30/93............ 0.00 (.58) 10.34 9.00 310,230
Global Dollar Government
Class A
2/25/94+ to 8/31/94............. $ 0.00 $ (.45) $ 9.14 (3.77)% $ 10,995
Class B
2/25/94+ to 8/31/94............. $ 0.00 $ (.42) $ 9.14 (4.17)% $ 47,030
Class C
2/25/94+ to 8/31/94............. $ 0.00 $ (.42) $ 9.14 (4.16)% $ 10,404
Corporate Bond
Class A
Year Ended 6/30/94.............. $(.03) $(1.39) $12.51 (2.58)% $ 219,182
Year Ended 6/30/93.............. 0.00 (1.24) 14.15 29.62 216,171
Year Ended 6/30/92.............. 0.00 (1.08) 12.01 17.43 60,356
Year Ended 6/30/91.............. 0.00 (1.23) 11.21 9.71 62,268
Year Ended 6/30/90.............. 0.00 (1.14) 11.39 3.27 68,049
Year Ended 6/30/89.............. 0.00 (1.11) 12.15 12.99 52,381
Year Ended 6/30/88.............. 0.00 (1.14) 11.82 6.24 37,587
Nine Months Ended 6/30/87....... 0.00 (.81) 12.24 7.32 41,072
Year Ended 9/30/86.............. 0.00 (1.20) 12.25 17.19 45,178
Year Ended 9/30/85.............. 0.00 (1.26) 11.52 22.66 40,631
Year Ended 9/30/84.............. 0.00 (1.26) 10.50 6.44 36,435
Class B
Year Ended 6/30/94.............. $(.01) $(1.30) $12.50 (3.27)% $ 184,129
1/8/93++ to 6/30/93............. 0.00 .50 14.15 17.75 55,508
Class C
Year Ended 6/30/94.............. $0.00 $(1.30) $12.50 (3.27)% $ 50,860
5/30/93++ to 6/30/93............ 0.00 (.17) 14.15 5.08 5,115
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio Investment
of Expenses Income (Loss) Portfolio
To Average To Average Turnover
Fiscal Year or Period Net Assets Net Assets Rate
--------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Short-Term Multi-Market
Class A
Six Months Ended 4/30/94**...... 1.12%* 7.36%* 55%
Year Ended 10/31/93............. 1.16 9.43 182
Year Ended 10/31/92............. 1.10 9.00 133
Year Ended 10/31/91............. 1.09 9.64 146
Year Ended 10/31/90............. 1.18 10.81 152
5/5/89+ to 10/31/89............. 1.14* 10.83* 10
Class B
Six Months Ended 4/30/94**...... 1.83%* 6.65%* 55%
Year Ended 10/31/93............. 1.87 7.57 182
Year Ended 10/31/92............. 1.81 8.28 133
Year Ended 10/31/91............. 1.81 8.87 146
2/5/90++ to 10/31/90............ 1.86* 9.90* 152
Class C
Six Months Ended 4/30/94**...... 1.73%* 6.51%* 55%
5/3/93++ to 10/31/93............ 1.82* 7.19* 182
Multi-Market Strategy
Class A
Six Months Ended 4/30/94**...... 1.36%*(f) 6.76%* 332%
Year Ended 10/31/93............. 1.94 (f) 9.17(g) 200
Year Ended 10/31/92............. 2.53 (f) 10.58(g) 239
5/29/91+ to 10/28/91............ 2.81*(f) 10.17*(g) 121
Class B
Six Months Ended 4/30/94**...... 2.06%*(f) 6.07%* 332%
Year Ended 10/31/93............. 2.64 (f) 8.46(g) 200
Year Ended 10/31/92............. 3.24 (f) 9.83(g) 239
5/29/91+ to 10/28/91............ 3.53*(f) 9.40*(g) 121
Class C
Six Months Ended 4/30/94**...... 2.02%*(f) 5.63%* 332%
5/3/93++ to 10/31/93............ 2.64*(f) 7.17*(g) 200
North American Government Income
Class A
Six Months Ended 5/31/94**...... 1.37%*(f) 9.81%* 86%
Year Ended 11/30/93............. 1.61 (f) 10.77 254
3/27/92+ to 11/30/92............ 2.45*(d)(f) 10.93*(d) 86
Class B
Six Months Ended 5/31/94**...... 2.07%*(f) 9.08%* 86%
Year Ended 11/30/93............. 2.31 (f) 10.01 254
3/27/92+ to 11/30/92............ 3.13*(d)(f) 10.16*(d) 86
Class C
Six Months Ended 5/31/94**...... 2.06%*(f) 9.04%* 86%
5/3/93++ to 11/30/93............ 2.21*(f) 9.74* 254
Global Dollar Government
Class A
2/25/94+ to 8/31/94............. .75%*(d) 9.82%* 100%
Class B
2/25/94+ to 8/31/94............. 1.45%*(d) 9.12%* 100%
Class C
2/25/94+ to 8/31/94............. 1.45%*(d) 9.05%* 100%
Corporate Bond
Class A
Year Ended 6/30/94.............. 1.30% 7.76% 372%
Year Ended 6/30/93.............. 1.39 9.29 579
Year Ended 6/30/92.............. 1.48 8.98 610
Year Ended 6/30/91.............. 1.44 9.84 357
Year Ended 6/30/90.............. 1.51 10.70 480
Year Ended 6/30/89.............. 1.84 9.53 104
Year Ended 6/30/88.............. 1.81 9.24 98
Nine Months Ended 6/30/87....... 1.27 9.17 95
Year Ended 9/30/86.............. 1.08 9.80 240
Year Ended 9/30/85.............. 1.15 11.00 142
Year Ended 9/30/84.............. 1.18 11.88 10
Class B
Year Ended 6/30/94.............. 2.01% 7.03% 372%
1/8/93++ to 6/30/93............. 2.10* 7.18* 579
Class C
Year Ended 6/30/94.............. 1.99% 6.98% 372%
5/30/93++ to 6/30/93............ 2.05* 5.51* 579
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 12.
11
<PAGE>
+ Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable") served as the investment adviser to The Alliance Portfolios
(the "Trust"), of which SHORT-TERM U.S. GOVERNMENT is a series. On July
22, 1993, Alliance acquired the business and substantially all of the
assets of Equitable and became investment adviser of the Trust.
+ Commencement of operations.
++ Commencement of distribution.
* Annualized.
** Unaudited.
*** Reflects newly adopted fiscal year end.
(a) Includes with respect to SHORT-TERM U.S. GOVERNMENT a return of capital
for the year ended April 30, 1994 of $(0.08) for Class A, $(0.08) for Class
B and $(0.05) for Class C and for the period ended August 31, 1994 of
$(0.03) for Class A and $(0.02) for Class B and Class C.
(b) Total investment return is calculated assuming an initial investment
made at the net asset value at the beginning of the period, reinvestment of
all dividends and distributions at the net asset value during the period,
and a redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(c) "Total dividends and distributions" includes dividends in excess of net
investment income and return of capital. SHORT-TERM U.S. GOVERNMENT had
dividends in excess of net investment income with respect to Class A
shares, for the year ended April 30, 1994, of $(.01); with respect to Class
B shares, $(.01); and with respect to Class C shares, $(.01). MORTGAGE
SECURITIES INCOME had dividends in excess of net investment income with
respect to Class A shares of $(.02) for 1993; with respect to Class B
shares, $(.02) for 1993; and with respect to Class C shares, $(.01) for
1993.
(d) Net of expenses assumed and/or waived/reimbursed. If SHORT-TERM U.S.
GOVERNMENT had borne all expenses, the expense ratios would have been with
respect to Class A shares, 2.20% (annualized) for 1993, 2.17% for the year
ended April 30, 1994 and 2.95% (annualized) for the period ended August 31,
1994; with respect to Class B shares, 4.81% (annualized) for 1993, 3.21%
for the year ended April 30, 1994 and 3.60% (annualized) for the period
ended August 31, 1994; and with respect to Class C shares, 3.10%
(annualized) for the year ended April 30, 1994 and 3.64% (annualized) for
the period ended August 31, 1994. If U.S. GOVERNMENT had borne all
expenses, the expense ratios would have been 1.22% for 1986 and 1.09% for
1987. If MORTGAGE STRATEGY had borne all expenses, the expense ratios would
have been with respect to Class A shares, 1.55% (annualized) for 1992; and
with respect to Class B shares, 2.28% (annualized) for 1992. The ratio of
net investment income to average net assets would have been with respect to
Class A shares, 6.47% (annualized) for 1992; and with respect to Class B
shares, 5.86% (annualized) for 1992. If WORLD INCOME had borne all
expenses, the expense ratios would have been 1.87% for 1992, 1.92% for 1993
and 1.95% (annualized) for the six months ended April 30, 1994. If NORTH
AMERICAN GOVERNMENT INCOME had borne all expenses, the expense ratios would
have been with respect to Class A shares, 2.49% (annualized) for 1992; and
with respect to Class B shares, 3.16% (annualized) for 1992. The ratio of
net investment income to average net assets would have been with respect to
Class A shares, 10.89% (annualized) for 1992; and with respect to Class B
shares, 10.12% (annualized) for 1992. If GLOBAL DOLLAR GOVERNMENT had borne
all expenses, the expense ratios would have been with respect to Class A
shares, 1.91% (annualized); with respect to Class B shares, 2.63%
(annualized); and with respect to Class C shares, 2.59% (annualized).
(e) Includes interest expenses on reverse repurchase agreements. If
MORTGAGE STRATEGY had not borne interest expenses on reverse repurchase
agreements, the ratio of expenses to average net assets would have been
with respect to Class A shares, 1.42% (annualized) for 1992, 1.33% for 1993
and 1.19% (annualized) for the six months ended May 31, 1994; with respect
to Class B shares, 2.10% (annualized) for 1992, 2.07% for 1993 and 1.90%
(annualized) for the six months ended May 31, 1994; and with respect to
Class C shares, 1.74% (annualized) for 1993 and 1.89% (annualized) for the
six months ended May 31, 1994.
(f) Includes interest expenses. If MULTI-MARKET STRATEGY had not borne
interest expenses, the ratio of expenses to average net assets would have
been with respect to Class A shares, 1.33% (annualized) for 1991, 1.33% for
1992, 1.40% for 1993 and 1.26% (annualized) for the six months ended April
30, 1994; with respect to Class B shares, 2.05% (annualized) for 1991,
2.05% for 1992, 2.11% for 1993 and 1.97% (annualized) for the six months
ended April 30, 1994; and with respect to Class C shares, 2.11%
(annualized) for 1993 and 1.93% (annualized) for the six months ended April
30, 1994. If NORTH AMERICAN GOVERNMENT INCOME had not borne interest
expenses, the ratio of expenses (net of interest expenses) to average net
assets would have been with respect to Class A shares, 1.66% (annualized)
for 1992, 1.33% for 1993 and 1.25% (annualized) for the six months ended
May 31, 1994; with respect to Class B shares, 2.35% (annualized) for 1992,
2.04% for 1993 and 1.95% (annualized) for the six months ended May 31,
1994; and with respect to Class C shares, 2.04% (annualized) for 1993 and
1.95% (annualized) for the six months ended May 31, 1994.
(g) Includes loan fees. If MULTI-MARKET STRATEGY had not incurred loan
fees, the ratio of net investment income to average net assets would have
been with respect to Class A shares, 11.65% (annualized) for 1991, 11.78%
for 1992, 9.73% for 1993 and 6.85% (annualized) for the six months ended
April 30, 1994; with respect to Class B shares, 10.88% (annualized) for
1991, 11.02% for 1992, 8.99% for 1993 and 6.16% (annualized) for the six
months ended April 30, 1994; and with respect to Class C shares, 7.50%
(annualized) for 1993 and 5.72% (annualized) for the six months ended April
30, 1994.
12
<PAGE>
- --------------------------------------------------------------------------------
Glossary
- --------------------------------------------------------------------------------
The following terms are frequently used in this Prospectus. Many of these
terms are explained in greater detail under "Description of the
Funds--Additional Investment Practices" and in Appendix A.
Bonds are fixed, floating and variable rate debt obligations.
Debt securities are bonds, debentures, notes, bills and repurchase
agreements.
Fixed-income securities are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the
Funds' investment policies may be determined by Alliance to be of equivalent
quality to those rated) triple-A (Aaa or AAA), high quality (Aa or AA or
above), high grade (A or above) or investment grade (Baa or BBB or above) by,
as the case may be, Moody's, S&P, Duff & Phelps or Fitch, or may be
lower-rated securities, as defined below. In the case of "split-rated"
fixed-income securities (i.e., securities assigned non-equivalent credit
quality ratings, such as Baa by Moody's but BB by S&P, or, to take another
example, Ba by Moody's and BB by S&P but B by Fitch), a Fund will use the
rating deemed by Alliance to be the most appropriate under the circumstances.
Lower-rated securities are fixed-income securities rated Ba and BB or below,
or determined by Alliance to be of equivalent quality and are commonly
referred to as "junk bonds."
Equity securities are common and preferred stocks, securities convertible
into common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Convertible securities are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and
those backed only by the credit of the issuing agency itself. The first
category includes U.S. Treasury securities (which are U.S. Treasury bills,
notes and bonds) and certificates issued by GNMA (see below). U.S. Government
securities not backed by the full faith and credit of the United States
include certificates issued by FNMA and FHLMC (see below).
Mortgage-related securities are pools of mortgage loans that are assembled
for sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities,
SMRS, which are stripped mortgage-related securities,
CMOs, which are collateralized mortgage obligations,
GNMA certificates, which are securities issued by the Government National
Mortgage Association,
FNMA certificates, which are securities issued by the Federal National
Mortgage Association, and
FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation.
Interest-only or IO securities receive only the interest payments on an
underlying debt that has been structured to have two classes, one of which is
the IO class and another of which is the principal-only or PO class, which
class receives only the principal payments on the underlying obligation. POs
are similar to, and are sometimes referred to as, zero coupon securities,
which are debt securities issued without interest coupons.
Foreign government securities are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Corporation.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, Inc.
Prime commercial paper is commercial paper rated Prime-1 or higher by
Moody's, A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps.
Qualifying bank deposits are certificates of deposit, bankers' acceptances
and interest-bearing savings deposits of banks having total assets of more
than $1 billion and which are members of the Federal Deposit Insurance
Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
13
<PAGE>
- --------------------------------------------------------------------------------
Description Of The Funds
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation
of capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio
maturity of not more than three years and invests at least 65% of its total
assets in U.S. Government securities and repurchase agreements and forward
commitments relating to U.S. Government securities. The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although
these investments will be of high quality at the time of purchase, they
generally involve higher levels of credit risk than do U.S. Government
securities, as well as the risk (present with all fixed-income securities) of
fluctuations in value as interest rates change. The Fund will not be
obligated to dispose of any security whose credit quality falls below high
quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable,
floating and inverse floating rate instruments, (iii) make short sales
"against the box," (iv) enter into various hedging transactions, such as
interest rate swaps, caps and floors, (v) enter into reverse repurchase
agreements, (vi) purchase and sell futures contracts for hedging purposes,
(vii) purchase and sell call and put options on futures contracts or on
securities, for hedging purposes or to earn additional income, (viii) make
secured loans of portfolio securities, (ix) enter into repurchase agreements,
and (x) purchase securities for future delivery. The Fund may not invest more
than 15% of its total assets in illiquid securities or more than 5% of its
total assets in securities the disposition of which is restricted under
Federal securities laws (excluding, to the extent permitted by applicable
law, Rule 144A securities). For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of
current income as is consistent with safety of principal. As a matter of
fundamental policy, the Fund pursues its objective by investing solely in
U.S. Government securities that are backed by the full faith and credit of
the U.S. Government. These include U.S. Treasury securities, including zero
coupon Treasury securities, and GNMA certificates, including certain SMRS and
variable and floating rate instruments. The average weighted maturity of the
Fund's portfolio of U.S. Government securities is expected to vary between
one year or less and 30 years. The Fund may not invest more than 15% of its
average net assets at the time of purchase in illiquid securities. For
additional information on the use, risks and cost of these practices, see
"Additional Investment Practices." The Fund's investment objective is not
fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the
Fund are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United
States, (ii) savings and loan associations chartered under the laws of
Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Illinois,
Louisiana, Maine, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, Oklahoma, Pennsylvania, Tennessee, Utah, Washington and Wyoming,
(iii) credit unions chartered under the laws of Alaska*, California,
Florida*, Maine, Nevada, New York, Ohio and Utah and (iv) commercial banks
chartered under the laws of Alabama, Alaska, Arizona, California, Colorado,
Connecticut, Delaware, Idaho, Indiana, Kentucky, Louisiana, Maine, Maryland,
Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, Tennessee,
Texas, Washington and West Virginia. Institutions in the asterisked states
should obtain prior state regulatory approval before investing in shares of
the Fund. In addition, the Fund believes that it is currently a legal
investment for savings and loan associations, credit unions and commercial
banks chartered under the laws of certain other states.
MORTGAGE FUNDS
The Mortgage Funds are diversified investment companies that have been
designed to offer investors high current income from investment in
mortgage-related securities.
ALLIANCE MORTGAGE STRATEGY TRUST
Alliance Mortgage Strategy Trust, Inc. ("Mortgage Strategy") seeks the
highest level of current income, consistent with low volatility of net asset
value, that is available from a portfolio of mortgage-related securities of
the highest quality. As a matter of fundamental policy the Fund normally has
at least 65% of the value of its total assets invested in mortgage-related
securities. The Fund will purchase only those mortgage-related securities
that are triple-A securities or U.S. Government securities. The Fund's
portfolio is structured to achieve low volatility of net asset value
approximating that of
14
<PAGE>
a portfolio investing exclusively in two-year U.S. Treasury securities. The
Fund invests primarily in ARMS and fixed-rate mortgage securities and is
designed to provide a more consistent and less volatile net asset value than
that characteristic of a mutual fund investing primarily in fixed-rate
mortgage securities and a higher yield than that of a mutual fund investing
in ARMS.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
Mortgage-related securities in which the Fund may invest include (i) pass-
through mortgage-related securities, including pass-through securities backed by
ARMS and issued by GNMA, FNMA, FHLMC and by private organizations, (ii) CMOs and
multi-class pass-through securities, including floating rate CMOs that are ARMS,
(iii) SMRS, (iv) high coupon fixed-rate mortgage securities, and (v) foreign
mortgage-related securities. For a description of these mortgage-related
securities, see "Additional Investment Practices--Mortgage-Related Securities."
The Fund expects that new types of ARMS, other mortgage-related securities,
asset-backed securities and other securities in which the Fund may invest will
be developed from time to time and will consider investing in such new types of
securities.
The Fund may invest up to 35% of its total assets in (i) triple-A asset-backed
securities, (ii) non-mortgage-related U.S. Government securities, including
certain zero coupon Treasury securities, (iii) Treasury securities issued by
private corporate issuers, (iv) qualifying bank deposits, (v) prime commercial
paper or, if not rated, issued by companies which have outstanding triple-A debt
issues and (vi) triple-A debt securities secured by mortgages on commercial real
estate or residential rental properties.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps
and floors, (iv) invest in Eurodollar instruments, (v) purchase and write put
and call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. The Fund will not invest in illiquid securities on more
than 15% of its net assets. For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices."
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
seeks a high level of current income to the extent consistent with prudent
investment risk. The Fund invests primarily in a diversified portfolio of
mortgage-related securities, including CMOs, and, as a matter of fundamental
policy, maintains at least 65% of its total assets in mortgage-related
securities.
The Fund expects that governmental, government-related or private entities
may create mortgage loan pools offering pass-through investments in addition
to those described in this Prospectus. The mortgages underlying these
securities may be instruments whose principal or interest payments may vary
or whose terms to maturity may differ from customary long-term fixed-rate
mortgages. As new types of mortgage-related securities are developed and
offered to investors, the Fund will consider making investments in such new
types of securities. The Fund may invest up to 20% of its total assets in
lower-rated mortgage-related securities. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between two and ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for
the purchase or sale of securities, (iii) purchase put and call options
written by others and write covered put and call options on the types of
securities in which the Fund may invest for hedging purposes, (iv) enter into
interest rate swaps, caps and floors, (v) enter into interest rate futures
contracts, (vi) invest in variable floating and inverse floating rate
instruments, and (vii) lend portfolio securities. The Fund will not invest in
illiquid securities if, as a result, more than 10% of its total assets would
be illiquid. For additional information on the use, risk and costs of these
practices, see "Additional Investment Practices."
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have
been designed to offer investors a higher yield than a money market fund and
less fluctuation in net asset value than a longer-term bond fund.
ALLIANCE WORLD INCOME TRUST
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance World Income Trust, Inc. ("World Income"), Alliance Short-Term
Multi-Market Trust, Inc. ("Short-Term Multi-Market") and Alliance
Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy") each seek the
highest level of current income, consistent with what Alliance considers to
be prudent investment risk, that is available from a portfolio of high
quality debt securities having remaining maturities of not more than, with
respect to World Income, one year, with respect to Short-Term Multi-Market,
three years, and with respect to Multi-Market Strategy, five years. Each Fund
seeks high current yields by investing in a portfolio of debt securities
15
<PAGE>
denominated in the U.S. Dollar and selected foreign currencies. The
Multi-Market Funds seek investment opportunities in foreign, as well as
domestic, securities markets. World Income, which is not a money market fund,
will maintain at least 35% of its net assets in U.S. Dollar-denominated
securities. Short-Term Multi-Market will normally maintain a substantial
portion of its assets in debt securities denominated in foreign currencies
but will invest at least 25% of its net assets in U.S. Dollar-denominated
securities. Multi-Market Strategy normally expects to maintain at least 70%
of its assets in debt securities denominated in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages
the Multi-Market Funds' portfolios in accordance with a multi-market
investment strategy, allocating a Fund's investments among securities
denominated in the U.S. Dollar and the currencies of a number of foreign
countries and, within each such country, among different types of debt
securities. Alliance adjusts each Multi-Market Fund's exposure to each
currency such that the percentage of assets invested in securities of a
particular country or denominated in a particular currency varies in
accordance with Alliance's assessment of the relative yield and appreciation
potential of such securities and the relative strength of a country's
currency. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by Alliance in determining whether
to increase or decrease the emphasis placed upon a particular type of security
or industry sector within the Fund's investment portfolio. None of the Multi-
Market Funds invests more than 25% of its net assets in debt securities
denominated in a single currency other than the U.S. Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Additional Investment Practices--Forward Foreign
Currency Exchange Contracts"), can help protect against declines in the U.S.
Dollar value of income available for distribution to shareholders and
declines in the net asset value of a Fund's shares resulting from adverse
changes in currency exchange rates. For example, the return available from
securities denominated in a particular foreign currency would diminish in the
event the value of the U.S. Dollar increased against such currency. Such a
decline could be partially or completely offset by an increase in value of a
cross-hedge involving a forward exchange contract to sell a different foreign
currency, where such contract is available on terms more advantageous to a
Fund than a contract to sell the currency in which the position being hedged
is denominated. It is Alliance's belief that cross-hedges can therefore
provide significant protection of net asset value in the event of a general
rise in the U.S. Dollar against foreign currencies. However, a cross-hedge
cannot protect against exchange rate risks perfectly, and if Alliance is
incorrect in its judgment of future exchange rate relationships, a Fund could
be in a less advantageous position than if such a hedge had not been
established.
Each Multi-Market Fund invests in debt securities denominated in the
currencies of countries whose governments are considered stable by Alliance.
In addition to the U.S. Dollar, such currencies include, among others, the
Australian Dollar, Austrian Schilling, British Pound Sterling, Canadian
Dollar, Danish Krone, Dutch Guilder, European Currency Unit ("ECU"), French
Franc, Irish Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand
Dollar, Norwegian Krone, Spanish Peseta, Swedish Krona, Swiss Franc and
German Mark. An issuer of debt securities purchased by a Fund may be
domiciled in a country other than the country in whose currency the
instrument is denominated.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of
certain of the member states of the European Union, a twelve-nation
organization engaged in cooperative economic activities. The specific amounts
of currencies comprising the ECU may be adjusted by the Council of Ministers
of the European Union to reflect changes in relative values of the underlying
currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian
and Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and World Income
will invest 65% (and normally substantially all) of its total assets in high
quality income-producing debt securities. Accordingly, the Multi-Market
Funds' portfolio securities will consist of (i) U.S. Government securities,
(ii) high quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a triple-A
rating, with respect to World Income, or a high quality rating, with respect
to Short-Term Multi-Market and Multi-Market Strategy, (iv) certificates of
deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of foreign banks) having
total assets of more than $1 billion, with respect to World Income, or $500
million, with respect to Short-Term Multi-Market and Multi-Market Strategy,
and determined by Alliance to be of high quality, and (v) prime commercial
paper or, if not rated, issued by U.S. or foreign companies having
outstanding high quality debt securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at
least 25% of its total assets in debt instruments issued by domestic and
foreign companies engaged in the banking industry, including bank holding
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companies. Such investments may include certificates of deposit, time
deposits, bankers' acceptances, and obligations issued by bank holding
companies, as well as repurchase agreements entered into with banks (as
distinct from non-banks) in accordance with the policies set forth with
respect to the Funds in "Additional Investment Practices--Repurchase
Agreements." See "Risk Considerations--Investment in the Banking Industry."
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign
currencies, (iv) purchase or sell forward foreign currency exchange
contracts, (v) with respect to Short-Term Multi-Market and Multi-Market
Strategy, enter into interest rate swaps, caps and floors, (vi) invest in
variable, floating and inverse floating rate instruments, (vii) make secured
loans of its portfolio securities, and (viii) enter into repurchase
agreements. A Multi-Market Fund will not invest in illiquid securities if as
a result more than 10% of its assets would be so invested. For additional
information on the use, risks and costs of these practices, see "Additional
Investment Practices." Multi-Market Strategy maintains borrowings of
approximately 25% of its total assets less liabilities (other than the amount
borrowed). See "Risk Considerations--Effects of Borrowing."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through
investments primarily in foreign government securities.
Alliance North American Government Income Trust
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent
with what Alliance considers to be prudent investment risk, that is available
from a portfolio of debt securities issued or guaranteed by the United
States, Canada and Mexico, their political subdivisions (including Canadian
provinces but excluding states of the United States), agencies,
instrumentalities or authorities ("Government securities"). The Fund invests
in investment grade securities denominated in the U.S. Dollar, the Canadian
Dollar and the Mexican Peso and expects to maintain at least 25% of its
assets in securities denominated in the U.S. Dollar. The Fund expects that it
will not retain a debt security which is down-graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. The average weighted
maturity of the Fund's portfolio of fixed-income securities is expected to
vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship
among the United States, Canada and Mexico, characterized by the reduction
and projected elimination of most barriers to free trade among the three
nations and the growing coordination of their fiscal and monetary policies,
will benefit the economic performance of all three countries and promote
greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments
in an effort to best enable the Fund to achieve its investment objective.
Thus, the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such
securities and the relationship of the country's currency to the U.S. Dollar.
The Fund invests at least, and normally substantially more than, 65% of its
total assets in Government securities. To the extent that its assets are not
invested in Government securities, however, the Fund may invest the balance
of its total assets in investment grade debt securities issued by the
governments of countries located in Central and South America or any of their
political subdivisions, agencies, instrumentalities or authorities, provided
that such securities are denominated in their local currencies. The Fund will
not invest more than 10% of its total assets in debt securities issued by the
governmental entities of any one such country, except that the Fund may
invest up to 25% of its total assets in debt securities issued by governmental
entities of Argentina ("Argentine Government securities"). The Fund will
normally invest at least 65% of its total assets in income-producing securities.
For a general description of Canada, Mexico and Argentina, see Appendix B.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada
Treasury bills. Canada Treasury bills are debt obligations with maturities of
less than one year. A new issue of Government of Canada bonds frequently
consists of several different bonds with maturities ranging from one to 25
years.
All Canadian provinces have outstanding bond issues and several provinces
also guarantee bond issues of provincial authorities, agents and Crown
corporations. Each new issue yield is based upon a spread from an outstanding
Government of Canada issue of comparable term and coupon. Many Canadian
municipalities, municipal financial authorities and Crown corporations raise
funds through the bond market in order to finance capital expenditures.
Unlike U.S. municipal securities, which have special tax status, Canadian
municipal securities have the same tax status as other Canadian Government
securities and trade similarly to such securities. The Canadian municipal
market may be less liquid than the provincial bond market.
Canadian Government securities in which the Fund may invest include a
modified pass-through vehicle issued pursuant to the program established
under the National Housing Act of Canada. Certificates issued pursuant to
this program benefit from the guarantee of the Canada Mortgage and Housing
Corporation, a federal Crown corporation that is (except for certain limited
purposes) an agency of the Government of Canada whose
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guarantee is an unconditional obligation of the Government of Canada in most
circumstances (similar to that of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the
Mexican Government on a discount basis and with maturities that range from
seven to 364 days, (ii) Bondes, which are long-term development bonds issued
directly by the Mexican Government with a minimum term of 364 days, and (iii)
Ajustabonos, which are adjustable-rate bonds with a minimum three-year term
issued directly by the Mexican Government with the face amount adjusted each
quarter by the quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ("BIC"),
which are investment and growth bonds issued directly by the Argentine
Government with maturities of up to ten years, (ii) Bono de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly
by the Argentine Government with maturities of up to ten years and (iii) Bono
de Credito a la Exportacion ("BOCREX"), which are export credit bonds issued
directly by the Argentine government with maturities of up to four years. To
date, Argentine Government securities are not rated by either S&P, Moody's,
Duff & Phelps or Fitch. Alliance, however, believes, that there are Argentine
Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write
put and call options on foreign currencies, (iii) purchase or sell forward
foreign currency exchange contracts, (iv) write covered put and call options
and purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if as a result 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practice, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other
than the amount borrowed). See "Risk Considerations--Effects of Borrowing."
Alliance Global Dollar Government Fund
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government")
seeks primarily a high level of current income, and secondarily capital
appreciation. In seeking to achieve these objectives, the Fund invests at
least 65% of its total assets in sovereign debt obligations. The Fund's
investments in sovereign debt obligations will emphasize obligations of a
type customarily referred to as "Brady Bonds" that are issued as part of debt
restructurings and that are collateralized in full as to principal due at
maturity by zero coupon U.S. Government securities ("collateralized Brady
Bonds"). See "Additional Investment Practices--Brady Bonds." The Fund may
also invest up to 35% of its total assets in U.S. and non-U.S. corporate
fixed-income securities. See "Risk Considerations--U.S. Corporate
Fixed-Income Securities." The Fund will limit its investments in sovereign
debt obligations and U.S. and non-U.S. corporate fixed-income securities to
U.S. Dollar-denominated securities. Alliance expects that, based upon current
market conditions, the Fund's portfolio of U.S. fixed-income securities will
have an average maturity range of approximately nine to 15 years and the
Fund's portfolio of non-U.S. fixed-income securities will have an average
maturity range of approximately 15 to 25 years. Alliance anticipates that the
Fund's portfolio of sovereign debt obligations will have a longer average
maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower
by S&P, Duff & Phelps and Fitch) and unrated securities of comparable
investment quality. These securities are considered to have extremely poor
prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not current in
the payment of interest or principal. For a description of bond ratings, see
Appendix A. The Fund may also invest in investment grade securities. Unrated
securities will be considered for investment by the Fund when Alliance
believes that the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations themselves limit the
risk to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's investment objectives and policies. As of August
31, 1994, the percentages of the Fund's assets invested in securities rated
(or considered by Alliance to be of equivalent quality to securities rated)
in particular rating categories were 14.3% in A and above, 3.0% in Baa or
BBB, 35.4% in Ba or BB, 39.1% in B, 6.6% in Caa or CCC, and 1.6% non-rated.
See "Risk Considerations--Securities Ratings," "--Investment in Fixed-Income
Securities Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income
Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
initial investment focus is expected to be in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines and Venezuela because
these countries are now, or are expected by Alliance at a future date to be,
the principal participants in debt restructuring programs (including, in the
case of Argentina, Mexico, the Philippines and Venezuela, issuers of
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currently outstanding Brady Bonds) that, in Alliance's opinion, will provide the
most attractive investment opportunities for the Fund. See Appendix A to the
Fund's Statement of Additional Information for information about those six
countries. Alliance anticipates that other countries that will provide initial
investment opportunities for the Fund include, among others, Bolivia, Costa
Rica, the Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland,
Thailand, Turkey and Uruguay. See "Additional Investment Practices--Brady
Bonds."
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of
which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that
it will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of
its assets in the securities or obligations of issuers located in any
particular country.
A substantial portion of the Fund's investments will be in (i) securities
which were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed
and floating rate loans that are arranged through private negotiations
between an issuer of sovereign debt obligations and one or more financial
institutions and in participations in and assignments of these types of
loans, (iii) invest in other investment companies, (iv) invest in warrants,
(v) enter into interest rate swaps, caps and floors, (vi) enter into forward
commitments for the purchase or sale of securities, (vii) make secured loans
of its portfolio securities, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) enter into standby commitment
agreements, (xi) make short sales of securities or maintain a short position,
(xii) write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes, (xiii)
purchase and sell exchange-traded options on any securities index composed of
the types of securities in which it may invest, and (xiv) invest in variable,
floating and inverse floating rate instruments. The Fund will not invest in
illiquid securities if as a result more than 15% of its net assets would be
so invested. The Fund may also at any time, with respect to up to 35% of its
total assets, temporarily invest funds awaiting reinvestment or held for
reserves for dividends and other distributions to shareholders in U.S.
Dollar-denominated money market instruments. For additional information on
the use, risks and costs of these practices, see "Additional Investment
Practices." While the Fund does not currently intend to do so, it reserves
the right to borrow an amount not to exceed one-third of the Fund's assets
less liabilities (other than the amount borrowed). See "Risk
Considerations--Effects of Borrowing."
CORPORATE BOND FUND
Corporate Bond Portfolio
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment
company that seeks primarily to maximize income over the long term consistent
with providing reasonable safety in the value of each shareholder's
investment, and secondarily to increase its capital through appreciation of
its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment. In pursuing these
objectives, the Fund's policy is to invest in readily marketable securities
which give promise of relatively attractive yields, but which do not involve
substantial risk of loss of capital. The Fund follows a policy of
maintaining at least 65% of its net assets invested in debt securities. Such
objectives and policies cannot be changed without the approval of the
shareholders. Although the Fund also follows a policy of maintaining at least
65% of its total assets invested in corporate bonds, it is permitted to
invest in securities of non-corporate issuers.
There is no minimum rating requirement applicable to the Fund's investments
in fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations--Securities Ratings," "--Investment in Fixed-Income Securities
Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1994, on a weighted average
basis, the percentages of the Fund's assets invested in securities rated (or
considered by Alliance to be of equivalent quality to securities rated) in
particular rating categories were 22% in A and above, 46% in Baa or BBB, 19%
in Ba or BB, and 10% in B. The Fund did not invest in securities rated below
B by each of Moody's, S&P, Duff & Phelps and Fitch or, if not rated,
considered by Alliance to be of equivalent quality to securities so rated.
The Fund has complete flexibility as to the types of securities in which it
will invest and the relative proportions thereof, and the Fund plans to vary
the proportions of its holdings of long- and short-term fixed-income
securities and of equity securities in order to reflect its assessment of
prospective cyclical changes even if such action may adversely affect current
income. However, substantially all of the Fund's investments will be income
producing. The average weighted maturity of the Fund's portfolio of
fixed-income securities is expected to vary between one year or less and 30
years.
The Fund may invest up to 50% of the value of its total assets in foreign
debt securities which will consist primarily of corporate fixed-income
securities and sovereign debt
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obligations. Not more than 15% of the Fund's total assets may be invested in
these other sovereign debt obligations, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal.
The Fund may also (i) invest in structured securities, (ii) invest in fixed
and floating rate loans that are arranged through private negotiations
between an issuer of sovereign debt obligations and one or more financial
institutions and in participations in and assignments of these type of loans,
(iii) for hedging purposes, purchase put and call options written by others
and write covered put and call options on the types of securities in which
the Fund may invest, (iv) for hedging purposes, enter into various hedging
transactions, such as interest rate swaps, caps and floors, (v) invest in
variable, floating and inverse floating rate instruments, (vi) invest in zero
coupon and pay-in-kind securities, and (vii) invest in CMOs and multi-class
pass-through. As a matter of fundamental policy, the Fund will not purchase
illiquid securities. The Fund will not hold securities that become illiquid
if as a result more than 15% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices."
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and
costs of engaging in these practices.
Derivatives. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index.
These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, currency exchange rates, bond indices and stock
indices. Derivatives can be used to earn income or protect against risk, or
both. For example, one party with unwanted risk may agree to pass that risk
to another party who is willing to accept the risk, the second party being
motivated, for example, by the desire either to earn income in the form of a
fee or premium from the first party, or to reduce its own unwanted risk by
attempting to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and
either in place of more traditional direct investments or to obtain exposure
to otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. Alliance is not an aggressive user
of derivatives with respect to any of the Funds. However, a Fund may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions. The Multi-Market Funds
in particular generally make extensive use of carefully selected forwards and
other derivatives to achieve the currency hedging that is an integral part of
their investment strategy. Alliance's use of derivatives is subject to
continuous risk assessment and control from the standpoint of each Fund's
investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction
can be created.
* Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call option
entitles the holder to purchase, while a put option entitles the holder to
sell, the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index). Likewise, when an option is exercised the
writer of the option would be obligated to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying asset (or
settle for cash an amount based on an underlying asset, rate or index).
* Futures--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying asset
but instead is settled for cash equal to the difference between the values
of the contract on the date it is entered into and its maturity date.
* Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts
are customized, privately negotiated agreements designed to satisfy the
objectives of each party. A forward contract usually results in the delivery
of the underlying asset upon maturity of the contract in return for the
agreed upon payment.
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* Swaps--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals
(payment dates) based upon or calculated by reference to changes in specified
prices or rates (interest rates in the case of interest rate swaps, currency
exchange rates in the case of currency swaps) for a specified amount of an
underlying asset (the "notional" principal amount). The payment flows are
usually netted against each other, with the difference being paid by one
party to the other. Except for currency swaps, the notional principal amount
is used solely to calculate the payment streams but is not exchanged. With
respect to currency swaps, actual principal amounts of currencies may be
exchanged by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued
in connection with the restructuring of certain foreign obligations. See
"Indexed Commercial Paper" and "Structured Securities" below. The term
"derivative" is also sometimes used to describe securities involving rights
to a portion of the cash flows from an underlying pool of mortgages or other
assets from which payments are passed through to the owner of, or that
collateralize, the securities. These securities are described below under
"Mortgage-Related Securities" and "Other Asset-Backed Securities."
While the judicious use of derivatives by highly experienced investment
managers such as Alliance can be quite beneficial, derivatives also involve
risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. Following is a general discussion
of important risk factors and issues concerning the use of derivatives that
investors should understand before investing in a Fund.
* Market Risk--This is the general risk attendant to all investments that
the value of a particular investment will change in a way detrimental to the
Fund's interest.
* Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to a Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk--This is the risk that a loss may be sustained by a Fund as a
result of the failure of a another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made any
initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.
* Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and indices.
Many derivatives, in particular privately negotiated derivatives, are complex
and often valued subjectively. Improper valuations can result in increased
cash payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the
value of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective
means of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
Derivatives Used by the Funds. Following is a description of specific
derivatives currently used by one or more of the Funds.
Options on Securities. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of
the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Fund would experience a loss not greater than the premium paid for the
option. Thus, a Fund would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased
or remained the same (in the case of a put) or otherwise did not increase (in
the case of a put) or decrease (in the case of a call) by more than the
amount of
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the premium. If a put or call option purchased by a Fund were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options. A call option written by
a Fund is "covered" if the Fund owns the underlying security, has an absolute
and immediate right to acquire that security upon conversion or exchange of
another security it holds, or holds a call option on the underlying security
with an exercise price equal to or less than that of the call option it has
written. A put option written by a Fund is covered if the Fund holds a put
option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred,
a Fund could be obligated to purchase the underlying security at a higher
price than its current market value. Conversely, the risk involved in writing
an uncovered call option is that there could be an increase in the market
value of the underlying security, and a Fund could be obligated to acquire
the underlying security at its current price and sell it at a lower price.
The risk of loss from writing an uncovered put option is limited to the
exercise price of the option, whereas the risk of loss from writing an
uncovered call option is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved from other
hedging strategies.
Short-Term U.S. Government, Mortgage Securities Income, North American
Government Income, Global Dollar Government and Corporate Bond generally
purchase or write privately negotiated options on securities. A Fund that
purchases or writes privately negotiated options on securities will effect
such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions)
deemed creditworthy by Alliance, and Alliance has adopted procedures for
monitoring the creditworthiness of such counterparties. Privately negotiated
options purchased or written by a Fund may be illiquid, and it may not be
possible for the Fund to effect a closing transaction at an advantageous
time. See "Illiquid Securities" below. Neither Mortgage Securities Income nor
Corporate Bond will purchase an option on a security if, immediately
thereafter, the aggregate cost of all outstanding options purchased by such
Fund would exceed 2% of the Fund's total assets. Nor will either such Fund
write an option if, immediately thereafter, the aggregate value of the Fund's
portfolio securities subject to outstanding options would exceed 15% of the
Fund's total assets.
Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than taking or making delivery of
a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
Options on Foreign Currencies. A Fund invests in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign
exchanges for the purpose of protecting against declines in the U.S. Dollar
value of foreign currency denominated portfolio securities and against
increases in the U.S. Dollar cost of securities to be acquired. The purchase
of an option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move adversely, a Fund may
forfeit the entire amount of the premium plus related transaction costs.
Warrants. Global Dollar Government may invest in warrants, which are option
securities permitting their holders to subscribe for other securities. Global
Dollar Government may invest in warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Warrants do
not carry with them dividend or voting rights with respect to the underlying
securities, or any rights in the assets of the issuer. As a result, an
investment in warrants may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Futures Contracts and Options on Futures Contracts. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or
purchased by a Fund will be traded on U.S. or foreign exchanges and, except
with respect to Short-Term U.S. Government, will be used only for hedging
purposes.
Mortgage Strategy, World Income, Short-Term Multi-Market, Multi-Market
Strategy, and North American Government Income will not enter into a futures
contract or option on a futures contract if immediately thereafter the market
values of the outstanding futures contracts of the Fund and the
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currencies and futures contracts subject to outstanding options written by the
Fund would exceed 50% of its total assets. Nor will Mortgage Strategy, Mortgage
Securities Income, World Income, Short-Term Multi-Market, Multi-Market
Strategy or North American Government Income do so if immediately thereafter
the aggregate of initial margin deposits on all the outstanding futures
contracts of the Fund and premiums paid on outstanding options on futures
contracts would exceed 5% of the market value of the total assets of the Fund.
In addition, Mortgage Securities Income will not enter into (i) options on
futures contracts, (ii) any futures contract other than one on fixed-income
securities or based on interest rates, or (iii) any futures contract if
immediately thereafter the sum of the then aggregate futures market prices of
financial instruments required to be delivered under open futures contract
sales and the aggregate futures market prices of instruments required to be
delivered under open futures contract purchases would exceed 30% of the value
of the Fund's total assets.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
Mortgage Strategy intends to use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR (to which many short-term
borrowings and floating rate securities in which the Fund invests are
linked).
Forward Foreign Currency Exchange Contracts. Each Fund that purchases or
sells forward contracts on foreign currencies ("forward contracts") attempts
to minimize the risk to it from adverse changes in the relationship between
the U.S. Dollar and other currencies. A Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or
sale of a security denominated in a foreign currency in order to "lock in"
the U.S. Dollar price of the security ("transaction hedge"). When a Fund
believes that a foreign currency may suffer a substantial decline against the
U.S. Dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when the Fund
believes that the U.S. Dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount ("position hedge"). Instead of
entering into a position hedge, a Fund may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed U.S. Dollar
amount where the Fund believes that the U.S. Dollar value of the currency to
be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which portfolio
securities of the Fund are denominated ("cross-hedge").
Forward Commitments. Forward commitments are forward contracts for the
purchase or sale of securities, including purchases on a "when-issued" basis
or purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed
at the time the commitment is made, but payment for and delivery of the
securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but settlements beyond two months
may be negotiated. Securities purchased or sold under a forward commitment
are subject to market fluctuation, and no interest or dividends accrues to
the purchaser prior to the settlement date. At the time a Fund enters into a
forward commitment, it records the transaction and thereafter reflects the
value of the security purchased or, if a sale, the proceeds to be received,
in determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation would be canceled if the required
conditions did not occur and the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made
by Mortgage Strategy, North American Government Income or Global Dollar
Government if, as a result, the Fund's aggregate forward commitments under
such transactions would be more than 30% of its total assets.
A Fund's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Funds enter into forward
commitments, however, only with the intention of actually receiving
securities or delivering them, as the case may be. If a Fund, however,
chooses to dispose of the right to acquire a when-issued security prior to
its acquisition or dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
Interest Rate Transactions (Swaps, Caps and Floors). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative
manner.
Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate
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payments) computed based on a contractually-based principal (or "notional")
amount. Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an asset-
based or liability-based basis, depending upon whether it is hedging its assets
or liabilities, and will usually enter into interest rate swaps on a net basis
(i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
Short-Term Multi-Market, Multi-Market Strategy and North American Government
Income may enter into interest rate swaps involving payments to the same
currency or in different currencies. Short-Term U.S. Government, Mortgage
Strategy, Mortgage Securities Income, Global Dollar Government and Corporate
Bond will not enter into an interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other
party thereto is then rated in the highest rating category of at least one
nationally recognized rating organization. Each of Short-Term Multi-Market,
Multi-Market Strategy and North American Government Income will enter into
interest rate swap, cap or floor transactions with its respective custodian,
and with other counterparties, but only if: (i) for transactions with
maturities under one year, such other counterparty has outstanding prime
commercial paper; or (ii) for transactions with maturities greater than one
year, the counterparty has outstanding high quality debt securities.
The swap market has grown substantially in recent years, with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less
liquid than swaps. These transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, unless there
is a counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund
is contractually obligated to make.
Standby Commitment Agreements. Standby commitment agreements are similar to
put options that commit a Fund, for a stated period of time, to purchase a
stated amount of a security that may be issued and sold to the Fund at the
option of the issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the agreement, the Fund
is paid a commitment fee regardless of whether the security ultimately is
issued. The Funds will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price
considered advantageous and unavailable on a firm commitment basis. The Funds
will not enter into standby commitments with a remaining term in excess of 45
days and will limit their investments in such commitments so that the
aggregate purchase price of the securities subject to the commitments does
not exceed 20% of their respective assets.
There is no guarantee that the security subject to a standby commitment will
be issued. In addition, the value of the security, if issued, on the delivery
date may be more or less than its purchase price. Since the issuance of the
security is at the option of the issuer, a Fund will bear the risk of capital
loss in the event the value of the security declines and may not benefit from
an appreciation in the value of the security during the commitment period if
the issuer decides not to issue and sell the security to the Fund.
Indexed Commercial Paper. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in
such commercial paper may do so without limitation. A Fund will purchase such
commercial paper with the currency in which it is denominated and, at
maturity, will receive interest and principal payments thereon in that
currency, but the amount of principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between the
two specified currencies between the date the instrument is issued and the
date the instrument matures. While such commercial paper entails the risk of
loss of principal, the potential for realizing gains as a result of changes
in foreign currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the U.S. Dollar value of investments denominated in
foreign currencies while providing an attractive money market rate of return.
A Fund will purchase such commercial paper for hedging purposes only, not for
speculation.
Mortgage-Related Securities. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of
mortgage loans made to home owners. Mortgage-related securities bear interest
at either a fixed rate or an adjustable rate determined by reference to an
index rate. The mortgage loan pools may be assembled for sale to investors
(such as a Fund) by governmental or private organizations. Mortgage-related
securities issued by GNMA are backed by the full faith and credit of the
United States; those issued by FNMA and FHLMC are not so backed.
Securities representing interests in pools created by private issuers
generally offer a higher rate of interest than securities representing
interests in pools created by governmental issuers because there are no
direct or indirect governmental guarantees of the underlying mortgage
payments. However, private issuers sometimes obtain committed loan
facilities, lines of credit, letters of credit, surety bonds or other forms
of liquidity and credit enhancement to support the timely payment of interest
and principal with respect to their securities if the borrowers on the
underlying mortgages fail to make their mortgage payments. The ratings of
such
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non-governmental securities are generally dependent upon the ratings of
the providers of such liquidity and credit support and would be adversely
affected if the rating of such an enhancer were downgraded. A Fund may buy
mortgage-related securities without credit enhancement if the securities meet
the Fund's investment standards. Although the market for mortgage-related
securities is becoming increasingly liquid, those of certain private
organizations may not be readily marketable.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided
beneficial interest in the underlying pool of mortgage loans and receives a
pro rata share of the monthly payments made by the borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities. Prepayments of mortgages resulting from the sale, refinancing or
foreclosure of the underlying properties are also paid to the holders of
these securities. Some mortgage-related securities, such as securities issued
by GNMA, are referred to as "modified pass-through" securities. The holders
of these securities are entitled to the full and timely payment of principal
and interest, net of certain fees, regardless of whether payments are
actually made on the underlying mortgages. Another form of mortgage-related
security is a "pay-through" security, which is a debt obligation of the
issuer secured by a pool of mortgage loans pledged as collateral that is
legally required to be paid by the issuer regardless of whether payments are
actually made on the underlying mortgages.
Collateralized mortgage obligations (CMOs) are the predominant type of "pay-
through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each
having different maturities, interest rates and payment schedules, and with
the principal and interest on the underlying mortgages allocated among the
several classes in various ways. The collateral securing the CMOs may consist
of a pool of mortgages, but may also consist of mortgage-backed bonds or pass-
through securities. CMOs may be issued by a U.S. Government instrumentality
or agency or by a private issuer. Although payment of the principal of, and
interest on, the underlying collateral securing privately issued CMOs may be
guaranteed by GNMA, FNMA or FHLMC, these CMOs represent obligations solely of
the private issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC,
any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates
or indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror
changes in market interest rate levels, while others tend to lag changes in
market rate levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages.
ARMS secured by fixed-rate mortgages generally have lifetime caps on the
coupon rates of the securities. To the extent that general interest rates
increase faster than the interest rates on the ARMS, these ARMS will decline
in value. The adjustable-rate mortgages that secure ARMS will frequently have
caps that limit the maximum amount by which the interest rate or the monthly
principal and interest payments on the mortgages may increase. These payment
caps can result in negative amortization (i.e., an increase in the balance of
the mortgage loan). Furthermore, since many adjustable-rate mortgages only
reset on an annual basis, the values of ARMS tend to fluctuate to the extent
that changes in prevailing interest rates are not immediately reflected in
the interest rates payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by
a pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has
one class of interest-only securities (IOs) receiving all of the interest
payments from the underlying assets, while the other class of securities,
principal-only securities (POs), receives all of the principal payments from
the underlying assets. IOs and POs are extremely sensitive to interest rate
changes and are more volatile than mortgage-related securities that are not
stripped. IOs tend to decrease in value as interest rates decrease, while POs
generally increase in value as interest rates decrease. If prepayments of the
underlying mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing principal
balance of the assets. Changes in the values of IOs and POs can be
substantial and occur quickly, such as occurred in the first half of 1994
when the value of many POs dropped precipitously due to increases in interest
rates. For this reason, none of the Funds relies on IOs and POs as the
principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayment of the underlying mortgages. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the
early payment of the applicable mortgage-related securities. In that event a
Fund may be unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as high a yield as
the mortgage-related securities. Consequently, early payment associated with
mortgage-related securities causes these securities to experience
significantly greater price and yield volatility than experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments
is affected by the level of general interest rates, general
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economic conditions and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, a Fund may not be able to realize the rate of return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline. Although the
negative effect could be lessened if the mortgage-related securities were to
be paid earlier (thus permitting a Fund to reinvest the prepayment proceeds
in investments yielding the higher current interest rate), as described above
the rate of mortgage prepayments and early payment of mortgage-related
securities generally tends to decline during a period of rising interest
rates.
Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising
interest rates. Although, as described above, the yield on ARMS varies with
changes in the applicable interest rate or index, there is often a lag
between increases in general interest rates and increases in the yield on
ARMS as a result of relatively infrequent interest rate reset dates. In
addition, adjustable-rate mortgages and ARMS often have interest rate or
payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
Mortgage Strategy may invest up to 15% of the value of its total assets in
mortgage-related securities denominated in U.S. Dollars or in foreign
currencies and issued or guaranteed by foreign governments or issued by
foreign non-governmental issuers, provided that such foreign mortgage-related
securities are triple-A rated. The percentage of Mortgage Strategy's assets
invested in foreign mortgage-related securities will vary and its portfolio
of foreign mortgage-related securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations--Foreign Investment."
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks
associated with changes in interest rates and prepayment of underlying
obligations similar to the risks of investment in mortgage-related securities
discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit
card receivables are generally unsecured obligations of the credit card
holder and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right
to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There have also been proposals to cap the interest rate that a
credit card issuer may charge. In some transactions, the value of the asset-
backed security is dependent on the performance of a third party acting as
credit enhancer or servicer. Furthermore, in some transactions (such as those
involving the securitization of vehicle loans or leases) it may be
administratively burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may become damaged or
stolen.
U.S. Government Securities. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of
the issuer to borrow from the U.S. Treasury or backed only by the credit of
the issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full
faith and credit of the United States and differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence issued
at a discount and repaid at full face value upon maturity), U.S.
Treasury notes (maturities of one to ten years with interest payable
every six months) and U.S. Treasury bonds (generally maturities of
greater than ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of
the U.S. Government, such as securities issued by GNMA, the Farmers
Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the
Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit
of the U.S. Government, such as securities issued by FNMA and FHLMC,
and governmental CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities,
except GNMA certificates, normally provide for periodic payments of interest
in fixed amounts with principal payments at maturity or specified call
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dates. For information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" above.
U.S. Government securities also include zero coupon securities and principal-
only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are
similar to SMRS. Such securities include those that are issued with an IO
class and a PO class. See "Mortgage-Related Securities" above and "Zero
Coupon and Principal-Only Securities" below. Although these stripped
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield
or value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder
during its life. Its value to an investor consists of the difference between
its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face
value. Such securities usually trade at a deep discount from their face or
par value and are subject to greater fluctuations in market value in response
to changing interest rates than debt obligations of comparable maturities and
credit quality that make current distributions of interest. On the other
hand, because there are no periodic interest payments to be reinvested prior
to maturity, these securities eliminate reinvestment risk and "lock in" a
rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without
interest coupons. Principal-only Treasury securities are U.S. Treasury notes
and bonds that have been stripped of their unmatured interest coupons, and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Currently the only U.S. Treasury security issued
without coupons is the Treasury bill. Although the U.S. Treasury does not
itself issue Treasury notes and bonds without coupons, under the U.S.
Treasury STRIPS program interest and principal payments on certain long-term
Treasury securities may be maintained separately in the Federal Reserve book
entry system and may be separately traded and owned. In addition, in the last
few years a number of banks and brokerage firms have separated ("stripped")
the principal portions from the coupon portions of U.S. Treasury bonds and
notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account). The staff of the
Commission has indicated that, in its view, these receipts or certificates
should be considered as securities issued by the bank or brokerage firm
involved and, therefore, should not be included in a Fund's categorization of
U.S. Government securities. The Funds disagree with the staff's position but
will not treat such securities as U.S. Government securities until final
resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to
make the distributions necessary for a Fund not to be subject to federal
income or excise taxes, the Fund might be required to pay out as an income
distribution each year an amount, obtained by liquidation of portfolio
securities or borrowings if necessary, greater than the total amount of cash
that the Fund has actually received as interest during the year. Each Fund
believes, however, that it is highly unlikely that it would be necessary to
liquidate portfolio securities or borrow money in order to make such required
distributions or to meet its investment objective. For a discussion of the
tax treatment of zero coupon Treasury securities, see "Dividends,
Distributions and Taxes--Zero Coupon Treasury Securities" in the Statement of
Additional Information of each Fund that is permitted to invest in such
securities.
Corporate Bond may also invest in "pay-in-kind" debentures (i.e., debt
obligations the interest on which may be paid in the form of obligations of
the same type rather than cash), which have characteristics similar to zero
coupon securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable
and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of
time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated
under a formula based on a short-term interest rate index multiplied by a
designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as
inverse floaters. The interest rate on an inverse floater resets in the
opposite direction from the
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market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in market value.
Structured Securities. Structured securities in which Global Dollar
Government and Corporate Bond may invest represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations, with respect to Global Dollar
Government, or foreign government securities, with respect to Corporate Bond.
This type of restructuring involves the deposit with or purchase by an
entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one
or more classes of structured securities backed by, or representing interests
in, the underlying instruments. The cash flow on the underlying instruments
may be apportioned among the newly issued structured securities to create
securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent
of the payments made with respect to structured securities is dependent on
the extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities. Global Dollar Government may
invest up to 25% of its total assets, and Corporate Bond may invest without
limit, in these types of structured securities.
Loan Participations and Assignments. A Fund's investments in loans are
expected in most instances to be in the form of participations in loans and
assignments of all or a portion of loans from third parties. A Fund's
investment in loan participations typically will result in the Fund having a
contractual relationship only with the lender and not with the borrower. A
Fund will acquire participations only if the lender interpositioned between
the Fund and the borrower is a lender having total assets of more than $25
billion and whose senior unsecured debt is rated investment grade or higher.
When a Fund purchases a loan assignment from a lender it will acquire direct
rights against the borrower on the loan. Because loan assignments are
arranged through private negotiations between potential assignees and
potential assignors, however, the rights and obligations acquired by a Fund
as the purchaser of an assignment may differ from, and be more limited than,
those held by the assigning lender. The assignability of certain sovereign
debt obligations, with respect to Global Dollar Government, or foreign
government securities, with respect to Corporate Bond, is restricted by the
governing documentation as to the nature of the assignee such that the only
way in which the Fund may acquire an interest in a loan is through a
participation and not an assignment. A Fund may have difficulty disposing of
assignments and participations because to do so it will have to assign such
securities to a third party. Because there is no liquid market for such
securities, such securities can probably be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse effect on the value of such securities and a Fund's ability to
dispose of particular assignments or participations when necessary to meet
its liquidity needs in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
Global Dollar Government may invest up to 25%, and Corporate Bond may invest
up to 15%, of their total assets, in loan participations and assignments. The
government that is the borrower on the loan will be considered by a Fund to
be the issuer of a loan participation or assignment for purposes of its
fundamental investment policy that it may not invest 25% or more of its total
assets in securities of issuers conducting their principal business
activities in the same industry (i.e., foreign government).
Brady Bonds. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various
currencies (although most are U.S. Dollar-denominated) and they are actively
traded in the over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
that have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of
rolling interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having up to four valuation
components: (i) collateralized repayment of principal at final maturity, (ii)
collateralized interest payments, (iii) uncollateralized interest payments,
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are
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accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In addition, in light of the residual risk
of Brady Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a convertible security will
normally vary with changes in the price of the underlying stock, although the
higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and
increase as interest rates decline. While convertible securities generally
offer lower interest or dividend yields than non-convertible debt securities
of similar quality, they enable investors to benefit from increases in the
market price of the underlying common stock. Convertible debt securities that
are rated Baa or lower by Moody's or BBB or lower by S&P, Duff & Phelps or
Fitch and comparable unrated securities may share some or all of the risks of
debt securities with those ratings. For a description of these risks, see
"Risk Considerations--Investment in Lower-Rated Fixed-Income Securities."
Short Sales. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. Short-Term U.S. Government and Global Dollar Government each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In
addition, each of these Funds may not make a short sale if, as a result, more
than 10% of net assets (taken at market value), with respect to Global Dollar
Government, and 10% of total assets, with respect to Short-Term U.S.
Government, would be held as collateral for short sales. If the price of the
security sold short increases between the time of the short sale and the time
a Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain.
Certain special federal income tax considerations may apply to short sales
entered into by a Fund. See "Dividends, Distributions and Taxes" in the
relevant Fund's Statement of Additional Information.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an
agreed-upon future date, normally a day or a few days later. The resale price
is greater than the purchase price, reflecting an agreed-upon interest rate
for the period the buyer's money is invested in the security. Such agreements
permit a Fund to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. A Fund requir
es continual maintenance of collateral in an amount equal to, or in excess of,
the resale price. If a vendor defaults on its repurchase obligation, a Fund
would suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If a vendor goes bankrupt, a
Fund might be delayed in, or prevented from, selling the collateral for its
benefit. There is no percentage restriction on any Fund's ability to enter
into repurchase agreements, except that Short-Term U.S. Government may enter
into repurchase agreements on not more than 25% of its total assets. The
Funds may enter into repurchase agreements with member banks of the Federal
Reserve System or "primary dealers" (as designated by the Federal Reserve
Bank of New York), although Mortgage Strategy, World Income, Short-Term
Multi-Market, Multi-Market Strategy, North American Government Income and
Global Dollar Government currently enter into repurchase agreements only with
their custodians and such primary dealers.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to a Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the
current month and the Fund's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, a Fund forgoes principal and interest paid on
the securities. A Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities a Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, a Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities.
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Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. Short-Term U.S. Government may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, Mortgage Strategy does not expect
to engage in reverse repurchase agreements and dollar rolls with respect to
greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by Global Dollar Government will
not exceed 33% of its total assets less liabilities (other than amounts
borrowed). See "Risk Considerations--Effects of Borrowing."
Loans of Portfolio Securities. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that
cash, liquid high-grade debt securities or bank letters of credit equal to at
least 100% of the market value of the securities loaned is deposited and
maintained by the borrower with the Fund. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities to a particular borrower, Alliance will consider
all relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Fund any
income earned thereon and the Fund may invest any cash collateral in
portfolio securities, thereby earning additional income, or receive an agreed
upon amount of income from a borrower who has delivered equivalent
collateral. Each Fund will have the right to regain record ownership of
loaned securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A
Fund may pay reasonable finders', administrative and custodial fees in
connection with a loan. A Fund will not lend portfolio securities in excess
of 25%, with respect to Short-Term U.S. Government, and 20%, with respect to
each of Mortgage Strategy, Mortgage Securities Income, World Income, Short-Term
Multi-Market, Multi-Market Strategy, North American Government Income and Global
Dollar Government, of its total assets, nor will a Fund lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
Illiquid Securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover
over-the-counter options, and (iii) repurchase agreements not terminable
within seven days. Rule 144A securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid. Alliance will monitor the liquidity of each Fund's Rule 144A p
ortfolio securities under the supervision of the Directors of that Fund. A Fund
that invests in illiquid securities may not be able to sell such securities
and may not be able to realize their full value upon sale.
Investment in Other Investment Companies. Global Dollar Government may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest
not more than 10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Fund may not own more than 3%
of the total outstanding voting stock of any investment company and not more
than 5% of the value of the Fund's total assets may be invested in the
securities of any investment company. If the Fund acquired shares in
investment companies, shareholders would bear both their proportionate share
of expenses in the Fund (including management and advisory fees) and,
indirectly, the expenses of such investment companies (including management
and advisory fees).
Future Developments. A Fund may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund or are not available but may yet
be developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the practices described above.
Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities including
notes and bonds. For Funds that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign governmental
entities, companies and supranational organizations. For a complete
description of the types of securities in which a Fund may invest while in a
temporary defensive position, see the Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains.
See "Dividends, Distributions and Taxes" in each Fund's Statement of Add
itional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
Short-Term U.S. Government may not (i) invest more than 5% of its total
assets in the securities of any one issuer (other than U.S. Government
securities and repurchase agreements relating thereto), although up to 25% of
the Fund's total assets may be
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invested without regard to this restriction, or (ii) invest 25% or more of its
total assets in the securities of any one industry.
U.S. Government may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value
of its total assets at the time the borrowing is made, (ii) make loans to
other persons, (iii) effect a short sale of any security, (iv) purchase
securities on margin, but it may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities, or (v)
write, purchase or sell puts, calls or combinations thereof.
Mortgage Strategy may not (i) invest more than 5% of its total assets in the
securities of any one issuer or own more than 10% of the outstanding voting
securities of such issuer (other than U.S. Government securities), except
that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value
of the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, except that the Fund may engage in
reverse repurchase agreements and dollar rolls in an amount up to 50% of the
Fund's total assets, and (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings.
Mortgage Securities Income may not (i) invest more than 5% of the value of
its total assets in the securities of any one issuer (other than U.S.
Government securities), except that up to 25% of the value of the Fund's
total assets may be invested without regard to this limitation, (ii) invest
more than 25% of the value of its total assets in the securities of issuers
conducting their principal business activities in a single industry, except
that this limitation shall not apply to investments in the mortgage and
mortgage-financed industry (in which more than 25% of the value of the Fund's
total assets will, except for temporary defensive positions, be invested) or
U.S. Government securities, (iii) borrow money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities, borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made, outstanding borrowings in excess
of 5% of the value of the Fund's total assets will be repaid before any
subsequent investments are made, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except in an amount of not more than 15% of
the value of its total assets to secure borrowings for temporary or emergency
purposes and except as provided in (vi) below, provided, however, that this
limitation does not apply to deposits made in connection with the entering
into and holding of interest rate futures contracts, (v) invest more than 10%
of the value of its total assets in the aggregate in illiquid securities or
other illiquid investments and repurchase agreements maturing in more than
seven days, or (vi) lend its portfolio securities if immediately after such a
loan more than 20% of the value of the Fund's total assets would be subject
to such loans.
World Income may not (i) invest 25% or more of its total assets in securities
of companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require
the untimely disposition of securities; borrowing in the aggregate may not
exceed 15%, and borrowing for purposes other than meeting redemptions may not
exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time
the borrowing is made; securities will not be purchased while borrowings in
excess of 5% of the value of the Fund's total assets are outstanding, or
(iii) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings.
Short-Term Multi-Market may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than
the banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate
may not exceed 15%, and borrowing for purposes other than meeting redemptions
may not exceed 5% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (not including the amount borrowed) at the
time the borrowing is made; securities will not be purchased while borrowings
in excess of 5% of the value of the Fund's total assets are outstanding, or
(iii) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings.
Multi-Market Strategy may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than
the banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940
Act, and (b) borrow for temporary or emergency purposes in an amount not
exceeding 5% of the value of the total assets of the Fund, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
North American Government Income may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities,
(ii) borrow money, except that the Fund may, in accordance with provisions of
the
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1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
Global Dollar Government may not (i) invest 25% or more of its total assets
in the securities of issuers conducting their principal business activities
in any one industry, except that this restriction does not apply to U.S.
Government securities, (ii) purchase more than 10% of any class of the voting
securities of any one issuer, (iii) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing, there is asset coverage of at least 300% as defined in the
1940 Act, and (b) borrow for temporary or emergency purposes in an amount not
exceeding 5% of the value of the total assets of the Fund, (iv) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings, or (v) purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an offer of
exchange), the Fund would own more than 3% of the total outstanding voting
stock of any investment company or more than 5% of the value of the Fund's
net assets would be invested in securities of any one or more investment
companies.
Corporate Bond may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii)
own more than 10% of the outstanding voting securities of any issuer.
Risk Considerations
Fixed-Income Securities. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will
change as the general level of interest rates fluctuates. During periods of
falling interest rates, the values of a Fund's securities generally rise.
Conversely, during periods of rising interest rates, the values of a Fund's
securities generally decline.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Global Dollar Government invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Fund may also invest
in U.S. corporate fixed-income securities that are not current in the payment
of interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Fund's
rights with respect to defaults on such securities will be subject to
applicable U.S. bankruptcy, moratorium and other similar laws.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading
volume concentrated in a limited number of companies representing a small
number of industries. Consequently, a Fund whose investment portfolio
includes such securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in equity
securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the
United States. Securities settlements may in some instances be subject to
delays and related administrative uncertainties. Furthermore, foreign
investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls
may at times limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from
certain of the countries is controlled under regulations, including in some
cases the need for certain advance government notification or authority, and
if a deterioration occurs in a country's balance of payments, the country
could impose temporary restrictions on foreign capital remittances. A Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it
of other restrictions on investment. Investing in local markets may require a
Fund to adopt special procedures or seek local governmental approvals or
other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these
factors exists could be affected and Alliance will monitor the effect of any
such factor or factors on a Fund's investments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such
matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. The
reporting, accounting and auditing standards of foreign countries may differ,
in some cases significantly, from U.S. standards in important respects and
less information may be available to investors in foreign securities than to
investors in U.S. securities. Substantially less information is publicly
available about certain non-U.S. issuers than is available about U.S.
issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Nationalization, expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or
32
<PAGE>
social instability or diplomatic developments could affect adversely the economy
of a foreign country or the Fund's investments in such country. In the event of
expropriation, nationalization or other confiscation, a Fund could lose its
entire investment in the country involved. In addition, laws in foreign
countries governing business organizations, bankruptcy and insolvency may
provide less protection to security holders such as the Fund than that provided
by U.S. laws.
World Income may invest a portion of its net assets in securities denominated
in the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar
manner.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on North American Government Income's
investments in the securities of Canadian issuers or investments denominated
in Canadian issuers or investments denominated in Canadian Dollars. The
factors described above are more likely to have a material adverse effect on
the Fund's investments in the securities of Mexican and other non-Canadian
foreign issuers, including investments in securities denominated in Mexican
Pesos or other non-Canadian foreign currencies. If not hedged, however,
currency fluctuations could affect the unrealized appreciation and
depreciation of Canadian Government securities as expressed in U.S. Dollars.
Currency Considerations. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies
will be adversely affected by reductions in the value of those currencies
relative to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has insufficient
cash in U.S. Dollars to meet the distribution requirements that the Fund must
satisfy to qualify as a regulated investment company for federal income tax
purposes. Similarly, if an exchange rate declines between the time a Fund incurs
expenses in U.S. Dollars and the time cash expenses are paid, the amount of the
currency required to be converted into U.S. Dollars in order to pay expenses in
U.S. Dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, which themselves, involve
certain special risks. See "Additional Investment Practices" above.
Sovereign Debt Obligations. No established secondary markets may exist for
many of the sovereign debt obligations in which Global Dollar Government will
invest. Reduced secondary market liquidity may have an adverse effect on the
market price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain sovereign debt
obligations may also make it more difficult for the Fund to obtain accurate
market quotations for the purpose of valuing its portfolio. Market quotations
are generally available on many sovereign debt obligations only from a
limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things,
in its inflation rate, the amount of its external debt and its gross domestic
product, will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Fund will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and
principal payments by negotiating new or amended credit agreements or
converting outstanding principal and unpaid interest to Brady Bonds, and
obtaining new credit to finance interest payments. Certain governments have
not been able to make payments of interest on or principal of sovereign debt
obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political
and social stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments,
including export performance, and its access to international credits and
investments. To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated
in dollars could be adversely affected. To the extent that a country develops
a trade deficit, it will need to depend on continuing loans from foreign
governments, multi-lateral organizations or private commercial banks, aid
payments from foreign governments and on inflows of foreign investment. The
access of a country to these forms of external funding may not be certain,
and a withdrawal of external funding could adversely affect the capacity of a
government to make payments on its obligations. In addition, the cost of
servicing debt obligations can be affected by a change in international
interest rates since the majority of these obligations carry interest rates
that are adjusted periodically based upon international rates.
33
<PAGE>
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives.
The Fund may have limited legal recourse in the event of a default with
respect to certain sovereign debt obligations it holds. For example, remedies
from defaults on certain sovereign debt obligations, unlike those on private
debt, must, in some cases, be pursued in the courts of the defaulting party
itself. Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers
of private debt obligations. The political context, expressed as the
willingness of an issuer of sovereign debt obligations to meet the terms of
the debt obligation, for example, is of considerable importance. In addition,
no assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments
in the event of default under commercial bank loan agreements.
Effects of Borrowing. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each
Fund that may borrow expects to effect borrowings and repayments at such
times and in such amounts as will maintain investment leverage in an amount
approximately equal to its borrowing target. The loan agreements provide for
a selection of interest rates that are based on the bank's short-term funding
costs in the U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common
stock. Utilization of leverage, which is usually considered speculative,
however, involves certain risks to a Fund's shareholders. These include a
higher volatility of the net asset value of a Fund's shares of common stock
and the relatively greater effect on the net asset value of the shares. So
long as a Fund is able to realize a net return on its investment portfolio
that is higher than the interest expense paid on borrowings, the effect of
leverage will be to cause the Fund's shareholders to realize a higher current
net investment income than if the Fund were not leveraged. On the other hand,
interest rates on U.S. Dollar-denominated and foreign currency-denominated
obligations change from time to time as does their relationship to each
other, depending upon such factors as supply and demand forces, monetary and
tax policies within each country and investor expectations. Changes in such
factors could cause the relationship between such rates to change so that
rates on U.S. Dollar-denominated obligations may substantially increase
relative to the foreign currency-denominated obligations in which the Fund
may be invested. To the extent that the interest expense on borrowings
approaches the net return on a Fund's investment portfolio, the benefit of
leverage to the Fund's shareholders will be reduced, and if the interest expense
on borrowings were to exceed the net return to shareholders, a Fund's use of
leverage would result in a lower rate of return than if a Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if the Fund were not
leveraged. In an extreme case if a Fund's current investment income were not
sufficient to meet the interest expense on borrowings, it could be necessary for
the Fund to liquidate certain of its investments, thereby reducing the net asset
value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either Multi-Market
Strategy or North American Government Income could adversely affect the
Funds' shareholders, as noted above, or in anticipation of such changes,
either Fund may increase the percentage of its investment portfolio invested
in U.S. Government securities, which would tend to offset the negative impact
of leverage on Fund shareholders. Either Fund may also reduce the degree to
which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately
after such borrowing there is "asset coverage," as that term is defined and
used in the 1940 Act, of at least 300% for all borrowings of the Fund. In
addition, under the 1940 Act, in the event asset coverage falls below 300%, a
Fund must within three days reduce the amount of its borrowing to such an
extent that the asset coverage of its borrowings is at least 300%. Assuming,
for example, outstanding borrowings representing not more than one-third of a
Fund's total assets less liabilities (other than such borrowings), the asset
coverage of the Fund's portfolio would be 300%; while outstanding borrowings
representing 25% of the Fund's total assets less liabilities (other than such
borrowings), the asset coverage of the Fund's portfolio would be 400%. A Fund
will maintain asset coverage of outstanding borrowings of at least 300% and
if necessary will, to the extent possible, reduce the amounts borrowed by
making repayments from time to time in order to do so. Such repayments could
require a Fund to sell portfolio securities at times considered
disadvantageous by Alliance. In the event that a Fund is required to sell
portfolio securities in order to make repayments, such sales of portfolio
securities could cause the Fund to incur related transaction costs and might
cause the Fund to realize gains on securities held for less than three
months. Because not more than 30% of a Fund's gross income may be derived
from the sale or disposition of stocks and securities held for less than
three months to maintain the Fund's tax status as a regulated investment
company, such gains would limit the ability of a Fund to sell other
securities held for less than three months that a Fund might wish to sell in
the ordinary course of its portfolio management and thus might adversely
affect the Fund's yield. See "Dividends, Distributions and Taxes."
Each of Multi-Market Strategy, North American Government Income and Global
Dollar Government may also borrow to repurchase its shares or to meet
redemption requests. In addition, each Fund may borrow for temporary purposes
(including the purposes mentioned in the preceding sentence) in an amount not
exceeding 5% of the value of the assets of the Fund. Borrowings for temporary
purposes are not subject to the 300% asset average limit described above. See
"Certain Fundamental Investment Policies." Short-Term U.S.
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<PAGE>
Government, Multi-Market Strategy, North American Government Income and Global
Dollar Government may also borrow through the use of reverse repurchase
agreements, and Global Dollar Government also through the use of dollar rolls to
the extent permitted by the 1940 Act. See "Investment Objectives and Policies--
Reverse Repurchase Agreements and Dollar Rolls."
Investment in the Banking Industry. Due to the investment policies of
Multi-Market Strategy, World Income and Short-Term Multi-Market with respect to
investments in the banking industry, those Funds will have greater exposure
to the risk factors which are characteristic of such investments. In
particular, the value of and investment return on each Fund's shares will be
affected by economic or regulatory developments in or related to the banking
industry. Sustained increases in interest rates can adversely affect the
availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of: the
concentration of loan portfolios in particular business such as real estate,
energy, agriculture or high technology-related companies; national and local
regulation; and competition within those industries as well as with other
types of financial institutions. In addition, each Fund's investments in
commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking
and diversified securities activities. As discussed above, however, the Funds
will seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
Securities Ratings. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk.
They are, however, subject to certain limitations from an investor's
standpoint. The rating of an issuer is heavily weighted by past developments
and does not necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the time it is
updated. In addition, there may be varying degrees of difference in credit risk
of securities within each rating category.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of
the same characteristics as lower-rated securities, as described below.
Sustained periods of deteriorating economic conditions or of rising interest
rates are more likely to lead to a weakening in the issuer's capacity to pay
interest and repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater
market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition,
lower-rated securities may be more susceptible to real or perceived adverse
economic conditions than investment grade securities, although the market
values of securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities. Securities rated Ba or BB are judged to
have speculative elements or to be predominantly speculative with respect to
the issuer's ability to pay interest and repay principal. Securities rated B
are judged to have highly speculative elements or to be predominantly
speculative. Such securities may have small assurance of interest and
principal payments. Securities rated Baa by Moody's are also judged to have
speculative characteristics.
The market for lower-rated securities may be thinner and less active than
that for higher-rated securities, which can adversely affect the prices at
which these securities can be sold. To the extent that there is no
established secondary market for lower-rated securities, a Fund may
experience difficulty in valuing such securities and, in turn, the Fund's
assets. Under the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, federally-insured savings and loan associations were required to
have divested their investments in non-investment grade corporate debt
securities by July 1, 1994. Such divestiture and continuing restrictions on
the ability of such associations to acquire lower-rated securities could have
a material adverse effect on the market and prices of such securities.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of
its program for managing a Fund's securities than would be the case if a Fund
did not invest in lower-rated securities. In considering investments for the
Fund, Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or
is expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects, and the experience and managerial strength of
the issuer.
In seeking to achieve a Fund's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in
yield and market values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset
value of a Fund.
Non-rated Securities. Non-rated securities will also be considered for
investment by North American Government Income, Global Dollar Government and
Corporate Bond when
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<PAGE>
Alliance believes that the financial condition of the issuers of such
securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's objective and policies.
Non-diversified Status. Each of World Income, Short-Term Multi-Market,
Multi-Market Strategy, North American Government Income and Global Dollar
Government is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, each Fund intends to conduct its
operations so as to qualify to be taxed as a "regulated investment company"
for purposes of the Code, which will relieve the Fund of any liability for
federal income tax to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Taxes" in each Fund's
Statement of Additional Information. To so qualify, among other requirements,
each Fund will limit its investments so that, at the close of each quarter of
the taxable year, (i) not more than 25% of the Fund's total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50%
of its total assets, not more than 5% of its total assets will be invested in
the securities of a single issuer and the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. A Fund's investments in
U.S. Government securities are not subject to these limitations. Because
World Income, Short-Term Multi-Market, Multi-Market Strategy, North American
Government Income and Global Dollar Government is each a non-diversified
investment company, it may invest in a smaller number of individual issuers
than a diversified investment company, and an investment in such Fund may,
under certain circumstances, present greater risk to an investor than an
investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding
paragraph, but instead are subject to these tests in the same manner as the
securities of non-governmental issuers. In this regard sovereign debt
obligations issued by different issuers located in the same country are often
treated as issued by a single issuer for purposes of these diversification
tests. Certain issuers of structured securities and loan participations may
be treated as separate issuers for the purposes of these tests. Accordingly,
in order to meet the diversification tests and thereby maintain its status as
a regulated investment company, North American Government Income will be
required to diversify its portfolio of foreign government securities in a
manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
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Purchase And Sale Of Shares
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund
Distributors, Inc. ("AFD"), each Fund's principal underwriter. The minimum
initial investment in each Fund is $250. The minimum for subsequent
investments in each Fund is $50. Investments of $25 or more are allowed under
the automatic investment program of each Fund. Share certificates are issued
only upon request. See the Fund Application and Statements of Additional
Information for more information.
Each Fund offers three classes of shares, Class A, Class B and Class C,
except that World Income offers only one class of shares that you can
purchase without any initial sales charge or contingent deferred sales charge
("CDSC").
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
<TABLE>
<CAPTION>
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to
less than $250,000 3.36 3.25 3.00
$250,000 to
less than $500,000 2.30 2.25 2.00
$500,000 to
less than $1,000,000 1.78 1.75 1.50
$1,000,000 to
less than $3,000,000 1.27 1.25 1.00
$3,000,000 to
less than $5,000,000 0.76 0.75 0.50
</TABLE>
On purchases of $5,000,000 or more, you pay no initial sales charge; Alliance
may pay the dealer or agent a fee of up to .25 of 1%. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in
accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain Retirement Plans,
Reinstatement Privilege and Sales at Net Asset Value programs. Consult the
Fund Application and Statements of Additional Information.
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<PAGE>
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The amount of the CDSC (expressed as a
percentage of the lesser of the current net asset value or original cost)
will vary according to the number of years from the purchase of Class B
shares until the redemption of those shares. The amount of the CDSC for each
Fund is as set forth below. Class B shares of a Fund purchased prior to the
date of this Prospectus may be subject to a different CDSC schedule, which
was disclosed in the Fund's prospectus in use at the time of purchase and is
set forth in the Fund's current Statement of Additional Information.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
---------------------------------------------------------------
<S> <C>
First....................................... 3.0%
Second...................................... 2.0%
Third....................................... 1.0%
Fourth...................................... None
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to AFD. The
CDSC will be waived on redemptions of shares following the death or disability
of a shareholder or to meet certain qualified retirement plans. See the
Statements of Additional Information.
Class B shares are subject to higher distribution fees than Class A shares
for a period of six years (after which they convert to Class A shares). The
higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than
Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares
incur higher distribution fees than Class A shares and do not convert to any
other class of shares of the Fund. The higher fees mean a higher expense
ratio, so Class C shares pay correspondingly lower dividends and may have a
lower net asset value than Class A shares.
How the Funds Value Their Shares
The net asset value of each class of shares of a Fund is calculated by
dividing the value of the Fund's net assets allocable to that class by the
outstanding shares of that class. Shares are valued each day the New York
Stock Exchange (the "Exchange") is open as of the close of regular trading
(currently 4:00 p.m. Eastern time). The securities in a Fund are valued at
their current market value determined on the basis of market quotations or,
if such quotations are not readily available, such other methods as the
Fund's Directors believe would accurately reflect fair market value.
General
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C
shares because there are no initial or contingent deferred sales charges.
Consult your financial agent. Dealers and agents may receive differing
compensation for selling Class A, Class B or Class C shares. There is no size
limit on purchases of Class A shares. The maximum purchase of Class B shares
is $250,000. The maximum purchase of Class C shares is $5,000,000. The Funds
may refuse any order to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with
the sale of shares of the Funds. Such additional amounts may be utilized, in
whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives
who sell shares of the Funds. On some occasions, such cash or other
incentives will be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other Alliance Mutual Funds during a
specific period of time. Such incentives may take the form of payment for
attendance at seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in connection with
travel by persons associated with a dealer or agent and their immediate
family members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class B shares) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days.
However, for shares recently purchased by check or electronic funds transfer,
a Fund will not send proceeds until it is reasonably satisfied that the check
or electronic funds transfer has been collected (which may take up to 15
days).
Selling Shares Through Your Broker
A Fund must receive your broker's request before 4:00 p.m. Eastern time for
you to receive that day's net asset value (less any applicable CDSC for Class
B shares). Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
37
<PAGE>
Selling Shares Directly to a Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and
dividend-disbursing agent, along with certificates, if any, that represent
the shares you want to sell. For your protection, signatures must be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor institution. Stock power forms are available from your
financial intermediary, AFS, and many commercial banks. Additional documentation
is required for the sale of shares by corporations, intermediaries, fiduciaries
and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written
instructions to AFS. AFS is not responsible for the authenticity of
telephonic requests to purchase, sell or exchange shares. AFS will employ
reasonable procedures to verify that telephone requests are genuine, and
could be liable for losses resulting from unauthorized transactions if it
failed to do so. Dealers and agents may charge a commission for handling
telephonic requests. The telephone service may be suspended or terminated at
any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about
these services or your account, call AFS's toll-free number, 800-221-5672.
Some services are described in the attached Application. A shareholder's
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of World Income for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values
next determined, without sales or service charges. Exchanges may be made by
telephone or written request.
Class B shares will continue to age without regard to exchanges for purposes
of conversion to Class A shares and for determining the CDSC, if any, upon
redemption. After an exchange, your Class B shares will automatically convert
to Class A shares in accordance with the conversion schedule applicable to
the Class B shares of the Alliance Mutual Fund you originally purchased for
cash ("original shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to
exchange uncertificated shares. An exchange is a taxable capital transaction
for federal tax purposes. The exchange service may be changed, suspended, or
terminated on 60 days' written notice.
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MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained
under an advisory agreement (the "Advisory Agreement") to provide investment
advice and, in general, to conduct the management and investment program of
each Fund, subject to the general supervision and control of the Directors of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1994 totaling more than $123 billion
(of which approximately $40 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 50 registered investment companies managed by
Alliance comprising 100 separate investment portfolios currently have over
one million shareholders. As of September 30, 1994, Alliance was retained as
an investment manager for 28 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner
of, and the owner of a 1% general partnership interest in, Alliance, is an
indirect wholly-owned subsidiary of The Equitable Life Assurance Society of
the United States ("Equitable"), one of the largest life insurance companies
in the United States, which is a wholly-owned subsidiary of The Equitable
Companies Incorporated, a holding company controlled by AXA, a French
insurance holding company. Certain information concerning the ownership and
control of Equitable by AXA is set forth in each Fund's Statement of
Additional Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time
that each person has been
38
<PAGE>
primarily responsible, and each person's principal occupation during the past
five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- --------------------------------------------------------------------------
Short-Term Paul J. DeNoon since 1993-- Associated with
U.S. Government Vice President Alliance since
January 1992;
prior thereto, a
Vice President at
Manufacturers
Hanover Trust
U.S. Government Wayne D. Lyski since 1983 Associated with
--Executive Vice President Alliance
Paul J. DeNoon since (see above)
January 1992--(see above)
Mortgage Strategy Patricia J. Young since inception Associated with
--Senior Vice President Alliance since
March 1992;
prior thereto, a
managing direc-
tor and portfolio
manager for
Hyperion Capital
since March
1991 and a
managing direc-
tor with Fischer,
Francis, Trees &
Watts
Paul A. Ullman Associated with
since inception-- Alliance since
Vice President March 1992;
prior thereto, a
director and port-
folio manager for
Hyperion Capital
since July 1990
and a Vice
President at
Salomon
Brothers Inc.
Mortgage Securities Patricia J. Young since (see above)
Income March 1992--(see above)
Paul A. Ullman since (see above)
March 1992--(see above)
World Income Robert M. Sinche since Associated with
inception--Senior Vice Alliance
President
Douglas J. Peebles since Associated with
inception--Vice President Alliance
Short-Term Robert M. Sinche since (see above)
Multi-Market inception--(see above)
Multi-Market Robert M. Sinche since inception (see above)
Strategy --(see above)
Douglas J. Peebles since (see above)
inception--(see above)
North American Wayne D. Lyski since inception (see above)
Government Income --(see above)
Robert M. Sinche since inception (see above)
--(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government --(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987--(see above)
Paul J. DeNoon since (see above)
January 1992--(see above)
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund
pays to AFD a Rule 12b-1 distribution services fee, which may not exceed for
each Fund other than World Income an annual rate of .30% (.50% with respect
to Short-Term U.S. Government) of the Fund's aggregate average daily net
assets attributable to the Class A shares, 1.00% of the Fund's aggregate
average daily net assets attributable to the Class B shares and 1.00% of the
Fund's aggregate average daily net assets attributable to the Class C shares,
and for World Income may not exceed an annual rate of .90% of the Fund's
aggregate average daily net assets, for distribution expenses. The Directors
of Short-Term U.S. Government currently limit payments with respect to Class
A shares under the Plan to .30% of the Fund's aggregate average daily net
assets attributable to Class A shares. The Plans provide that a portion of
the distribution services fee in an amount not to exceed .25% of the
aggregate average daily net assets of each Fund attributable to each class of
shares constitutes a service fee used for personal service and/or the
maintenance of shareholder accounts.
The Plans provide that AFD will use the distribution services fee received
from a Fund in its entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise
promote the sale of shares of the Fund, and (iii) to compensate
broker-dealers, depository institutions and other financial intermediaries
for providing administrative, accounting and other services with respect to
the Fund's shareholders. In this regard, some payments under the Plans are
used to compensate financial intermediaries with trail or maintenance
commissions in an amount equal to, with respect to each Fund other than World
Income, .25%, annualized, with respect to Class A shares and Class B shares,
and 1.00%, annualized, with respect to Class C shares, and, with respect to
World Income, .90%, annualized, of the assets maintained in a Fund by their
customers. Distribution services fees received from World Income and the
other Funds, except Short-Term U.S. Government, with respect to Class A
shares will not be used
39
<PAGE>
to pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
Short-Term U.S. Government, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under
the applicable Plan with respect to the class involved and, in the case of
Class B shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under
the Plan with respect to the class involved and, in the case of Class B
shares, payments subsequently received through CDSCs, so long as the Plan is
in effect. Since AFD's compensation under the Plan of Short-Term U.S.
Government is not directly tied to its expenses incurred, the amount of
compensation received by it during any year may be more or less than its
actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except
Short-Term U.S. Government), were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term U.S.
Government............. $165,033 (2.63%) $354,366 (4.97%)
U.S. Government............ $13,948,924 (1.84%) $1,761,762 (.76%)
Mortgage Strategy.......... $2,021,102 (1.20%) $776,683 (.34%)
Mortgage Securities
Income................. $25,653,297 (1.76%) $649,989 (.71%)
Short-Term Multi-Market.... $23,806,429 (1.37%) $172,988 (3.12%)
Multi-Market Strategy...... $10,191,077 (2.36%) $65,458 (9.12%)
North American
Government Income...... $25,178,275 (1.92%) $905,455 (.29%)
Global Dollar Government... $1,072,560 (2.28%) $88,662 (.85%)
Corporate Bond............. $4,172,860 (2.27%) $391,688 (.77%)
</TABLE>
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a
mutual fund that also charges a service fee to 6.25% of cumulative gross
sales of shares of that class, plus interest at the prime rate plus 1% per
annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor
of securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event
that a change in these laws prevented a bank from providing such services, it
is expected that other service arrangements would be made and that
shareholders would not be adversely affected. The State of Texas requires
that shares of a Fund may be sold in that state only by dealers or other
financial institutions that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the last business day
each month. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested in additional shares without
charge.
If you receive an income dividend or capital gains distribution in cash you
may, within 30 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends and
distributions in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains
distributions. Dividends paid by a Fund, if any, with respect to Class A,
Class B and Class C shares will be calculated in the same manner at the same
time on the same day and will be in the same amount, except that the higher
distribution services fees applicable to Class B and Class C shares, and any
incremental transfer agency costs relating to Class B shares, will be borne
exclusively by the class to which they relate.
40
<PAGE>
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net
asset value, you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that any Fund is liable for foreign income taxes withheld at the source, each
Fund intends, if possible, to operate so as to meet the requirements of the
Code to "pass through" to the Fund's shareholders credits for foreign income
taxes paid, but there can be no assurance that any Fund will be able to do
so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as
ordinary income. In the case of corporate shareholders, such dividends from
certain Funds may be eligible for the dividends-received deduction, except
that the amount eligible for the deduction is limited to the amount of
qualifying dividends received by the Fund. A corporation's dividends-received
deduction will be disallowed unless the corporation holds shares in the Fund
at least 46 days. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporation's investment in shares of a Fund is
financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by each Fund to its shareholders as capital
gains distributions is taxable to the shareholders as long-term capital
gains, irrespective of the length of time a shareholder may have held his or
her stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of
a year to shareholders of record as of a specified date in such a month that
is paid during January of the following year is includable in the prior
year's taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular shareholder, would
be taxable to him or her as described above. If a shareholder held shares six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund
held by a tax-deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or profit-sharing
plan, will not be taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. U.S.
Government, Mortgage Strategy, Mortgage Securities Income, World Income,
Short-Term Multi-Market, Multi-Market Strategy, North American Government
Income and Corporate Bond are qualified to do business in the Commonwealth of
Pennsylvania and, therefore, are subject to the Pennsylvania foreign
franchise and corporate net income tax in respect of their business
activities in Pennsylvania. Accordingly, shares of such Funds are exempt from
Pennsylvania personal property taxes. These Funds anticipate continuing such
business activities but reserve the right to suspend them at any time,
resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification
number to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of
dividends and capital gains distributions made by a Fund for the preceding
year. Shareholders are urged to consult their tax advisers regarding their
own tax situation.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers
to enter into portfolio transactions with the Fund.
41
<PAGE>
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. Government Portfolio and Corporate Bond Portfolio (each a
series of Alliance Bond Fund, Inc.) (1973), Alliance Mortgage Strategy Trust,
Inc. (1992), Alliance Mortgage Securities Income Fund, Inc. (1983), Alliance
World Income Trust, Inc. (1990), Alliance Short-Term Multi-Market Trust, Inc.
(1989), Alliance Multi-Market Strategy Trust, Inc. (1991), Alliance North
American Government Income Trust, Inc. (1992) and Alliance Global Dollar
Government Fund, Inc. (1993). Prior to January 4, 1993, Corporate Bond
Portfolio was known as Monthly Income Portfolio. Alliance Short-Term U.S.
Government Fund is a series of The Alliance Portfolios, a Massachusetts
business trust that was organized in 1987. Prior to August 2, 1993, The
Alliance Portfolios was known as The Equitable Funds and Short-Term U.S.
Government was known as The Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal, or in the
case of the Funds organized as Maryland corporations, state law. Shareholders
have available certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon
redeeming shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The Funds are
empowered to establish, without shareholder approval, additional portfolios,
which may have different investment objectives, and additional classes of
shares. If an additional portfolio or class were established in a Fund, each
share of the portfolio or class would normally be entitled to one vote for
all purposes. Generally, shares of each portfolio and class would vote
together as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same manner. Class
A, Class B and Class C shares have identical voting, dividend, liquidation and
other rights, except that each class bears its own distribution and transfer
agency expenses. Each class of shares votes separately with respect to a
Fund's Rule 12b-1 distribution plan and other matters for which separate
class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and,
in liquidation of a Fund, are entitled to receive the net assets of the Fund.
Since this Prospectus sets forth information about all the Funds, it is
theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another
Fund. Based on the advice of counsel, however, the Funds believe that the
potential liability of each Fund with respect to the disclosure in this
Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to a Fund's organization are discussed in its
Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue
of the Americas, New York, New York 10105, is the principal underwriter of
shares of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return,"
which are computed separately for Class A, Class B and Class C shares. A
Fund's yield for any 30-day (or one-month) period is computed by dividing the
net investment income per share earned during such period by the maximum
public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. A Fund may also state in sales literature an "actual distribution
rate" for each class which is computed in the same manner as yield except
that actual income dividends declared per share during the period in question
are substituted for net investment income per share. The actual distribution
rate is computed separately for Class A, Class B and Class C shares.
Advertisements of a Fund's total return disclose its average annual
compounded total return for the periods prescribed by the Commission. A
Fund's total return for each such period is computed by finding, through the
use of a formula prescribed by the Commission, the average annual compounded
rate of return over the period that would equate an assumed initial amount
invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases and
redemptions of a Fund's shares are assumed to have been paid. A Fund will
include performance data for each class of its shares in any advertisement or
sales literature using performance data of that Fund. These advertisements
may quote performance rankings or ratings of a Fund by financial publications
or independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set
forth in the Registration Statements filed by the Funds with the Commission
under the Securities Act. Copies of the Registration Statements may be
obtained at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington, D.C.
42
<PAGE>
- --------------------------------------------------------------------------------
Appendix A:
- --------------------------------------------------------------------------------
Bond Ratings
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality
of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S CORPORATION
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation
A-1
<PAGE>
and CCC the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest claims paying ability. Risk factors are negligible.
AA+, AA, AA- --Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic and/or
underwriting conditions.
A+, A, A- --High claims paying ability. Protection factors are average and there
is an expectation of variability in risk over time due to economic and/or
underwriting conditions.
BBB+, BBB, BBB- --Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time due to economic
and/or underwriting conditions.
BB+, BB, BB- --Uncertain claims paying ability and less than investment-grade
quality. However, the company is deemed likely to meet these obligations when
due. Protection factors will vary widely with changes in economic and/or
underwriting conditions.
B+, B, B- --Possessing risk that policy holder and contract-holder obligations
will not be paid when due. Protection factors will vary widely with changes
in economic and/or underwriting conditions or company fortunes.
CCC--There is substantial risk that policy holder and contract holder
obligations will not be paid when due. Company has been or is likely to be
placed under state insurance department supervision.
DD--Company is under an order of liquidation.
FITCH INVESTORS SERVICE, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and
economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. plus
and minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-2
<PAGE>
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Appendix B:
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General Information
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About Canada, Mexico
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and Argentina
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GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division of
powers between the federal and Provincial governments. The Parliament of Canada
has jurisdiction over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and coinage, banks
and banking, national defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely goods-
producing economy to a predominantly service-based one. Agriculture and other
primary production play a small but key role in the economy. Canada is also an
exporter of energy to the United States in the form of natural gas (of which
Canada has substantial reserves) and hydroelectric power, and has significant
mineral resources. The Canadian economy had experienced little or no growth over
the past several years, and the rate of growth of Canada's gross domestic
product (on an inflation adjusted basis) has declined.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. However, the range of fluctuation that occurred in the past is not
necessarily indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which took
effect on May 1, 1917, established Mexico as a Federal Republic and provides for
the separation of executive, legislative and judicial branches. The President
and the members of the General Congress are elected by popular vote.
Since 1988 the Mexican economy has experienced gradual improvement in a number
of areas, including five consecutive years of growth in gross domestic product
and a substantial reduction in the rate of inflation and in public sector
financial deficit. The improvements have been reflected in the performance of
the Mexican securities market and the reversal of the low and negative rates of
growth and capital flight which prevailed in the early 1980's. Much of the
improvement in the Mexican economy is attributable to a series of economic
policy initiatives initiated by the Mexican government over the past decade,
which seek to modernize and reform the Mexican economy, control inflation,
reduce the financial deficit, increase public revenues through the reform of the
tax system, establish a competitive and stable currency exchange rate,
liberalize trade restrictions and increase investment and productivity, while
reducing the government's role in the economy. In this regard, the Mexican
government has been proceeding with a program for privatizing certain state
owned enterprises developing and modernizing the securities markets, increasing
investment in the private sector and permitting increased levels of foreign
investment. Another factor that may contribute to the growth of the Mexican
economy and securities market is Mexico's abundance of natural resources. The
recent adoption by Canada, the United States and Mexico of the North American
Free Trade Agreement, could also contribute to the growth of the Mexican
economy.
Although since 1988 the Mexican economy has improved in a number of areas,
relatively high rates of interest, inflation and unemployment continue to affect
the Mexican economy adversely. Mexico is currently the second largest debtor
nation (among developing countries) to commercial banks and foreign governments.
The successful implementation of the economic policy initiatives and the growth
of the Mexican economy involve significant structural changes to the Mexican
economy and will necessitate continued economic and fiscal discipline. An
important aspect of the economic policy is the ability of the Mexican government
to be successful in its continuing efforts to control its financial deficit,
finance its current account deficit and further reduce inflation. Recovery also
may be influenced by international economic conditions, particularly those in
the United States, and by world prices for oil and other commodities. There is
not assurance that Mexico's economic policy initiatives will be successful or
that succeeding administrations will continue these initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar.
Under economic policy initiatives implemented since December 1987, the Mexican
government introduced a schedule of gradual devaluation of the Mexican Peso
which initially amounted to an average depreciation of the Mexican Peso against
the U.S. Dollar of 1 Mexican Peso per day. The extended initiatives includes an
adjustment in the scheduled devaluation rate of the Mexican Peso against the
U.S. Dollar.
B-1
<PAGE>
On May 28, 1990, the Mexican Peso began devaluing by an average of .80 Mexican
Peso per day instead of one Mexican Peso per day. On November 12, 1990, this
average was decreased to .40 Mexican Peso per day and on November 1, 1991 the
daily devaluation rate was lowered to .20 Mexican Peso per day. On October 21,
1992 the maximum rate at which the Mexican Peso can devalue against the U.S.
Dollar was increased to .40 Mexican Peso per day.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's ability to
acquire or hold U.S. Dollar-denominated securities or otherwise obtain U.S.
Dollars.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the federal
capital of Buenos Aires. Its federal constitution provides for an executive
branch headed by a President, a legislative branch and a judicial branch. Each
province has its own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most
recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.
Shortly after taking office in 1989, the country's current President Menem
adopted market-oriented and reformist policies, including a large privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the appointment of Economy Minister Domingo F. Cavallo
and the announcement of his new economic plan in March 1991, the Argentine
economy was characterized by low and erratic growth, declining investment rates
and rapidly worsening inflation. Despite its strengths, which include a well-
balanced natural resource base and a high literacy rate, the Argentine economy
failed to respond to a series of economic plans in the 1980's. Economy Minister
Cavallo's plan represented a pronounced departure from its predecessors in
calling for raised revenues, reduced expenditures and a reduced public deficit.
The extensive privatization program commenced in 1989 was accelerated, the
domestic economy deregulated and opened up to foreign trade and the frame-work
for foreign investment reformed.
Significant progress was also made in 1992 in rescheduling Argentina's debt with
both external and domestic creditors, which improved fiscal cash flows in the
medium terms and allowed a return to voluntary credit markets. Further reforms
are currently being implemented in order to sustain and continue the progress to
date. Among other things, legislation was recently enacted to reform the social
security system, computerized tracking of tax compliance has been implemented
and is being further improved and domestic deregulation of economic activities
has progressed.
The Argentine Peso has been the Argentine currency since January 1, 1992. The
rate of exchange from the Argentine Peso to the U.S. Dollar has been
approximately one to one. However, the historic range is not necessarily
indicative of fluctuations that may occur in the exchange rate over time and
there can be no assurance that future rates of exchange can be accurately
predicted. The Argentine foreign exchange market was highly controlled until
December 1989, when a free exchange rate was established for all foreign
currency transactions. Argentina has eliminated restrictions on foreign direct
investment and capital repatriation. On September 8, 1993, legislation was
adopted abolishing previous requirements of a three-year waiting period for
capital repatriation. Under the new legislation, foreign investors will be
permitted to remit profits at any time.
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
B-2
<PAGE>
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ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
Alliance Bond Funds
Short-Term U.S. Government Fund Short-Term Multi-Market Trust
U.S. Government Portfolio Multi-Market Strategy Trust
Mortgage Strategy Trust North American Government Income Trust
Mortgage Securities Income Fund Global Dollar Government Fund
World Income Trust Corporate Bond Portfolio
INFORMATION AND INSTRUCTIONS
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign (please
indicate corporate office or title).
. a trustee or other fiduciary, the fiduciaries should sign (please indicate
capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contract the Fund at the number below.
. In the case of redemptions or repurchases of shares recently purchased by
check, redemption proceeds will not be made available until the Fund is
reasonably assured that the check has cleared, normally up to 15 calendar days
following the purchase date.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800)221-5672.
<PAGE>
- -------------------------------------------------------------------------------
SUBSCRIPTION APPLICATION
- -------------------------------------------------------------------------------
Alliance Bond funds
(see instructions at the front of the application)
- -------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print)
- -------------------------------------------------------------------------------
[_] INDIVIDUAL OR JOINT ACCOUNT
------------------------------- --------------- ---------------------
Owner's Name (First Name) (MI) (Last Name)
- -
-------------------------------
Social Security Number (Required to open account)
------------------------------- --------------- ---------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated
[_] GIFT/TRANSFER TO A MINOR
------------------------------- --------------- ---------------------
Custodian -- One Name Only (First Name) (MI) (Last Name)
------------------------------- --------------- ---------------------
Minor's Name First Name (MI) (Last Name)
- -
-------------------------------
Minor's Social Security Number (Required to open account)
Under the State of (Minor's Residence) Uniform Gifts/Transfer to Minor's Act
[_] TRUST ACCOUNT
------------------------------------------------------------------------
Name of Trustee
------------------------------------------------------------------------
Name of Trust
------------------------------------------------------------------------
Name of Trust (cont'd)
------------ ---------------------------------------------------------
Trust Dated Tax ID or Social Security Number (Required to open account)
[_] OTHER
------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
----------------------
Tax ID Number
- -------------------------------------------------------------------------------
2. ADDRESS
- -------------------------------------------------------------------------------
-------------------------------------------------------------------------
Street
-------------------------------------------------------------------------
City State Zip Code
Citizenship: I am a [_] U.S. Citizen [_] Non-Resident [_] Alien
[_] Resident Alien [_] Other
-------------------------------------------------------------------------
If Other Specify Country
- - - -
--------------------------- -------------------------------------
Daytime Phone Evening Phone
++++ ++++
+ +
+ +
For Alliance Use Only
+ +
+ +
++++ ++++
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange shares
for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction
service(s) you desire.
. If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a
check from the bank account you wish to use and attach
it to this application.
Purchases and Redemptions via EFT**
[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
The fund requires signatures of bank account owners exactly as they appear on
bank records.
------------------------- -------- --------------------- --------
Individual Account Owner Date Joint Account Owner Date
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of a investment dealer or agent requesting a redemption
or exchange on my behalf, (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the address
must have no change within the last 30 days. The maximum telephone redemption
amount is $25,000. This service can be enacted once every 30 days.
[_] I do not elect the telephone exchange service.
---
[_] I do not elect the telephone redemption by check service.
---
C. SYSTEMATIC WITHDRAWAL PLAN (SWP)**
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments;
. $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[_] I authorize this service to begin in ___________, 19__ for the amount of
Month
$___________($50.00 minimum)
Frequency: (Please select one) [_] Monthly [_] Bi-Monthly [_] Quarterly
[_] Annually [_] In the months circled: J F M A M J J A S O N D
Please send payments to: (please select one)
[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: ___________. Please enclose a
preprinted voided check to ensure accuracy.
[_] My address of record designated in Section 2.
[_] The payee and address specified below:
-----------------------------------------------------------------------------
Name of Payee Address
-----------------------------------------------------------------------------
City State Zip
D. AUTO EXCHANGE
[_] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $________($25.00 minimum) on the ______ day of the month, into the
Alliance Fund noted below;
Fund Name:_____________________________________
[_] Existing account number:___________________ [_] New Account
Shares exchanged will be redeemed at net asset value computed on the date
of the month selected. (If the date selected is not a fund business day
the transaction will be processed on the prior fund business day.)
Certificates must remain unissued.
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
================================================================================
7. SHAREHOLDER AUTHORIZATION This section MUST be completed
================================================================================
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor its Investment Adviser, Principal Underwriter, Transfer Agent or other
Fund Agent will be liable for any loss, injury, damage or expense as a result of
acting upon telephone instructions purporting to be on my behalf, that the Fund
reasonably believes to be genuine, and that neither the Fund nor any such party
will be responsible for the authenticity of such telephone instructions. I
understand that any or all of these privileges may be discontinued by me or the
Fund at any time. I understand and agree that the Fund reserves the right to
refuse any telephone instructions and that my investment dealer or agent
reserves the right to refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date Acceptance Date
================================================================================
DEALER/AGENT AUTHORIZATION For selected Dealers or Agents ONLY.
================================================================================
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm ________________ Authorized Signature ______________________
Representative First Name ___________________ MI ____ Last Name ______________
Representative Number __________________________________________________________
Branch Office Address __________________________________________________________
City _______________________________ State ____________ Zip Code _____________
Branch Number _________________________ Branch Phone ( )_____________________
<PAGE>
================================================================================
3. INITIAL INVESTMENT
================================================================================
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000. Make
all checks payable to The Alliance Bond Fund in which you are investing.
I hereby subscribe for shares of the following Alliance Bond Fund(s):
<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Sales Dollar
Charge) Amount Sales Charge) Amount Charge) Amount
-------------- ------ -------------------- ------ ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
[_] Short-Term U.S. Government [_] (37) ______ [_] (51) ______ [_] (337) ______
[_] U.S. Government [_] (46) ______ [_] (76) ______ [_] (346) ______
[_] Mortgage Strategy [_] (88) ______ [_] (89) ______ [_] (388) ______
[_] Mortgage Securities Income [_] (52) ______ [_] (63) ______ [_] (352) ______
[_] World Income+ [_] (54) ______ not offered ______ not offered ______
[_] Short-Term Multi-Market [_] (70) ______ [_] (68) ______ [_] (370) ______
[_] Multi-Market Strategy [_] (22) ______ [_] (23) ______ [_] (322) ______
[_] North American Government [_] (55) ______ [_] (56) ______ [_] (355) ______
[_] Global Dollar Government [_] (166) ______ [_] (266) ______ [_] (366) ______
[_] Corporate Bond+ [_] (95) ______ [_] (295) ______ [_] (395) ______
</TABLE>
to be purchased with the enclosed check or draft for $
+ No checkwriting available on these funds.
+-----------------------------------+
+DEALER USE ONLY +
+Wire Confirm No.: +
+-----------------------------------+
================================================================================
4. REDUCED CHARGES (Class A Only)
================================================================================
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or the
Statement of Intent section.
- --------------------------------------------------------------------------------
Fund Account Number Fund Account Number
A. Right of Accumulation
[_] Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. Statement of Intent
[_] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000 [_] $3,000,000
[_] $5,000,000
If the full amount indicated is not purchased within 13 months, I understand an
additional sales charge must be paid from my account.
- --------------------------------------------------------------------------------
Name on Account Account Number Name on Account Account Number
================================================================================
5. DISTRIBUTION OPTIONS
================================================================================
If no box is checked, all distributions will be reinvested in additional shares
of the Fund
<TABLE>
<S> <C> <C> <C>
Income Dividends; (elect one) [_] Reinvest dividends [_] Pay dividends in cash [_] Use Dividend Direction Plan
Capital Gains Distribution; (elect one) [_] Reinvest capital gains [_] Pay capital gains in cash [_] Use Dividend Direction Plan
</TABLE>
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a preprinted voided check from the bank account you wish to
have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- --------------------------------------------------------------------------------
Fund Name Existing Account No.
Special Distribution Instructions: [_] Please pay my distributions via check
and send to the address indicated in
Section 2.
[_] Please mail my distributions to the
person and/or address designated below:
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
City State Zip
** Your bank must be a member of the National Automated Clearing House
Association (NACHA).
================================================================================
6. SHAREHOLDER OPTIONS
================================================================================
A. AUTOMATIC INVESTMENT PROGRAM (AIP)**
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account,
on or about the ____ day of each month for a monthly investment in my Fund
account in the amount of $________ (minimum $25 per month). Please attach a
preprinted voided check from the bank account you wish to use.
NOTE: If your bank is not a member of the NACHA, your Alliance account will
be credited on or about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear on
bank records.
- --------------------------------------------------------------------------------
Individual Account Date Joint Account Date
<PAGE>
ALLIANCE NORTH AMERICAN
[Alliance Logo Here](R) GOVERNMENT INCOME TRUST
- -----------------------------------------------------------------
January 30, 1995
Supplement to Prospectus dated November 1, 1994
Between January 6 and January 25, 1995, six complaints were
filed by groups of shareholders of the Alliance North American
Government Income Trust, Inc. (the "Fund") alleging violations of
federal securities laws, fraud, negligence, negligent
misrepresentations and omissions, breach of fiduciary duty and
breach of contract in connection with the Fund's investments in
Mexican and Argentine securities and the recent substantial
decline in the Fund's net asset value resulting from those
investments. Four of the actions were filed in the United States
District Court for the Southern District of California, and two
actions were filed in the United States District Court for the
Southern District of New York.
Each of the actions is brought against the Fund, Alliance
Capital Management L.P. (the adviser to the Fund) and Alliance
Capital Management Corporation (the general partner of the
adviser). Other defendants named in certain of the complaints
are Alliance Fund Services, Inc. (the Fund's transfer agent) and
certain officers of the Fund and the adviser.
Each of the actions seeks to have a plaintiff class
certified consisting of all shareholders of the Fund who
purchased or owned shares in the Fund at varying times between
February 1992 and December 1994. The actions seek an unspecified
amount of damages, costs and attorneys' fees. The Fund believes
that the allegations in each of the actions are without merit and
intends to vigorously defend against the claims in the actions.
- -----------------------------------------------------------------
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
c:\files\...\epb\prospect.sup
