<PAGE>
As filed with the Securities and Exchange
Commission on February 1, 1995
File Nos. 33-45328
8ll-06554
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 X
Alliance North American Government Income Trust, Inc.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 221-5672
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
- -----
on (date) pursuant to paragraph (b)
- -----
X 60 days after filing pursuant to paragraph (a)
- -----
on (date) pursuant to paragraph (a) of rule 485.
- -----
Registrant has registered an indefinite number of shares of common stock
pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 notice for its fiscal year ended November 30, 1994
was filed on January 26, 1995.<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-lA Item No. Location in Prospectus
- ------------ ----------------------
PART A
- ------
Item 1. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . Expense Information
Item 3. Condensed Financial Information. . . . . . Financial Highlights
Item 4. General Description of Registrant. . . . . Description of the
Fund
Item 5. Management of the Fund . . . . . . . . . . Management of the
Fund; General
Information
Item 6. Capital Stock and Other Securities . . . . Dividends,
Distributions and
Taxes;
General Information
Item 7. Purchase of Securities Being Offered Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase . . . . . . . . . Purchase and Sale of
Shares
Item 9. Pending Legal Proceedings. . . . . . . . . Not Applicable
Location in Statement of
PART B Additional Information
- ------ ------------------------
Item 10. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents. . . . . . . . . . . . . Cover Page
Item 12. General Information and History. . . . . . Management of the
Fund; General
Information
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Location in Statement of
PART B Additional Information
- ------ ------------------------
Item 13. Investment Objectives and Policies . . . . Investment Objective,
Policies and
Restrictions;
Further Information
About Canada, the
United Mexican
States and the
Republic of
Argentina
Item 14. Management of the Registrant . . . . . . . Management of
the Fund
Item 15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . General Information
Item 16. Investment Advisory and Other Services . . Management of
the Fund
Item 17. Brokerage Allocation and Other Practices . General Information
Item 18. Capital Stock and Other Securities . . . . General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered. . . . . Purchase of Shares;
Redemption and
Repurchase of
Shares; Net Asset
Value
Item 20. Tax Status . . . . . . . . . . . . . . . . Investment
Objective, Policies
and Restrictions;
Dividends,
Distributions and
Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . General Information
Item 22. Calculation of Performance Data. . . . . . General Information
Item 23. Financial Statements . . . . . . . . . . . Financial Statements;
Report of Independent
Auditors
<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.
<PAGE>
<PAGE>
The Alliance
----------------------------------
Bond Funds
----------------------------------
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
PROSPECTUS AND APPLICATION
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:
--------------------------------------------------------
AUTOMATIC REINVESTMENT
--------------------------------------------------------
AUTOMATIC INVESTMENT PROGRAM
--------------------------------------------------------
RETIREMENT PLANS
--------------------------------------------------------
SHAREHOLDER COMMUNICATIONS
--------------------------------------------------------
DIVIDEND DIRECTION PLANS
--------------------------------------------------------
AUTO EXCHANGE
--------------------------------------------------------
SYSTEMATIC WITHDRAWALS
--------------------------------------------------------
CHECK-WRITING
--------------------------------------------------------
A CHOICE OF PURCHASE PLANS
--------------------------------------------------------
TELEPHONE TRANSACTIONS
--------------------------------------------------------
24 HOUR INFORMATION
--------------------------------------------------------
[LOGO OF ALLIANCE APPEARS HERE]
(R)/SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
3
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when you
invest in a Fund. The following 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
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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
31
<PAGE>
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
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<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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
Appendix B:
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
About Canada, Mexico
- --------------------------------------------------------------------------------
and Argentina
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division of
powers between the federal and Provincial governments. The Parliament of Canada
has jurisdiction over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and coinage, banks
and banking, national defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely goods-
producing economy to a predominantly service-based one. Agriculture and other
primary production play a small but key role in the economy. Canada is also an
exporter of energy to the United States in the form of natural gas (of which
Canada has substantial reserves) and hydroelectric power, and has significant
mineral resources. The Canadian economy had experienced little or no growth over
the past several years, and the rate of growth of Canada's gross domestic
product (on an inflation adjusted basis) has declined.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. 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>
- --------------------------------------------------------------------------------
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
GOVERNMENT INCOME TRUST, INC.
- -----------------------------------------------------------------
Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
- -----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 4, 1994 (as amended November 1, 1994)
_________________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Fund's current Prospectus
dated November 1, 1994. A copy of the Prospectus may be obtained
by contacting Alliance Fund Services, Inc. at the address or
telephone numbers listed above.
TABLE OF CONTENTS
PAGE
Description of the Fund. . . . . . . . . . . . . . . . . . . . . . . .2
Additional Information About Canada, the United
Mexican States and the Republic of Argentina . . . . . . . . . . . . .28
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . .47
Expenses of the Fund . . . . . . . . . . . . . . . . . . . . . . . . .53
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . .56
Redemption and Repurchase of Shares. . . . . . . . . . . . . . . . . .68
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . .72
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . .78
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . .85
General Information. . . . . . . . . . . . . . . . . . . . . . . . . .85
Report of Independent Auditors and Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A (Bond Ratings). . . . . . . . . . . . . . . . . . . . . A-1
Appendix B (Obligations of U.S. Government Agencies or
Instrumentalities). . . . . . . . . . . . . . . . . . . . . . . . B-1
Appendix C (Futures Contracts and Options on
Futures Contracts and Foreign Currencies) . . . . . . . . . . . . C-1
<PAGE>
-2-
- -----------------------------------------------------------------
DESCRIPTION OF THE FUND
- -----------------------------------------------------------------
Except as otherwise indicated, the investment policies of
Alliance North American Government Income Trust, Inc. (the
"Fund") are not designated "fundamental policies" and may,
therefore, be changed by the Fund's Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. The Fund's investment objective may not be changed
without shareholder approval. There can be, of course, no
assurance that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVE
The Fund is a non-diversified, open-end management
investment company which seeks the highest level of current
income, consistent with what Alliance Capital Management L.P.
(the "Adviser"), the Fund's Adviser, considers to be prudent
investment risk, that is available from a portfolio of debt
securities issued or guaranteed by the governments of 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 seeks high current yields by investing in
Government Securities denominated in the U.S. Dollar, the
Canadian Dollar and the Mexican Peso (including the Mexican New
Peso). Normally, the Fund expects to maintain at least 25% of
its assets in securities denominated in the U.S. Dollar. The
Fund will utilize certain other investment techniques, including
options and futures.
The Adviser 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.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund may invest its assets in Government Securities
considered investment grade or higher (i.e., securities rated at
least BBB by Standard & Poor's Corporation ("S&P") or at least
Baa by Moody's Investors Service, Inc. ("Moody's")) or, if not so<PAGE>
-3-
rated, of equivalent investment quality as determined by the
Adviser.
See "Additional Investment Considerations--Securities
Ratings," below. For a description of ratings by S&P and Moody's
see Appendix A.
The Adviser will actively manage the Fund's assets in
relation to market conditions and general economic conditions in
the United States, Canada and Mexico and elsewhere, and will
adjust the Fund's investments in Government Securities based on
its perception of which Government Securities will best enable
the Fund to achieve its investment objective of seeking the
highest level of current income, consistent with what the Adviser
considers to be a prudent investment risk. In this regard,
subject to the limitations described above, the percentage of
assets invested in a particular country or denominated in a
particular currency will vary in accordance with the Adviser's
assessment of the relative yield and appreciation potential of
such securities and the relationship of the country's currency to
the U.S. Dollar. The Adviser anticipates that, under the
conditions appertaining on the date of this Prospectus, not more
than approximately 25% of the Fund's assets would be invested in
securities denominated in the Mexican Peso.
The Fund will invest 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 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 and are rated investment grade or, if not so rated,
are of equivalent investment quality as determined by the
Adviser. 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"). Under
normal market conditions, the Fund will invest at least 65% of
its total assets in income-producing securities.
The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information set forth in the Fund's Prospectus under the heading
"Description of the Fund." The Fund's investment policies are
not designated "fundamental policies" within the meaning of the
Investment Company Act of 1940 (the "1940 Act") and may be
changed by the Fund's Board of Directors without shareholder
approval. However, the Fund will not change its investment<PAGE>
-4-
policies without contemporaneous written notice to shareholders.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed
by the United States Government, its agencies or
instrumentalities include: (i) U.S. Treasury obligations, which
differ only in their interest rates, maturities and times of
issuance: U.S. Treasury bills (maturity of one year or less),
U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years),
all of which are backed by the full faith and credit of the
United States, and (ii) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, including government
guaranteed mortgage-related securities. Some such obligations
are backed by the full faith and credit of the U.S. Treasury,
e.g., direct pass-through certificates of the Government National
Mortgage Association ("GNMA"); some are supported by the right of
the issuer to borrow from the U.S. Government, e.g., obligations
of Federal Home Loan Banks; and some are backed only by the
credit of the issuer itself, e.g., obligations of the Student
Loan Marketing Association.
U.S. Government Securities do not generally involve the
credit risks associated with other types of interest bearing
securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields
available from other interest bearing securities. Like other
fixed-income securities, however, the values of U.S. Government
Securities change as interest rates fluctuate.
See Appendix B for a general description of obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities.
U.S. GOVERNMENT GUARANTEED MORTGAGE-RELATED SECURITIES--
GENERAL. Mortgages backing the U.S. Government guaranteed
mortgage-related securities purchased by the Fund include, among
others, conventional thirty-year fixed-rate mortgages, graduated
payment mortgages, fifteen year mortgages and adjustable rate
mortgages. All of these mortgages can be used to create pass-
through securities. A pass-through security is formed when
mortgages are pooled together and undivided interests in the pool
or pools are sold. The cash flow from the mortgages is passed
through to the holders of the securities in the form of periodic
payments of interest, principal and prepayments (net of a service
fee). Prepayments occur when the holder of an individual
mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-
backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgages vary, it<PAGE>
-5-
is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments
adversely impact yields for pass-throughs purchased at a premium
(i.e., a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not
have been fully amortized at the time the obligation is repaid.
The opposite is true for pass-throughs purchased at a discount.
The Fund may purchase mortgage-related securities at a premium or
at a discount. Principal and interest payments on the mortgage-
related securities are government guaranteed to the extent
described below. Such guarantees do not extend to the value or
yield of the mortgage-related securities themselves or of the
Fund's shares of common stock.
GNMA CERTIFICATES. Certificates of the Government National
Mortgage Association ("GNMA Certificates") are mortgage-backed
securities, which evidence an undivided interest in a pool or
pools of mortgages. GNMA certificates that the Fund purchases
are the "modified pass-through" type, which entitle the holder to
receive timely payment of all interest and principal payments due
on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the
payment.
The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by
a pool of mortgages insured by the Federal Housing Administration
("FHA") or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is backed by the full faith and credit of the
United States. The GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any
payments required under its guarantee.
The average life of a GNMA Certificate is likely to be
substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the
return of the greater part of principal investment long before
the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee,
except to the extent that the Fund has purchased the certificates
above par in the secondary market.
FHLMC SECURITIES. The Federal Home Loan Mortgage
Corporation ("FHLMC") was created in 1970 through enactment of
Title III of the Emergency Home Finance Act of 1970. Its purpose
is to promote development of a nationwide secondary market in
conventional residential mortgages.
<PAGE>
-6-
FHLMC issues two types of mortgage pass-through securities
("FHLMC Certificates"), mortgage participation certificates
("PCs") and guaranteed mortgage certificates ("GMCs"). PCs
resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the
underlying pool. FHLMC guarantees timely monthly payment of
interest on PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest semi-annually
and return principal once a year in guaranteed minimum payments.
The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith
and credit of the United States.
FNMA SECURITIES. The Federal National Mortgage Association
("FNMA") was established in 1938 to create a secondary market in
mortgages insured by the FHA.
FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and
principal on FNMA Certificates. The FNMA guarantee is not backed
by the full faith and credit of the United States.
ZERO COUPON TREASURY SECURITIES. U.S. Government Securities
in which the Fund may invest also include "zero coupon" Treasury
securities, which are U.S. Treasury bills which are issued
without interest coupons, U.S. Treasury notes and bonds which
have been stripped of their unmatured interest coupons, and
receipts or certificates representing interests in such stripped
debt obligations and coupons. A zero coupon 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.
Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make
current distributions of interest. On the other hand, because
there are no periodic interest payments to be reinvested prior to
maturity, zero coupon securities eliminate reinvestment risk and
lock in a rate of return to maturity.
Current federal tax law requires that a holder (such as the
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 Fund receives no interest payment in cash on the<PAGE>
-7-
security during the year. For a discussion of the tax treatment
of "zero coupon" Treasury securities see "Taxation-Zero Coupon
Treasury Securities" in the Statement of Additional Information.
The staff of the Securities and Exchange Commission (the
"Commission") has indicated that, in its view, zero coupon
securities are deemed not to be income-producing securities for
purposes of the Fund's policy of investing at least 65% of its
total assets in income-producing securities, and, accordingly,
the Fund may not invest more than 35% of its total assets in zero
coupon securities. The Fund disagrees with the staff's position
but has undertaken that it will not invest more than 35% of its
total assets in zero coupon securities until final resolution of
the issue. If such securities are deemed to be income-producing
securities, the Fund will not be subject to any limitations on
their purchase other than the limitation discussed in the next
paragraph.
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 ("corpus") from the coupon portions of the
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 the Fund's categorization of U.S. Government
Securities. The Fund disagrees with the staff's interpretation
but has undertaken that it will not invest in such securities
until final resolution of the issue. If such securities are
deemed to be U.S. Government Securities the Fund will not be
subject to any limitations on their purchase other than the 35%
limitation discussed in the preceding paragraph.
CANADIAN GOVERNMENT SECURITIES. Canadian Government
Securities include the sovereign debt of Canada or any of its
Provinces (Alberta, British Columbia, Manitoba, New Brunswick,
Newfoundland, Nova Scotia, Ontario, Prince Edward Is land, Quebec
and Saskatchewan). Canadian Government Securities in which the
Fund may invest include government of Canada bonds and government
of Canada Treasury bills. The Bank of Canada, acting on behalf
of the federal government, is responsible for the distribution of
these bonds and Treasury bills. The Bank of Canada offers new
issues, as approved by the Government, to specific investment<PAGE>
-8-
dealers and banks. Government of Canada Treasury bills are debt
obligations with maturities of less than one year. A new issue
of Government of Canada bonds frequently consists of several
different bonds with various maturity dates representing
different segments of the yield curve with maturities ranging
from one to 25 years. The Bank of Canada usually purchases a
pre-determined amount of each issue.
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. Spreads in the marketplace
are determined by various factors, including the relative supply
and the rating assigned by the rating agencies.
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 (the "NHA MBS Program") established under the National
Housing Act of Canada ("NHA"). Certificates issued pursuant to
the NHA MBS Program ("NHA Mortgage-Related Securities") benefit
from the guarantee of the Canada Mortgage and Housing Corporation
("CMHC"), a federal Crown corporation that is (except for certain
limited purposes) an agency of the Government of Canada whose
guarantee (similar to that of GNMA in the United States) is an
unconditional obligation of the Government of Canada except as
described below. The NHA currently provides that the aggregate
principal amount of all issues of NHA Mortgage Related Securities
in respect of which CMHC may give a guarantee must not exceed
C$60 billion.
NHA Mortgage-Related Securities are backed by a pool of
insured mortgages that satisfy the requirements established by
the NHA. Issuers that wish to issue NHA Mortgage-Related
Securities must meet the status and other requirements of CMHC
and submit the necessary documentation to become an "approved
issuer". When an approved issuer wishes to issue NHA Mortgage
Related Securities in respect of a particular pool of mortgages,
it must seek the approval of CMHC. Such mortgages must, among
other things, be first mortgages that are insured under the NHA,
not be in default and provide for equal monthly payments
throughout their respective terms.<PAGE>
-9-
The mortgages in each NHA Mortgage-Related Securities pool
are assigned to CMHC which, in turn, issues a guarantee of timely
payment of principal and interest that is shown on the face of
the certificates representing the NHA Mortgage-Related
Securities(the "NHA MBS Certificates"). NHA Mortgage-Related
Securities do not constitute any liability of, nor evidence any
recourse against, the issuer of the NHA Mortgage-Related
Securities, but in the event of any failure, delay or default
under the terms of NHA MBS Certificates, the holder has recourse
to CMHC in respect of its guarantee set out on the NHA MBS
Certificates.
In any legal action or proceeding or otherwise, CMHC has
agreed not to contest or defend against a demand for the timely
payment of the amount set forth and provided for in, and unpaid
on, any duly and validly issued NHA MBS Certificate, provided
that such payment is sought and claimed by or on behalf of a bona
fide purchaser of and investor in such security, without actual
notice at the time of the purchase of the basis or grounds for
contesting or defending against that demand for timely payment.
While most Canadian Mortgage-Related Securities are subject
to voluntary prepayments, some pools are not and function more
like a traditional bond. The typical maturity of Canadian
Mortgage-Related Securities is five years as most Canadian
residential mortgages provide for a five-year maturity with equal
monthly blended payments of interest and principal based on a
twenty-five year amortization schedule. Pursuant to recent
changes adopted by CMHC, maturities of NHA Mortgaged-Related
Securities may be as short as six months or as long as eighteen
years.
MEXICAN GOVERNMENT SECURITIES. The Fund may invest in
Mexican Government Securities of investment grade quality. As of
the date of this Prospectus, the only Mexican Government
Securities denominated in the Mexican Peso that have been rated
by either S&P or Moody's are Cetes rated A-1+ by S&P. The
Adviser, however, believes that there are other Peso-denominated
Mexican Government Securities that are of investment grade
quality. Currently there are no Mexican Government Securities
denominated in the U.S. Dollar which qualify for investment by
the Fund. If qualified investments of this nature appear in the
future, the Fund will consider them for investment.
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<PAGE>
-10-
(iii) Ajustabonos, which are adjustable 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 as of the end of the preceding month.
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.
<PAGE>
-11-
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 no assurance that Mexico's economic policy
initiatives will be successful or that succeeding administrations
will continue these initiatives.
In August 1976, the Mexican government established a policy
of allowing the Mexican Peso to float against the U.S. Dollar and
other currencies. Under this policy, the value of the Mexican
Peso consistently declined against the U.S. Dollar.
Under economic policy initiatives implemented since December<PAGE>
-12-
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 include an
adjustment in the scheduled devaluation rate of the Mexican Peso
against the U.S. Dollar. On May 28, 1990, the Mexican Peso began
devaluing by an average of .80 Mexican Pesos per day instead of
one Mexican Peso per day. On November 12, 1990, this average was
decreased to .40 Mexican Pesos per day and on November 11, 1991
the daily devaluation rate was lowered to .20 Mexican Pesos per
day. On October 21, 1992 the maximum rate at which the Mexican
Peso can devalue against the U.S. dollar was increased to .40
Mexican Pesos 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. See "Additional Investment Considerations-Currency
Risks."
ARGENTINE GOVERNMENT SECURITIES. 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 ten
years; (ii) Bono de Consolidacion Economica ("BOCON"), which are
economic consolidation bonds issued directly by the Argentine
government with maturities of 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 four
years. To date, Argentine Government Securities are not rated by
either S&P or Moody's. The Adviser, however, believes that there
are Argentine Government Securities that are of investment grade
quality.
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<PAGE>
-13-
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 framework 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 term and allowed a
return to voluntary credit markets. Further reforms are
currently being implemented in order to sustain and continue the
progress to date. 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.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The following additional investment policies supplement<PAGE>
-14-
those set forth above.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S.
Government Securities or foreign government securities ("futures
contracts") and may purchase and write put and call options to
buy or sell futures contracts ("options on futures contracts").
A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities or foreign
currencies called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the
incurring of a contractual obligation to acquire the securities
or foreign currencies called for by the contract at a specified
price on a specified date. The purchaser of a futures contract
on an index agrees to take or make delivery of an amount of cash
equal to the difference between a specified dollar multiple of
the value of the index on the expiration date of the contract and
the price at which the contract was originally struck. Options
on futures contracts to be written or purchased by the Fund will
be traded on U.S. or foreign exchanges or over-the-counter.
The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts.
The Fund will not (i) enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of margin deposits on all the outstanding futures
contracts of the Fund and premiums paid on outstanding options on
futures contracts would exceed 5% of the market value of the
total assets of the Fund, or (ii) enter into any futures
contracts or options on futures contracts if the aggregate of the
market value of the outstanding futures contracts of the Fund and
the market value of the currencies and futures contracts subject
to outstanding options written by the Fund would exceed 50% of
the market value of the total assets of the Fund. Neither of
these restrictions will be changed by the Fund's Boar of
Directors without considering the policies and concerns of the
various applicable federal and state regulatory agencies.
See Appendix C for further discussion of the use, risks and
costs of futures contracts and options on futures contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and
write put and call options on foreign currencies for the purpose
of protecting against declines in the U.S. Dollar value of
foreign currency-denominated portfolio securities and against<PAGE>
-15-
increases in the U.S. Dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the
writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written
or purchased by the Fund will be traded on U.S. and foreign
exchanges or over-the-counter. There is no specific percentage
limitation on the Fund's investments in options on foreign
currencies.
See Appendix C for further discussion of the use, risks and
costs of options on foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may
purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
of adverse changes in the relationship between the U.S. Dollar
and other currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded
by currency traders and their customers.
The Fund may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in"
the U.S. Dollar price of the security ("transaction hedge").
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or, when the Fund believes that the U.S. Dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed U.S. Dollar amount ("position hedge"). In
this situation the Fund may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Fund believes that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. Dollar value of
the currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's Custodian will place
cash not available for investment or liquid high-grade Government
Securities in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under<PAGE>
-16-
forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the
segregated account declines, additional cash or liquid high-grade
Government Securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of
the Fund's commitments with respect to such contracts. As an
alternative to maintaining all or part of the segregated account,
the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward
sale contract at a price no higher than the forward contract
price or the Fund may purchase a put option permitting the Fund
to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward
contract price.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Fund's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not
entered into such contracts. The use of foreign currency forward
contracts will not eliminate fluctuations in the underlying U.S.
Dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency denominated portfolio securities and
the use of such techniques will subject the Fund to certain
risks.
The matching of the increase in value of a forward contract
and the decline in the U.S. Dollar equivalent value of the
foreign currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Fund may
not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's
ability to use such contracts to hedge its assets.
OPTIONS ON U.S. AND FOREIGN GOVERNMENT SECURITIES. In an
effort to increase current income and to reduce fluctuations in
net asset value, the Fund intends to write covered put and call
options and purchase put and call options on U.S. Government
Securities and foreign government securities that are traded on
United States and foreign securities exchanges. The Fund also
intends to write call options for cross-hedging purposes. There
are no specific limitations on the Fund's writing and purchasing
of options.
The purchaser of an option, upon payment of a premium,
obtains, in the case of a put option, the right to deliver to the<PAGE>
-17-
writer of the option, and, in the case of a call option, the
right to call upon the writer to deliver a specified amount of a
security on or before a fixed date at a predetermined price. A
call option written by the Fund is "covered" if the Fund (i) owns
the underlying security covered by the call, (ii) has an absolute
and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in
a segregated account by its Custodian) upon conversion or
exchange of other portfolio securities, or (iii) holds a call on
the same security and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to
or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and liquid high-
grade Government Securities in a segregated account with its
Custodian. A put option written by the Fund is "covered" if the
Fund maintains cash not available for investment or liquid high-
grade Government Securities with a value equal to the exercise
price in a segregated account with its Custodian, or else holds a
put on the same security in the same principal amount as the put
written where the exercise price of the put held is equal to or
greater than the exercise price of the put written.
A call option is written for cross-hedging purposes if the
Fund does not own the underlying security but seeks to provide a
hedge against a decline in value in another security which the
Fund owns or has the right to acquire. In such circumstances,
the Fund collateralizes its obligation under the option (which is
not covered) by maintaining in a segregated account with its
Custodian cash or liquid high-grade Government Securities in an
amount not less than the market value of the underlying security,
marked to market daily.
In purchasing a call option, the Fund would be in a position
to realize a gain if, during the option period, the price of the
underlying security increased by an amount in excess of the
premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
The risk involved in writing a put option is that there
could be a decrease in the market value of the underlying<PAGE>
-18-
security. If this occurred, the option could be exercised and
the underlying security would then be sold by the option holder
to the Fund at a higher price than its current market value. The
risk involved in writing a call option is that there could be an
increase in the market value of the underlying security. If this
occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction as discussed in Appendix C. The Fund
retains the premium received from writing a put or call option
whether or not the option is exercised.
The Fund may purchase or write options on securities of the
types in which it is permitted to invest in privately negotiated
transactions. The Fund will effect such transactions only with
investment dealers and other financial institutions (such as
commercial banks or savings and loan institutions) deemed
creditworthy by the Adviser, and the Adviser has adopted
procedures for monitoring the creditworthiness of such entities.
Options purchased or written by the Fund in negotiated
transactions are illiquid and it may not be possible for the Fund
to effect a closing transaction at a time when the Adviser
believes it would be advantageous to do so. See "Illiquid
Securities," below.
See Appendix C for a further discussion of the use, risks
and costs of options in U.S. Government and foreign government
securities.
INTEREST RATE TRANSACTIONS. The Fund may, without limit,
enter into interest rate swaps and may purchase or sell interest
rate caps and floors. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may
also enter into these transactions to protect against any
increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use
these transactions in a speculative manner. Interest rate swaps
involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. The
exchange commitments can involve payments to be made in the same
currency or in different currencies. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually-based principal amount from the
party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments on a contractually-based principal amount from
the party selling such interest rate floor. <PAGE>
-19-
The Fund may enter into interest rate swaps, caps and floors
on either an asset-based or liability-based basis depending on
whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis, i.e., the
two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments. Inasmuch as these hedging transactions are entered
into for good faith hedging purposes, the Adviser and the Fund
believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued daily and an amount of cash or
liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated
account by the Fund's Custodian. If the Fund enters into an
interest rate swap on other than a net basis, the Fund will
maintain in a segregated account with its Custodian the full
amount, accrued daily, of the Fund's obligations with respect to
the swap. The Fund will enter into interest rate swap, cap or
floor transactions with its Custodian, and with other
counterparties, but only if: (i) for transactions with maturities
under one year, such other counterparty has outstanding short-
term paper rated at least A-1 by S&P or Prime-1 by Moody's or
(ii) for transactions with maturities greater than one year, the
counterparty has outstanding debt securities rated at least AA by
S&P or Aa by Moody's. If there is a default by the other party
to such a transaction, the Fund will have contractual remedies.
The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation.
As a result, the swap market has become well established and
provides a degree of liquidity. Caps and floors are more recent
innovations for which documentation is not as standardized and,
accordingly, they are less liquid than swaps. To the extent the
Fund sells (i.e., writes) caps and floors it will maintain in a
segregated account with its Custodian cash or liquid securities
having an aggregate net asset value at least equal to the full
amount, accrued daily, of the Fund's obligations with respect to
any caps and floors.
FORWARD COMMITMENTS. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include 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, i.e., a "when, as
and if issued" trade.
<PAGE>
-20-
When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date, normally within two months
after the transaction, although delayed settlements beyond two
months may be negotiated. Securities purchased or sold under a
forward commitment are subject to market fluctuation, and no
interest accrues to the purchaser prior to the settlement date.
At the time the Fund enters into a forward commitment, it will
record the transaction and thereafter reflect 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 of a "when, as and if
issued" security would be cancelled in the event that the
required condition did not occur and the trade was cancelled.
The use of forward commitments enables the Fund to protect
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
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. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to then current market values. No forward commitments
will be made by the Fund if, as a result, the Fund's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Fund's total assets.
The Fund's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
Custodian will maintain, in the separate account of the Fund,
cash or liquid high-grade Government Securities having value
equal to, or greater than, any commitments to purchase securities
on a forward commitment basis and, with respect to forward
commitments to sell portfolio securities of the Fund, the e
portfolio securities themselves. If the Fund, however, chooses
to dispose of the right to receive or deliver a security subject
to a forward commitment prior to the settlement date of the
transaction, it can incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
<PAGE>
-21-
GENERAL. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options, interest rate
transactions or forward contracts or may realize losses and thus
be in a worse position than if such strategies had not been used.
Unlike many exchange-traded futures contracts and options on
futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and
adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation
between movements in the prices of such instruments and movements
in the price of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its positions in futures
contracts, options, interest rate transactions and forward
contracts will depend on the availability of liquid markets in
such instruments. Markets in options and futures with respect to
a number of fixed-income securities and currencies are relatively
new and still developing. It is impossible to predict the amount
of trading interest that may exist in various types of futures
contracts, options and forward contracts. If a secondary market
does not exist with respect to an option purchased or written by
the Fund over-the-counter, it might not be possible to effect a
closing transaction in the option (i.e., dispose of the option)
with the result that (i) an option purchased by the Fund would
have to be exercised in order for the Fund to realize any profit
and (ii) the Fund may not be able to sell currencies or portfolio
securities covering an option written by the Fund until the
option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the
Fund's ability to engage in options and futures transactions may
be limited by tax considerations. See "Dividends, Distributions
and Taxes--U.S. Federal Income Taxes."
LOANS OF PORTFOLIO SECURITIES. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that cash, U.S. Government
Securities or bank letters of credit equal to at least 100% of
the market value of the securities loaned is deposited and
maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board<PAGE>
-22-
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Fund will not lend portfolio securities in excess of 20% of the
value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, employee or affiliate of
either the Fund or the Adviser. The Board of Directors will
monitor the Fund's lending of portfolio securities.
REPURCHASE AGREEMENTS. The Fund may enter into "repurchase
agreements" pertaining to the types of securities in which it may
invest with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in such securities. There is no percentage restriction
on the Fund's ability to enter into repurchase agreements.
Currently the Fund enters into repurchase agreements only with
its Custodian and such primary dealers. A repurchase agreement
arises when a buyer such as the Fund purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which is effective for the period of
time the buyer's money is invested in the security and which is
not related to the coupon rate on the purchased security. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
for its account in the Federal Reserve/Treasury Book Entry System
of collateral in an amount equal to, or in excess of, the market
value of the securities which are the subject of the agreement.
In the event a vendor defaulted on its repurchase obligation, the
Fund might suffer a loss to the extent that the proceeds from the
sale of the collateral were less than the repurchase price. In
the event of a vendor's bankruptcy, the Fund might be delayed in,
or prevented from, selling the collateral for the Fund's benefit.
The Fund's Board of Directors has established procedures, which
are periodically reviewed by the Board, pursuant to which the
Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
ILLIQUID SECURITIES. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.
The Fund will not invest in illiquid securities if
immediately after such investment more than 10% of the Fund's net<PAGE>
-23-
assets (taken at market value) would be invested in such
securities. For this purpose, illiquid securities include, among
others (a) direct placements or other securities which are
subject to legal or contractual restrictions on resale or for
which there is no readily available market (e.g., trading in the
security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers),
(b) options purchased by the Fund over-the-counter and the cover
for options written by the Fund over-the-counter, and
(c) repurchase agreements not terminable within seven days.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933,
as amended ("Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under
the Securities Act including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate
bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
During the coming year, the Fund may invest up to 5% of its
total assets in restricted securities issued under Section 4(2)
of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering."
Section 4(2) instruments are restricted in the sense that they
can only be resold through the issuing dealer and only to
institutional investors; they cannot be resold to the general<PAGE>
-24-
public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System sponsored by
the National Association of Securities Dealers, Inc., an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers.
The Adviser, acting under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the security;
(5) the nature of the security and the nature of the marketplace
for the security (e.g., the time needed to dispose-of the
security, the method of soliciting offers and the mechanics of
the transfer); and (6) any applicable Securities and Exchange
Commission (the "Commission") interpretation or position with
respect to such type of securities.
PORTFOLIO TURNOVER. The Fund may engage in active short-
term trading to benefit from yield disparities among different
issues of securities, to seek short-term profits during periods
of fluctuating interest rates or for other reasons. Such trading
will increase the Fund's rate of turnover and the incidence of
short-term capital gain taxable as ordinary income. The
portfolio turnover rate of securities of the Fund for the fiscal
period ended November 30, 1993 was 254%. Management anticipates
that the annual turnover in the Fund will not be in excess of
400%. An annual turnover rate of 400% occurs, for example, when
all of the securities in the Fund's portfolio are replaced four
times in a period of one year. A high rate of portfolio turnover
involves correspondingly greater expenses than a lower rate,
which expenses must be borne by the Fund and its shareholders.
High portfolio turnover also may result in the realization of<PAGE>
-25-
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes" and "General Information-Portfolio
Transactions."
SPECIAL BORROWING CONSIDERATIONS
EFFECTS OF BORROWING. The Fund maintains borrowings from
banks unaffiliated with the Fund or the Adviser in an amount of
money representing approximately one-third of the Fund's total
assets less liabilities (other than the amount borrowed). The
Fund's loan agreements provide for additional borrowings and for
repayments and reborrowings from time to time, and the Fund
expects to effect borrowings and repayments at such times and in
such amounts as will maintain investment leverage in an amount
approximately equal to its 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 the Fund result in leveraging of the Fund's
shares of common stock. The proceeds of such borrowings will be
invested in Government Securities in accordance with the Fund's
investment objective and policies. The Adviser anticipates that
the difference between the interest expense paid by the Fund on
borrowings and the rates received by the Fund from its
investments in Government Securities of non-U.S. issuers will
provide the Fund's shareholders with a potentially higher yield.
Utilization of leverage, which is usually considered
speculative, however, involves certain risks to the Fund's
shareholders. These include a higher volatility of the net asset
value of the Fund's shares of common stock and the relatively
greater effect on the net asset value of the shares caused by
favorable or adverse changes in currency exchange rates. So long
as the Fund is able to realize a net return on the leveraged
portion of its investment portfolio that is higher than the
interest expense paid on borrowings, the effect of leverage will
be to cause the Fund's shareholders to realize higher current net
investment income than if the Fund were not leveraged. However,
to the extent that the interest expense on borrowings approaches
the net return on the leveraged portion of the Fund's investment
portfolio, the benefit of leverage to the Fund's shareholders
will be reduced, and if the interest expense on borrowings were
to exceed the net return to shareholders, the Fund's use of
leverage would result in a lower rate of return than if the Fund
were not leveraged. Similarly, the effect of leverage in a
declining market could be a greater decrease in net asset value
per share than if the Fund were not leveraged. In an extreme
case, if the Fund's current investment income were not sufficient
to meet the interest expense on borrowings, it could be necessary
for the Fund to liquidate certain of its investments, thereby
reducing the net asset value of the Fund's shares. <PAGE>
-26-
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS. In the event
of an increase in rates on U.S. Government Securities obligations
or other changed market conditions, to the point where the Fund's
leverage could adversely affect the Fund's shareholders, as noted
above, or in anticipation of such changes, the Fund may 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. The Fund may also
reduce the degree to which it is leveraged by repaying amounts
borrowed.
Under the Investment Company Act of 1940 (the "1940 Act"),
the Fund is not permitted to borrow unless immediately after such
borrowing there is "asset coverage," as that term is defined and
used in the 1940 Act, of at least 300% for all borrowings of the
Fund. In addition, under the 1940 Act, in the event asset
coverage falls below 300%, the Fund must within three days reduce
the amount of its borrowing to such an extent that the asset
coverage of its borrowings is at least 300%. Assuming
outstanding borrowings representing not more than one-third of
the Fund's total assets less liabilities (other than such
borrowings), the asset coverage of the Fund's portfolio would be
300%. The Fund will maintain asset coverage of outstanding
borrowings of at least 300% and if necessary will, to the extent
possible, reduce the amounts borrowed by making repayments from
time to time in order to do so. Such repayments could require
the Fund to sell portfolio securities at times considered
disadvantageous by the Adviser, and if such securities have been
held for less than three months, such sales may risk impairing
the Fund's tax status as a regulated investment company. See
"Dividends, Distributions and Taxes."
OTHER BORROWINGS. The Fund may also borrow to repurchase
its shares or to meet redemption requests. In addition, the Fund
may borrow for temporary purposes (including the purposes
mentioned in the preceding sentence) in an amount not exceeding
5% of the value of the total assets of the Fund. Borrowings for
temporary purposes are not subject to the 300% asset coverage
limit described above. See "Certain Fundamental Investment
Policies."
ADDITIONAL INVESTMENT CONSIDERATIONS
RISKS OF INVESTMENTS IN FOREIGN SECURITIES. Investing
in securities issued by foreign governments involves
considerations and possible risks not typically associated
with investing in U.S. Government Securities. The values of
foreign investments are affected by changes in currency
rates or exchange control regulations, application of
foreign tax laws, including withholding taxes, changes in<PAGE>
-27-
governmental administration or economic or monetary policy
(in this country or abroad), or changed circumstances in
dealings between nations. Costs are incurred in connection
with conversions between various currencies. In addition,
foreign brokerage commissions are generally higher than in
the United States, and foreign securities markets may be
less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in
foreign countries could be affected by other factors not
present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing
contractual obligations and could be subject to extended
settlement periods. The Fund believes that, except for
currency fluctuations between the U.S. Dollar and the
Canadian Dollar, the matters de scribed above are not likely
to have a material adverse effect on the Fund's investments
in the securities of Canadian issuers or investments
denominated in Canadian Dollars. The factors described
above are more likely to have a material adverse effect on
the Fund's investments in the securities of Mexican and
other non-Canadian foreign issuers, including investments in
securities de nominated 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 RISKS. Because Fund assets will be invested
in fixed income securities denominated in the Canadian
Dollar, the Mexican Peso and other foreign currencies and
because a substantial portion of the Fund's revenues will be
received in currencies other than the U.S. Dollar, the U.S.
Dollar equivalent of the Fund's net assets and distributions
will be adversely affected by reductions in the value of
certain foreign currencies relative to the U.S. Dollar.
These changes will also affect the Fund's income. If the
value of the foreign currencies in which the Fund receives
income falls relative to the U.S. Dollar between receipt of
the income and the making of Fund distributions, the 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 the 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,<PAGE>
-28-
the Fund may engage in certain currency hedging
transactions, which themselves, involve certain special
risks. See "Additional Investment Policies and Practices,"
above.
SECURITIES RATINGS. The ratings of fixed-income
securities by S&P and Moody's 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. Securities rated
BBB by S&P or Baa by Moody's are considered to be investment
grade, but to have speculative characteristics. Sustained
periods of deteriorating economic conditions or 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. The Fund expects
that it will not retain a debt security which is downgraded
below BBB or Baa, or, if unrated, determined by the Adviser
to have undergone similar credit quality deterioration,
subsequent to purchase by the Fund. See Appendix A for a
description of such ratings.
Non-rated securities will also be considered for
investment by the Fund when the Adviser 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.
DEBT SECURITIES. The net asset value of the Fund's
shares will change as the general levels of interest rates
fluctuate. When interest rates decline, the value of a
portfolio primarily invested in debt securities can be
expected to rise. Conversely, when interest rates rise, the
value of a portfolio primarily invested in debt securities
can be expected to decline.
NON-DIVERSIFIED STATUS. The Fund is a "non-
diversified" investment company, which means the Fund is not
limited in the proportion of its assets that may be invested
in the securities of a single issuer. Because the Fund may
invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Fund
may, under certain circumstances, present greater risk to an
investor than an investment in a diversified company. <PAGE>
-29-
However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of
the Internal Revenue Code (the "Code"). See "Dividends,
Distributions and Taxes--U.S. Federal Income Taxes." To so
qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities
of a single issuer and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single
issuer. The Fund's investments in U.S. Government
Securities are not subject to these limitations. However,
in order to meet the diversification tests and thereby
maintain its status as a regulated investment company, the
Fund will be required to diversify its portfolio of Canadian
Government Securities, Mexican Government Securities and
other foreign government securities in a manner which would
not be necessary if the Fund had made similar investments in
U.S. Government Securities.
FUNDAMENTAL INVESTMENT POLICIES
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without
shareholder approval, which means the affirmative vote of
the holders of (i) 67% or more of the shares represented at
a meeting at which more than 50% of the outstanding shares
are represented, or (ii) more than 50% of the outstanding
shares, whichever is less.
The Fund may not:
1. Make loans except through (i) the purchase of
debt obligations in accordance with its
investment objectives and policies; (ii) the
lending of portfolio securities; or (iii) the
use of repurchase agreements;
2. Participate on a joint or joint and several
basis in any securities trading account;
3. Invest in companies for the purpose of
exercising control;
4. Make short sales of securities or maintain a
short position, unless at all times when a
short position is open it owns an equal
amount of such securities or securities<PAGE>
-30-
convertible into or exchangeable for, without
payment of any further consideration,
securities of the same issue as, and equal in
amount to, the securities sold short ("short
sales against the box"), and unless not more
than 10% of the Fund's net assets (taken at
market value) is held as collateral for such
sales at any one time (it is the Fund's
present intention to make such sales only for
the purpose of deferring realization of gain
or loss for Federal income tax purposes);
5. Purchase a security if, as a result (unless
the security is acquired pursuant to a plan
of reorganization or an offer of exchange),
the Fund would own any securities of an open-
end investment company or more than 3% of the
total outstanding voting stock of any closed-
end investment company or more than 5% of the
value of the Fund's total assets would be
invested in securities of any one or more
closed-end investment companies; or
6. (i) Purchase or sell real estate, except that
it may purchase and sell securities of
companies which deal in real estate or
purchase and sell securities of companies
which deal in real estate or interests
therein; (ii) purchase or sell commodities or
commodity contracts (except currencies,
futures contracts on currencies and related
options, forward contracts or contracts for
the future acquisition or delivery of fixed-
income securities and related options,
futures contracts and options on futures
contracts and other similar contracts);
(iii) invest in interests in oil, gas, or
other mineral exploration or development
programs; (iv) purchase securities on margin,
except for such short-term credits as may be
necessary for the clearance of transactions;
and (v) act as an underwriter of securities,
except that the Fund may acquire restricted
securities under circumstances in which, if
such securities were sold, the Fund might be
deemed to be an underwriter for purposes of
the Securities Act of 1933, as amended.
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Fund
may not: (a) invest 25% or more of its total assets in<PAGE>
-31-
securities of companies engaged principally in any one
industry except that this restriction does not apply to U.S.
Government Securities; (b) borrow money, except that the
Fund may, in accordance with provisions of the 1940 Act,
(i) borrow from a bank, if after such borrowing, there is
asset coverage of at least 300% as defined in the 1940 Act
and (ii) borrow for temporary or emergency purposes in an
amount not exceeding 5% of the value of the total assets of
the Fund; or (c) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings.
In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Fund may not invest in warrants if such
warrants, valued at the lower of cost or market, would
exceed 5% of the value of the Fund's net assets. Included
within such amount, but not to exceed 2% of the Fund's net
assets, may be warrants which are not listed on the New York
Stock Exchange or the American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may
be deemed to be without value. The Fund will also not
purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of
its total assets.
Whenever any investment policy or restriction states a
minimum or maximum percentage of the Fund's assets which may
be invested in any security or other asset, it is intended
that such minimum or maximum percentage limitation be
determined immediately after and as a result of the Fund's
acquisition of such security or other asset. Accordingly,
any late increase or decrease in percentage beyond the
specified limitations resulting from a change in value or
net assets will not be considered a violation.
- ---------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT CANADA,
THE UNITED MEXICAN STATES AND THE REPUBLIC OF ARGENTINA
- -----------------------------------------------------------------
The information in this section is based on material
obtained by the Fund from various Canadian, Mexican and Argentine
governmental and other economic sources believed to be accurate
but has not been independently verified by the Fund or the
Adviser. It is not intended to be a complete description of
Canada, Mexico or Argentina, the Canadian, Mexican or Argentine
economies, or the consequences of investing in Mexican, Canadian
or Argentine Government Securities.
<PAGE>
-32-
ADDITIONAL INFORMATION ABOUT CANADA
Form of Government
The legislative branch of the Canadian federal government,
Parliament, consists of the Crown, an appointed upper house (the
"Senate") and an elected lower house (the "House of Commons").
The leader of the political party that gains the most seats in
the House of Commons in each general election is usually invited
to be Prime Minister and to form the government. The House of
Commons is elected for a period of five years, subject to earlier
dissolution upon the recommendation of the Prime Minister or
because of the government's defeat in the House of Commons on a
vote of no confidence.
Area and Population
Canada is the second largest country in the world in terms
of land mass, with an area of 9,970,610 square kilometers (3.85
million square miles) of which approximately 755,180 square
kilometers (291,580 square miles) are covered by fresh water.
The developed portion is about one-third of the total area, the
occupied farm land is about 8% and the productive forest land is
about 27% of the total area.
The population as of January 1, 1994 was estimated to be
28,973,200. As of July 1, 1993, approximately 61% of Canada's
population lived in its metropolitan areas, of which Toronto,
Montreal and Vancouver are the largest.
Meech Lake Accord and Related Developments
On June 3, 1987, the Prime Minister of Canada and the
Premiers of each of the Provinces formally agreed, in a document
known as the 1987 Constitutional Accord (the "Meech Lake
Accord"), to submit certain broad proposals for the amendment of
the CONSTITUTION ACTS, 1867 to 1982 (the "Constitution") to the
Parliament of Canada and the legislatures of each of the
Provinces for approval. Among other things, the Meech Lake
Accord proposed that the Constitution be amended to recognize
Quebec as a distinct society within Canada, to provide for
Provincial nominations to the Senate and the Supreme Court of
Canada, and to vary the respective jurisdictional authorities of
the federal and Provincial governments. The Meech Lake Accord
required that the unanimous approval of the Parliament of Canada
and the ten Provincial legislatures be obtained by June 23, 1990,
as a pre-condition to the implementation of the proposals
included therein. The Meech Lake Accord failed to receive the
required approvals of the legislatures of Manitoba and
Newfoundland.
<PAGE>
-33-
In response to the failure of the Meech Lake Accord, Premier
Bourassa of Quebec established the Belanger-Campeau Commission to
deliberate on Quebec's future within Canada. On March 26, 1991,
the Belanger-Campeau Commission recommended that the Quebec
legislature pass legislation providing for a referendum on
sovereignty no later than October 26, 1992.
On June 20, 1991, the Quebec legislature enacted AN ACT
RESPECTING THE PROCESS FOR DETERMINING THE POLITICAL AND
CONSTITUTIONAL FUTURE OF QUEBEC (the "Quebec Act") which required
the Government of Quebec to hold a referendum on the sovereignty
of Quebec no later than October 26, 1992. The Quebec Act
provided that if the results of the referendum were in favor of
sovereignty, they would constitute a proposal that Quebec acquire
sovereign status on the first anniversary of the date the
referendum was held. Withdrawal of Quebec from the federation
could have a material adverse effect on the Canadian economy and
the value of Canadian fixed-income securities in which the Fund
invests. As described in the next paragraph, the provisional
referendum mandated by the Quebec Act was merged into a national
referendum held on October 26, 1992 pursuant to the agreement
reached by the Prime Minister of Canada and the Premiers of each
of the Provinces on August 28, 1992 (the "Charlottetown Accord").
On September 24, 1991 the Canadian Government released a set
of proposals for constitutional reform (the "Unity Proposals")
which were to form the basis for a national dialogue on the
Constitution. The Unity Proposals called for the inclusion in
the Constitution of a clause requiring Canada's Charter of Rights
and Freedoms to be interpreted in a manner consistent with
preserving and promoting the distinctness of Quebec. That
dialogue led to the adoption of the Charlottetown Accord which
contained details of the proposals for constitutional changes
aimed at preserving Canada's unity. In addition to recognizing
Quebec's "distinctness", the Charlottetown Accord would have made
a number of concessions, including a guarantee of 25 percent of
the seats of the House of Commons for Quebec. In an effort to
accelerate the ratification of the Charlottetown Accord by the
Provinces, a national referendum was held on October 26, 1992.
This referendum, however, was rejected by the majority vote in
several Provinces, including Quebec.
Economic Information Regarding Canada
Canada and the United States are each other's largest
trading partners and, thus, the Canadian and U.S. economies are
to a significant degree linked. On January 2, 1988, Canada and
the United States signed the Free Trade Agreement (the "FTA"),
which was ratified by the Parliament of Canada and the United
States Senate. The FTA, which is being phased in over a ten-year
period that began January 1, 1989, is designed to gradually<PAGE>
-34-
remove tariffs imposed on Canada-U.S. trade for all industrial
and agricultural products and to create effective procedures for
the resolution of trade disputes. In the summer of 1991, the
United States, Mexico and Canada began negotiating the North
American Free Trade Agreement ("NAFTA"). NAFTA was signed on
December 17, 1992 at separate ceremonies in Washington D.C.,
Mexico City and Ottawa. As scheduled, NAFTA became effective at
the end of 1993. On December 30, 1993, after the Legislatures in
the United States and Mexico had ratified NAFTA, the Canadian
government announced that it had proclaimed NAFTA into law and
had exchanged the written notifications with the United States
and Mexico needed to bring NAFTA into force. When implemented,
NAFTA is designed to create a North America Free Trade Area and
eventually eliminate tariff barriers, import quotas and technical
barriers among Canada, the United States and Mexico.
Additionally, when implemented, NAFTA is designed to expand the
flow of goods, services and investment among the three countries.
The following provides some statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Canadian Dollar, information concerning
inflation rates, historical information regarding the Canadian
gross domestic product and information concerning yields on
certain Canadian Government Securities. Historical figures are
not necessarily indicative of future fluctuations.
CURRENCY EXCHANGE RATES. The exchange rate between the U.S.
Dollar and the Canadian Dollar is at any moment related to the
supply of and demand for the two currencies, and changes in the
rate result over time from the interaction of many factors
directly or indirectly affecting economic conditions in the
United States and Canada, including economic and political
developments in other countries and government policy and
intervention in the money markets. The range of fluctuation in
the U.S. Dollar/ Canadian Dollar exchange rate has been narrower
since the major developed country currencies were permitted to
float freely against each other than the range of fluctuation
between the U.S. Dollar and most other major currencies.
However, the range that occurred in the past is not necessarily
indicative of fluctuations in that rate that may occur over time
which may be wider or more confined than the range that occurred
over an historic period of comparable length. Future rates of
exchange cannot be predicted, particularly over extended periods
of time.
The following table sets forth, for each year indicated, the
annual average of the daily noon buying rates in New York for
cable transfers in U.S. Dollars for one Canadian Dollar as
certified by the Federal Reserve Bank of New York:
<PAGE>
-35-
U.S. Dollars
-----------
1980 . . . . . . . . . . . . . . . . . 0.86
1981 . . . . . . . . . . . . . . . . . 0.83
1982 . . . . . . . . . . . . . . . . . 0.81
1983 . . . . . . . . . . . . . . . . . 0.81
1984 . . . . . . . . . . . . . . . . . 0.77
1985 . . . . . . . . . . . . . . . . . 0.73
1986 . . . . . . . . . . . . . . . . . 0.72
1987 . . . . . . . . . . . . . . . . . 0.75
1988 . . . . . . . . . . . . . . . . . 0.81
1989 . . . . . . . . . . . . . . . . . 0.84
1990 . . . . . . . . . . . . . . . . . 0.86
1991 . . . . . . . . . . . . . . . . . 0.87
1992 . . . . . . . . . . . . . . . . . 0.83
1993 . . . . . . . . . . . . . . . . . 0.78
----
Source: Board of Governors of the Federal Reserve
System, FEDERAL RESERVE BULLETIN.
INFLATION RATE OF THE CANADIAN CONSUMER PRICE INDEX.
The following table sets forth for each year indicated the
average change in the Canadian consumer price index for the
twelve months ended December 31, of such year (1986 = 100).
National Consumer
Price Index
-------------
(per cent.)
1980 . . . . . . . . . . . . . . . . . . . 10.2
1981 . . . . . . . . . . . . . . . . . . . 12.4
1982 . . . . . . . . . . . . . . . . . . . 10.9
1983 . . . . . . . . . . . . . . . . . . . 5.7
1984 . . . . . . . . . . . . . . . . . . . 4.4
1985 . . . . . . . . . . . . . . . . . . . 3.9
1986 . . . . . . . . . . . . . . . . . . . 4.2
1987 . . . . . . . . . . . . . . . . . . . 4.4
1988 . . . . . . . . . . . . . . . . . . . 4.0
1989 . . . . . . . . . . . . . . . . . . . 5.0
1990 . . . . . . . . . . . . . . . . . . . 4.8
1991 . . . . . . . . . . . . . . . . . . . 5.6
1992 . . . . . . . . . . . . . . . . . . . 1.5
1993 . . . . . . . . . . . . . . . . . . . 1.8
---
Source: Statistics Canada, THE CONSUMER PRICE INDEX,
February 1994.
CANADIAN GROSS DOMESTIC PRODUCT. The following table
sets forth Canada's gross domestic product ("GDP") for the years<PAGE>
-36-
1980 through 1993 at historical and constant prices.
Change from
Gross Domestic Gross Domestic Prior Year at
Product Product at 1986 Constant Prices
------- Prices ---------------
------
(millions of Canadian Dollars) (per cent.)
1980 . . . . . . . 309,891 424,537 4.5
1981 . . . . . . . 355,994 440,127 3.7
1982 . . . . . . . 374,442 425,970 (3.2)
1983 . . . . . . . 405,717 439,448 3.2
1984 . . . . . . . 444,735 467,167 6.3
1985 . . . . . . . 477,988 489,437 4.8
1986 . . . . . . . 505,666 505,666 3.3
1987 . . . . . . . 551,597 526,730 4.2
1988 . . . . . . . 605,906 552,958 4.9
1989 . . . . . . . 649,916 565,779 2.3
1990 . . . . . . . 667,843 563,060 (.48)
1991 . . . . . . . 674,388 553,457 (1.7)
1992 . . . . . . . 688,541 560,048 1.2
1993 . . . . . . . 710,723 573,433 2.4
Source: BANK OF CANADA REVIEW; Statistics Canada.
YIELDS ON CANADIAN GOVERNMENT TREASURY BILLS AND BONDS
During 1993 the yield on 6-month government of Canada
Treasury bills increased from 6.787% on January 12th to 7.86% on
December 28. During 1993, yields on benchmark 5-year government
of Canada bonds declined from 7.31% on January 6 to 5.73% on
December 29 and yields on benchmark 10-year bonds declined from
7.86% on January 6 to 6.57% on December 29. At January 11, 1994,
the yield on 6-month government of Canada Treasury bills stood at
3.892%, and at January 6, 1994, the yield on benchmark 5-year
government of Canada Bonds stood at 5.81% and the yield on
benchmark 10-year bonds stood at 6.68%.
ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES
Area and Population
The United Mexican States ("Mexico"), a nation formed by 31
states and a Federal District (Mexico City), is the fifth-largest
nation on the American Continent and the fourteenth largest in
the world, occupying a territory of 1,958,201 square kilometers
(756,061 square miles). Mexico is the second most populous
nation in Latin America, with a population of 81.1 million<PAGE>
-37-
reported in the last official census in 1990 and a 1992 mid-year
estimate of 89.5 million.
To the north, the county shares a border of 3,357
kilometers (2,086 miles) with the United States of America, and
to the south it has borders with Guatemala and Belize. Its
coastline extends over 10,145 kilometers (6,304 miles) along both
the Gulf of Mexico and the Pacific Ocean.
Mexico's three largest cities are Mexico City, Guadalajara
and Monterrey, with estimated populations in 1990 of 14.9
million, 2.8 million and 2.5 million, respectively. Due to
improved economic and social conditions and better medical care,
the annual rate of population growth averaged 3.5% in the 1960s
and 1970s and 2.2% in the 1980s. In recent years, Government
efforts on family planning and birth control, together with
declining birth rates among women under 35 and those living in
urban areas (where approximately 70% of the population lives)
have resulted in a reduction of such rate to an estimated 2.1% at
December 31, 1990, taking into account the results from the last
official census.
Form of Government
The present form of government was established by the
Political Constitution of Mexico, which took effect on May 1,
1917. The Constitution established Mexico as a Federal Republic
and provides for the separation of the executive, legislative and
judicial branches. The President and the members of Congress are
elected by popular vote by Mexican citizens over 18 years of age.
Executive authority is vested in the President, who is
elected for a six-year term. The current President of Mexico is
Carlos Salinas de Gortari, whose term expires on December 1,
1994. The Constitution provides that the President may serve
only one six-year term and can never be re-elected. The
executive branch consists of 18 Ministries, the Attorney General,
the Mayor of Mexico City and the Attorney General of Mexico City,
all of whom are appointed by the President.
Legislative authority is vested in the General Congress
composed of the Senate and the Chamber of Deputies. Senators
serve a six-year term. Deputies serve a three-year term, and
neither Senators nor Deputies may serve consecutive terms in the
same chamber. The Senate has 64 members, two for each state and
two for the Federal District. The Chamber of Deputies has 500
members, of whom 300 are elected by direct vote from the
electoral districts, and 200 are selected by a system of
proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes.<PAGE>
-38-
Judicial authority is vested in the Supreme Court of
Justice, circuit and district courts. The Supreme Court has 21
members who are appointed, subject to ratification by the Senate,
for life by the President.
The Partido Revolucionario Institucional ("PRI") is the
dominant political party in Mexico. In the most recent elections
held on November 8, 1992, the PRI won three gubernatorial
contests but with narrower margins than before. In addition,
there were widespread accusations of electoral fraud by
opposition parties and an outbreak of post-election violence in
Tamaulipas. Since 1929 the PRI has won all presidential
elections and has held a majority in General Congress. Until
1989 it had also won all of the state governorships. In 1989,
however, it lost the governorship of Baja California, which was
won by the Partido Accion Nacional ("PAN"), the oldest opposition
party in the country.
As a result of the Congressional election held on
August 18, 1991, the PRI holds 61 of the 64 seats in the Senate,
two seats are held by the Partido de la Revolucion Democratica
("PRD"), and the remaining seat is held by the Partido Accion
Nacional ("PAN"). This election reflects the third time
opposition representatives have held seats in the Senate. In the
Chamber of Deputies, 320 of the 500 seats were won by the PRI
and 41 by the PRD. Four other parties hold seats in the Chamber
of Deputies: the PAN (89 seats), the Partido Popular Socialista
(12 seats), the Partido Autentico de la Revolucion Mexicana (15
seats) and the Partido del Frente Cardenista de Reconstruccion
Nacional (23 seats). Unlike the situation in the Senate, no
political party currently holds the two-thirds majority in the
Chamber of Deputies required for amendment of the Constitution.
In the event the PRI's control of either legislative body were to
decrease substantially in future elections, it is possible that
changes in the Mexican government's economic policy could occur
that could adversely affect the Mexican debt securities markets.
Economic Information Regarding Mexico
In February 1990, Mexico became the first Latin American
country to reach an agreement with external creditor banks and
multi-national agencies under the U.S. Treasury's approach to
debt reduction known as the "Brady Plan." The 1989-1992
Financing Package, which was implemented in accordance with the
agreement, resulted in a substantial reduction in Mexico's
foreign debt and debt service obligations. On June 1, 1992,
Mexico achieved a further reduction in its foreign public debt of
7.171 billion U.S. dollars to a total of approximately 73.5
billion U.S. dollars.
<PAGE>
-39-
The following provides some statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning
inflation rates, historical information regarding the Mexican
gross domestic product and information concerning interest rates
on certain Mexican Government Securities. Historical figures are
not necessarily indicative of future fluctuations.
CURRENCY EXCHANGE RATES. On January 1, 1993, the Mexican
Government introduced a new currency, the New Peso. Each New
Peso is worth 1,000 old Mexican Pesos. The New Pesos and old
Mexican Pesos were to continue to be circulated for at least a
year with Mexican businesses being required to post prices in
both pesos with the New Peso designated by the symbol "N$." The
Mexican government has stated that the New Peso is not a
devaluation but a move to simplify the Mexican currency. 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 Mexican Peso
consistently declined against the U.S. Dollar.
From late 1982 to November 11, 1991, Mexico maintained, a
dual foreign exchange rate system, with a "controlled" rate and a
"free market" rate. The controlled exchange rate applied to
certain imports and exports of goods, advances and payments of
registered foreign debt, and funds used in connection with the
in-bond industry and funds used for payments of royalties and
technical assistance under registered agreements requiring such
payments. The free market rate was used for all other
transactions not expressly falling within the category of
transactions which permit parties to have access to U.S. Dollars
at the controlled rate. The dual system assisted in controlling
the value of the Mexican Peso, particularly from 1983 to 1985.
In later years the difference between the two rates was not
significant. Mexico has now repealed the controlled rate.
Under economic policy initiatives implemented since
December 1987, the Mexican government introduced a schedule of
gradual devaluations of the Mexican Peso which initially amounted
to an average depreciation of the Mexican Peso against the U.S.
Dollar of one Mexican Peso per day. The extended initiatives
include an adjustment in the scheduled devaluation rate of the
Mexican Peso against the U.S. Dollar. On May 28, 1990, the
Mexican Peso began devaluing by an average of .80 Mexican Pesos
per day instead of one Mexican Peso per day. On November 12,
1990 this average was decreased to .40 Mexican Pesos per day and
on November 11, 1991 the daily devaluation rate was lowered to
.20 Mexican Pesos per day.
In 1982, Mexico imposed strict foreign exchange controls
which shortly thereafter were relaxed and were eliminated in<PAGE>
-40-
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. On October 21, 1992 the maximum rate at which the
Mexican Peso can devalue against the U.S. dollar was accelerated
to .40 Mexican Pesos per day.
The following table sets forth the Mexican Peso to U.S.
Dollar exchange rates from October 1980 to December 31, 1993.
Free Market Rate Controlled Rate
---------------- ---------------
End of End of
Period Average Period Average
------ ------- ------ -------
1980 . . . . . . . . . . . . 23.26 22.95
1981 . . . . . . . . . . . . 26.23 24.51
1982 . . . . . . . . . . . . 148.50 57.18 96.48 57.44
1983 . . . . . . . . . . . . 161.35 150.29 143.93 120.16
1984 . . . . . . . . . . . . 209.97 185.18 192.56 167.76
1985 . . . . . . . . . . . . 447.50 310.28 371.50 256.95
1986 . . . . . . . . . . . . 915.00 637.87 923.00 611.35
1987 . . . . . . . . . . . . 2,209.70 1,378.20 2,198.50 1,366.72
1988 . . . . . . . . . . . . 2,281.00 2,273.10 2,257.00 2,250.27
1989 . . . . . . . . . . . . 2,641.00 2,461.50 2,637.00 2,453.16
1990 . . . . . . . . . . . . 2,945.40 2,812.60 2,939.40 2,807.29
1991 . . . . . . . . . . . . 3,071.00 3,018.40
1992 . . . . . . . . . . . . 3,115.40 3,094.90
1993 . . . . . . . . . . . . 3,105.90 3,115.60
___________
Source: Banco de Mexico; International Monetary Fund,
INTERNATIONAL FINANCIAL STATISTICS, October 1992 and
March 1994.
WAGES AND PRICES. After relatively long periods of
economic growth and stability lasting until the early 1970's,
Mexico's economy suffered the effects of high inflation. The
economy improved in the late 1970s as a result of government
policies and important discoveries of oil reserves. However,
between 1977 and 1981 these factors contributed to an increase in
inflation to an average annual rate of 22.4% for that period
compared to an average annual rate of 2.4% between 1960 and 1971,
and 16.6% between 1972 and 1976.
The economy experienced a setback in 1981 because of
the severe drop in oil prices and high world interest rates which<PAGE>
-41-
resulted in a substantial increase in the country's external debt
burden. With no new lending to be obtained from international
creditors, the balance of payments equilibrium could no longer be
sustained. The Mexican Peso was devalued and inflation rose
sharply. Through much of the 1980's, the Mexican economy
continued to be affected by high inflation, low growth and
excessive domestic and foreign indebtedness. The inflation rate,
as measured by the consumer price index, rose from 28.7% in
December 1981 to 159.2% in December 1987. In December 1987, the
Mexican Government agreed with labor and business to curb the
economy's inflationary pressures by freezing the surge in wages
and prices. The Pacto de Solidandad Economica (Pact for Economic
Solidarity, the "PSE") was announced in December 1987 and
included the implementation of restrictive fiscal and monetary
policies, the elimination of trade barriers and the reduction of
import tariffs. The PSE was renamed the Pacto para las
Estabilidad y el Crecimiento Economica (Pact for Stability and
Economic Growth, the "PECE") in November 1988. After substantive
increases in public sector prices and utility rates, price
controls were introduced. These policies lowered the consumer
inflation rate from 159.2% in February 1987, to 19.7% in 1989.
The inflation rate rose to 29.9% in 1990 as prices were
liberalized. Inflation declined in 1991, falling to 18.8% by
year-end. The inflation rate declined in 1992, falling to 11.9%
by year-end.
Under the PECE, the prices of certain goods and
services provided by the public sector (particularly gasoline,
energy for industrial use and utility services) were increased.
The private sector agreed to accept the increases without
increasing private sector prices. Furthermore, the Government
committed itself to implementing measures to reduce agricultural
sector costs. On November 11, 1990, the PECE was extended until
December 31, 1991 and on November 11, 1991, the PECE was further
extended until January 31, 1993. The PECE was extended for the
sixth time on October 20, 1992 and renamed the Pacto para la
Estabilidad, la Competitividad y el Empleo. In addition to other
measures, the October 20th extension of the PECE provides minimum
salary increases on average of 7.7% on January 1 and caps
contractual wage increases at 10%. In extending the PECE the
government intended to raise prices gradually to avoid a sudden
acceleration in inflation. As a result, gasoline prices are to
rise .79% a month and electricity charges are to rise .57% a
month for normal users and .79% a month for users with large
consumption.
The following table sets forth the changes in the
Mexican consumer price index for the fourteen years ended
December 31, 1993 (1978 = 100).
<PAGE>
-42-
National Consumer
Price Index
----------------
(per cent.)
1980 . . . . . . . . . . . . . . . . . . . . . . 29.8%
1981 . . . . . . . . . . . . . . . . . . . . . . 28.7
1982 . . . . . . . . . . . . . . . . . . . . . . 98.9
1983 . . . . . . . . . . . . . . . . . . . . . . 80.8
1984 . . . . . . . . . . . . . . . . . . . . . . 59.2
1985 . . . . . . . . . . . . . . . . . . . . . . 63.7
1986 . . . . . . . . . . . . . . . . . . . . . . 105.7
1987 . . . . . . . . . . . . . . . . . . . . . . 159.2
1988 . . . . . . . . . . . . . . . . . . . . . . 51.7
1989 . . . . . . . . . . . . . . . . . . . . . . 19.7
1990 . . . . . . . . . . . . . . . . . . . . . . 29.9
1991 . . . . . . . . . . . . . . . . . . . . . . 18.8
1992 . . . . . . . . . . . . . . . . . . . . . . 11.9
1993 . . . . . . . . . . . . . . . . . . . . . . 8.0
__________
Source: Banco de Mexico, INDICADORES ECONOMICOS, Enero, 1994.
MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth Mexico's GDP for the years 1980 through 1992 at
historical and constant prices.
Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1985 Prices Constant Prices
---------------- --------------- ---------------
(billions of Mexican Pesos) (per cent.)
1980 . . . . . . 4,470 43,350 8.3
1981 . . . . . . 6,128 46,795 7.9
1982 . . . . . . 9,798 46,538 (0.5)
1983 . . . . . . 17,879 44,548 (4.3)
1984 . . . . . . 29,472 46,195 3.7
1985 . . . . . . 47,392 47,392 2.6
1986 . . . . . . 79,191 45,613 (3.8)
1987 . . . . . . 193,312 46,460 1.9
1988 . . . . . . 390,451 47,039 1.2
1989 . . . . . . 507,618 48,613 3.3
1990 . . . . . . 686,406 50,774 4.4
1991 . . . . . . 865,166 52,615 3.6
1992 . . . . . . 1,033,224 54,010 2.6
Source: International Monetary Fund, International Financial
Statistics, Yearbook 1993 and March 1994.<PAGE>
-43-
INTEREST RATES
During 1993 the rate on the 28-day Cetes decreased from
16.72% in January to 11.78% in December and further decreased to
10.52 in January 1994. During the same time period the rate on
the 90-day Cetes decreased from 18.30% in January 1993 to 10.75%
in January 1994 and the rate on the 181-day Cetes decreased from
18.21% in January 1993 to 10.77% in January 1994. At March 22,
1994 the 28-day Cetes rate stood at 17.78%, the 91-day Cetes rate
stood at 10.12% and the 182-day Cetes rate stood at 11.10%.
RECENT DEVELOPMENTS REGARDING THE MEXICAN ECONOMY AND
MEXICAN NATIONAL ECONOMIC POLICY. A number of important measures
have recently been taken or adopted by the Mexican government
with a view to achieving greater economic stability and
modernization of the country. These include the signature by
Mexico on February 4, 1990 of an agreement with Mexico's external
creditor banks as a result of which its foreign debt and debt
service obligations were reduced. The agreement was the first of
its type under the U.S. Treasury's approach to debt reduction
known as the "Brady Plan," and was implemented by the 1989-1992
Financing Package. Total external debt has been reduced from
about U.S.$107.5 billion at December 31, 1987, to an estimated
level of U.S.$98.2 billion at December 31, 1990, after giving
effect to the various agreements comprising the 1989-1992
Financing Package for Mexico. The Government has estimated that
the 1989-1992 Financing Package for Mexico will result in an
average reduction in net payments in respect of external debt of
U.S.$4.07 billion annually for the 1990 to 1994 period. On June
1, 1992, Mexico achieved a further reduction in its foreign
public debt of 7.171 billion U.S. dollars to a total of
approximately 73.5 billion U.S. dollars.
On May 26, 1989, the International Monetary Fund (the "IMF")
approved an Extended Fund Facility for Mexico for a three year
period, with an option for Mexico to extend it for a fourth year.
This agreement seeks to provide financial support to Mexico and
involves Mexico's acceptance of certain IMF economic policy
directives aimed at preserving the economic advances achieved to
date and at facilitating continued stable growth. The Facility
will provide Mexico with SDR ("Special Drawing Rate") 2.8 billion
(equivalent to about $3.6 billion). SDR 453.5 million has also
been made available from the Compensatory and Contingency
Financing Facility to offset the decline in international oil
prices and to support imports of grain and other food items. On
January 30, 1990, the IMF approved a request from the Government
to augment the Facility by the equivalent of SDR 466.2 million
(equivalent to about $600 million) for debt service reduction
operations. At the same time, the IMF approved the Government's
request that the amounts set aside for 1989 and 1990 under the <PAGE>
-44-
Facility totalling SDR 489.51 million be released. The SDR, a
value determined daily by the INF, is based on a basket of
currencies in accordance with their market exchange rates.
On May 31, 1989, the Mexican government announced a National
Development Plan (the "Plan") covering the period from 1989 to
1994. The Plan seeks to achieve a 6% real annual growth rate and
to reduce internal inflation to levels similar to those of
Mexico's main trading partners by the end of 1994 using three
broad strategies: continued economic stability, expansion of
available resources for domestic investment and the development
of fiscal policies suited to the current economic climate.
Continued economic stability is sought through prudent fiscal
discipline, a reduction in Government subsidies, the
encouragement of private sector co-investment with the
government, the limitation of Government investment to large
infrastructure projects and reforms aimed at ensuring compliance
with taxation laws. An expansion of resources available for
domestic investment is intended to result from the renegotiation
of foreign debt, new foreign investment regulations, increased
domestic public and private savings, and the introduction of new
financial instruments. Economic modernization, as envisioned by
the Plan, will require continued emphasis on public sector
efficiency, market-driven interest rate policies, a recognition
of comparative advantages in trade and the continued deregulation
and privatization of Government-owned enterprises.
The Mexican government has implemented a program to
privatize certain state-owned enterprises. Privatization has
played an important role in improving the fiscal condition of
Mexico. The Mexican government has reduced through closure or
divestiture the number of state-owned companies from 1,155 in
1982 to 247 in 1991. More recently, the Mexican government
announced plans to privatize the state owned banking system and
as of July 1992 successfully privatized all of Mexico's eighteen
commercial banks. Foreign investors will be permitted to acquire
up to 30% of Mexican banks. Notwithstanding the measures taken
by the Mexican government and the increased diversification and
industrialization of the Mexican economy over the past five
decades, Mexico remains a developing nation with a large external
debt.
ADDITIONAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
Area and Population
The Republic of Argentina ("Argentina") consists of 23
provinces and the federal capital of Buenos Aires. Argentina is
located at the extreme south of the South American continent and
is the second largest country in Latin America, occupying a
territory of 2.8 million square kilometers (1.1 million square<PAGE>
-45-
miles), (3.8 million square kilometers (1.5 million square miles)
if territorial claims in the Antarctic and the South Atlantic
Islands are included). Argentina reported a population of
approximately 32.6 million in the last official census in 1991.
The most densely inhabited areas and the traditional
agricultural wealth are on the wide temperate belt that stretches
from east to west in central Argentina. About one-third of the
population lives in the greater Buenos Aires area. Five other
urban centers -- Cordoba, Rosario, Mendoza, San Miguel de Tucuman
and La Plata -- have a population of over 500,000 each and
approximately 79% of the country's population is urban. During
the past two decades, Argentina's population grew at a 1.2%
average annual rate.
Form of Government
The Argentine federal constitution (the "Constitution"),
established in 1853, provides for a tripartite system of
government: an executive branch headed by a President; a
legislative branch made up of a bicameral congress; and a
judicial branch, of which the Supreme Court is the highest body
of authority. The President is elected by an electoral college
and serves for a single six-year term. The next elections for
the Presidency are scheduled to take place in 1995. The
President directs the general administration of the country and
has the power to veto laws in whole or in part, although Congress
may override a veto by a two-thirds vote.
The Congress is made up of the Senate and the Chamber of
Deputies. The Senate consists of two Senators elected by each
provincial legislature and by the electoral college in the case
of the federal capital of Buenos Aires. Senators are elected for
nine-year terms, and serve in staggered terms so that one-third
of the Senate's seats are subject to elections every three years.
The Chamber of Deputies consists of 257 seats which are allocated
according to each province's population and elected by popular
vote. Representatives are elected for four-year staggered terms
so that one-half of the Chamber is subject to elections every two
years.
The judicial system comprises federal and provincial trial
courts, courts of appeal and supreme courts. The supreme
judicial power of the Republic is vested in the Supreme Court of
Justice, which has nine members who are appointed for life by the
President (subject to ratification by the Senate).
Each province has its own constitution, and elects its own
governor, legislators and judges, without the intervention of the
federal government.
<PAGE>
-46-
The two largest political parties in Argentina are the
Partido Justicialista or Peronist Party ("PJ"), which evolved out
of Juan Peron's efforts to expand the role of labor in the
political process in the 1940s, and the Union Civica Radical or
Radical Civic Union ("UCR"), founded at the end of the nineteenth
century. Traditionally, the UCR has had more urban middle-class
support and the PJ more labor support. At present, support for
both parties is broadly based, with the PJ having substantial
support from the business community. Smaller parties occupy
varied political positions on both sides of the political
spectrum and some are active only in certain provinces.
Since the 1930's, Argentina's political parties have had
difficulty in resolving the inter-group conflicts arising out of
the Great Depression, the deepening social divisions that
occurred under the Peron Government and the economic stagnation
of the past several decades. As a result, the military
intervened in the political process on several occasions and
ruled the country for 22 of the past 62 years. Poor economic
management by the military in the early 1960's and 1970's and the
loss of a brief war with the United Kingdom over the Malvinas
(Falkland Islands) led in 1983 to the end of the most recent
military government, which had ruled the country since 1976.
Four military uprisings have occurred since 1983, the most
recent in December 1990. The uprisings, which were led by a
small group of officers dissatisfied with civil prosecutions of
crimes committed under the military government and with
compensation, failed due to a lack of support from the public and
the military as a whole.
Since 1983, Argentina has had two successive elected
civilian presidents. Raul Alfonsin, elected in 1983, was the
first civilian president in six decades to stay in office until
the scheduled election of a successor. His UCR Government re-
established civilian rule, including a functioning Congress. The
current president, Carlos Menem, won the presidential election in
May 1989 and took office in July 1989, several months ahead of
the scheduled inauguration, in the midst of an economic crisis.
His term of office expires in 1995.
President Menem, the leader of the PJ, was elected with the
backing of organized labor and business interests that
traditionally supported a closed economy and a large public
sector. Shortly after taking office, however, 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 recent months, efforts have been underway to amend the<PAGE>
-47-
Constitution in order to permit the President to serve more than
one consecutive term, allow direct elections for President and
for the mayor of Buenos Aires, increase the number of Senators
and introduce other technical changes. On November 14, 1993,
President Menem and his predecessor, UCR leader Raul Alfonsin,
signed a preliminary agreement to amend the Constitution. A
meeting of the UCR Congressional representatives was held on
December 3, 1993, in which the agreement between President Menem
and former President Alfonsin was approved. The proposed
amendment would also shorten presidential terms from six years to
four years and end the requirement that the President be Roman
Catholic. This amendment required Congressional approval by two-
thirds vote, which occurred in late 1993. Such Congressional
approval determined the specific amendments to the Constitution
to be considered and voted upon by a Constitutional Convention,
presently scheduled for June 1994.
ECONOMIC INFORMATION REGARDING ARGENTINA
The following provides some statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Argentine Peso, information concerning
inflation rates, historical information concerning the Argentine
gross domestic product and information concerning interest rates
on certain Argentine Government Securities. Historical figures
are not necessarily indicative of future fluctuations.
CURRENCY EXCHANGE RATES. The Argentine foreign exchange
market was highly controlled up to December 1989, when a free
exchange rate was established for all foreign transactions.
Since the institution of the Convertibility Law on April 1, 1991,
the Argentine currency has been tied to the U.S. Dollar. From
April 1, 1991 through the end of 1991, the exchange rate was
approximately 10,000 Australes (the predecessor to the Argentine
Peso) per U.S. Dollar. On January 1, 1992 the Argentine Peso
equal to 10,000 Australes was introduced. Since January 1,
1992, the rate of exchange from Argentine Peso to 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 which may be wider or more confined than
recorded previously over a comparable period. Future rates of
exchange cannot be predicted, of course, particularly over
extended periods of time.
The following table sets forth, for each year indicated, the
nominal exchange rates of Argentine Peso to U.S. Dollar as of the
last day of the period indicated.
<PAGE>
-48-
Official Rate
---------------
1986 . . . . . . . . . . . . . . . . .00013
1987 . . . . . . . . . . . . . . . . .00038
1988 . . . . . . . . . . . . . . . . .00134
1989 . . . . . . . . . . . . . . . . .17950
1990 . . . . . . . . . . . . . . . . .55850
1991 . . . . . . . . . . . . . . . . .99850
1992 . . . . . . . . . . . . . . . . .99050
1993 December. . . . . . . . . . . . .99850
Source: International Monetary Fund, INTERNATIONAL FINANCIAL
STATISTICS, January and March 1994.
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 rapid inflation.
Argentina's high inflation rates and balance of payments
imbalances during the period from 1975 to 1990 resulted mainly
from a lack of control over fiscal policy and the money supply.
Large subsidies to state-owned enterprises and an inefficient tax
collection system led to large, persistent public-sector deficits
which were financed in large part through increases in the money
supply and external financings. Due to the lag which typically
occurs between the accrual and receipt of taxes, inflation has
tended to reduce the value of tax collections and increase the
size of the deficit, further fueling the inflationary cycle.
Inflation accelerated on several occasions and turned into
hyperinflation in 1989 and the end of 1990, with prices rising at
an annual rate of 1,000% or more.
During the 1980's and in 1990, the Argentine government
instituted several economic plans to stabilize the economy and
foster real growth, all of which failed after achieving initial
success mainly because the government was unable to sustain
reductions in the public deficit. The uncertainties generated by
high inflation, frequent policy changes and financial market
instability all took their toll on real growth.
The government's initial stabilization efforts included a
devaluation of the Austral, a fixed exchange rate, wage and price
controls and a sharp rise in public utility rates. The
stabilization effort quelled hyperinflation.
However, the government's efforts proved inadequate and
foreign exchange markets declined sharply in anticipation of a
new bout of hyperinflation. The government adopted a new set of
stabilization measures in December 1989 which abandoned attempts
to control wages, prices and the exchange rate and sought to<PAGE>
-49-
restrain the public deficit -- the principal cause of Argentina's
chronic inflation. The new stabilization plan (called the Bonex
Plan) featured, among other things, tax reforms, a tighter rein
on public enterprises and restrictions on lending activities of
the public sector banks (which had been financing provincial
government deficits through loans which were in turn financed
with discounts from the Central Bank), government personnel cuts
and a reliance on cash income generated by privatizations to
reduce the public sector deficit. The plan also eliminated all
restrictions on foreign exchange transactions. In addition, the
plan froze fixed-rate, short-term bank deposits pursuant to which
holders of 7- to 30-day deposits were permitted to withdraw no
more than the equivalent of approximately U.S.$1,000 from their
accounts, and the balance was made payable only in 10-year U.S.
Dollar denominated government bonds (Bonex 89). The plan also
provided for the compulsory exchange of certain domestic currency
denominated bonds for Bonex 89.
The stabilization effort succeeded in ending temporarily the
period of hyperinflation, but not in ending the Argentine
economy's susceptibility to inflation. In late 1990, a
deterioration in the finances of the social security system and
provincial governments led to an expansion of Central Bank
credit. The Central Bank lent funds to the social security
system to allow it to meet year-end payments and also funded
provincial banks suffering deposit runs. The provincial banks
continued to lend to finance provincial government deficits. The
credit expansion led to downward market pressure on the Austral,
and a resurgence of price inflation. During 1990, the CPI rose
1,343.9%, which was significantly less than the 4,923.6% increase
in 1989, but was still an unacceptably high inflation rate. The
government responded by installing a new economic team headed by
Economy Minister Cavallo, which acted to reduce the public sector
deficit by increasing public utility rates and taxes and by
developing a new stabilization program.
The Argentine government's current stabilization program is
built around the plan announced by Economy Minister Cavallo on
March 20, 1991 (the "Convertibility Plan", as amended and
supplemented), and approved by Congress through passage of the
Convertibility Law. The Convertibility Plan has sought to reduce
inflation and restore economic growth by addressing underlying
structural problems that had distorted fiscal and monetary policy
through reforms relating to the tax system, privatizations and
the opening of the economy.
The Convertibility Plan is centered on two fundamental
principles:
(1) Full international reserve backing for the monetary base.
The monetary base (consisting of currency in circulation and Peso<PAGE>
-50-
deposits of financial entities with the Central Bank) is not to
exceed the Central Bank's gross international assets as a fixed
rate of one Argentine Peso per U.S. Dollar. This effectively
means that the money supply can be increased only when backed by
increases in the level of international reserves, and not
whenever the public sector deficit or the financial sector needs
to be financed. Gross international assets include the Central
Bank's holdings of gold, foreign exchange (including short-term
investments), U.S. Dollar denominated Argentine government bonds
(in an amount not to exceed 30% of total assets) and its net
Asociacion Latinoamericana de Integracion ("ALADI") claims
(except overdue claims), all freely available and valued at
market prices. Under this arrangement, in which the Argentine
Peso is fully convertible into the U.S. Dollar, no increase in
the domestic monetary base can occur without an equivalent
increase in gross international assets at the one Argentine Peso
per U.S. Dollar rate.
(2) The elimination of the fiscal deficit and the achievement of
a surplus in the primary balance to provide funds for the
government to service its debt and thereby eliminate the need for
further borrowings.
The International Monetary Fund ("IMF") has supported the
implementation of the Convertibility Plan and designed a
financial program for the Argentine public sector. Argentina has
attained or surpassed the targets set by the IMF with respect to
primary balances for 1992, the first half of 1993 and has met
targets for the third quarter of 1993. In the event of any non-
compliance with the program, Argentina is required to consult in
the first instance with the IMF in order to obtain a waiver and,
if required, revise the program to remedy the situation.
The Convertibility Plan has simplified fiscal and market
regulations and reallocated state activities to the private
sector, thereby reducing state expenditures, increasing the
amount of federal revenues and at the same time encouraging
domestic private sector initiative and foreign investment. Since
the Convertibility Plan was introduced in March 1991, inflation
as measured by the consumer price declined from a 27.0% monthly
rate in February 1991 to a 0.3% monthly rate in December 1992 and
resulted in a 17.5% annual rate for 1992. Inflation in the first
eleven months of 1993 was 8.1% on an annualized basis.
The following table sets forth for each year indicated the
change in Argentine Consumer Prices for the twelve months ended
December 31, of such year.
1985 . . . . . . . . . . . . . . . . 385.40%
1986 . . . . . . . . . . . . . . . . 81.90%
1987 . . . . . . . . . . . . . . . . 174.80%<PAGE>
-51-
1988 . . . . . . . . . . . . . . . . 387.70%
1989 . . . . . . . . . . . . . . . . 4,923.60%
1990 . . . . . . . . . . . . . . . . 1,343.90%
1991 . . . . . . . . . . . . . . . . 84.00%
1992 . . . . . . . . . . . . . . . . 17.50%
19931 through July . . . . . . . . . 10.70%
____________________
1. Expressed in thousands for 1986 and 1987 and in millions of
Argentine Pesos from 1988.
Source: Banco Central de la Republica Argentina, INDICADORES
ECONOMICOS, Ano 1992 and Segundo Trimestre de 1993.
ARGENTINE GROSS DOMESTIC PRODUCT. The following table sets
forth Argentina's gross domestic product for the years 1980
through 1992 at historical and constant prices.
Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1986 Prices Constant Prices
----------------- ---------------- -------------------
(thousands of Argentine Peso) (percent)
1980 . . . . . . 3,840 10,331.2 --
1981 . . . . . . 7,474 9,737.8 (5.7)
1982 . . . . . . 21,852 9,431.2 (3.1)
1983 . . . . . . 109,500 9,783.3 3.7
1984 . . . . . . 790,920 9,962.2 1.8
1985 . . . . . . 5,305,000 9,303.3 (6.6)
1986 . . . . . . 9,984,100 9,984.1 7.3
1987 . . . . . . 23,332,000 10,241.8 2.6
1988 . . . . . . 111,062 10,049.1 (1.9)
1989 . . . . . . 3,244,045 9,424.3 (6.2)
1990 . . . . . . 68,922,274 9,430.4 .1
1991 . . . . . . 180,897,972 10,270.0 8.9
1992 . . . . . . 226,637,398 11,158.7 8.7
____________________
1. Expressed in thousands for 1986 and 1987 and in millions of
Argentine Pesos from 1988.
<PAGE>
-52-
Source: Banco Central de la Republica Argentina, ESTIMACIONES
ANNUALES DE LA OFERTA Y DEMANDA GLOBALES, PERIODO 1980 - 1992,
Abril 1993.
DEREGULATION OF THE ECONOMY AND PRIVATIZATIONS
Deregulation of the domestic economy, liberalization of
trade and reforms of investment regulations are prominent
features of Argentina's structural adjustment program. In order
to achieve the free functioning of markets, the Government has
undertaken an extensive program for the removal of economic
restrictions and regulations and the promotion of competition
In 1989 and 1990, the initial steps were taken to liberalize
industrial and consumer prices, previously subject to various
restrictions as a consequence of hyperinflation, and to encourage
international trade by the elimination of controls. Restrictions
were removed in order to allow the private sector to provide
certain public services, such as telephone, electricity and
natural gas, subject to governmental regulation.
In the fall of 1991, the Argentine government promulgated
its principal deregulation legislation which deregulated the
domestic market for goods, services and transportation, abolished
restrictions on imports and exports, abolished or simplified a
number of regulatory agencies and allowed free wage bargaining in
the private sector. In the financial sector, this legislation
abolished all stamp taxes relating to publicly offered
securities, all capital gains taxes on stocks and bonds held by
non-resident investors and fixed commissions on the stock
exchanges.
In addition, Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. In late
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 and to organize their companies and make use
of domestic credit under the same rights and under the same
conditions as local firms.
The process of deregulation and liberalization is being
continued through the privatization process, the proposed reform
of the social security system, regional integration and further
labor law reforms.
In 1989, the State Reform Law declared certain enterprises
eligible for privatization. In addition to increasing the
efficiency of services provided by public sector enterprises, the
privatizations have also served to reduce outstanding debt (by
applying cash proceeds and through the selective use of debt-to-<PAGE>
-53-
equity conversions), increase reserves and increase tax revenues
from the new owners of the enterprises. The privatization
program has also served as an important conduit for direct
foreign investment into Argentina attracting interested investors
from Asia, Europe, North America and Latin America.
- -----------------------------------------------------------------
MANAGEMENT OF THE FUND
- -----------------------------------------------------------------
ADVISER
Alliance Capital Management L.P., the Adviser, a Delaware
limited partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") as the
Fund's Adviser (see "Management of the Fund" in the Prospectus).
ACMC, the sole general partner of, and the owner of a 1% general
partnership interest in, the Adviser, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of The
Equitable Companies Incorporated ("ECI"), a holding company
controlled by AXA, a French insurance holding company. ACMC,
Inc., a wholly-owned subsidiary of Equitable, owns approximately
62% of the issued and outstanding units representing assignments
of beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1994, approximately 28% and
10% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively.
AXA owns 49% of the outstanding voting shares of common
stock of ECI. AXA is part of a group of companies (the "AXA
Group") that is the second largest insurance group in France
(measured by gross premiums written worldwide) and one of the
largest insurance groups in Europe. Principally engaged in
property and casualty insurance and life insurance in Europe and
elsewhere in the world, the AXA Group is also involved in other
financial services, including real estate operations, mutual fund
management, lease financing services and brokerage services.
Based on information provided by AXA, as of June 30, 1994, 42.7%
of the voting shares (representing 54.7% of the voting power) of
AXA were owned by Midi Participations, a French corporation that
is a holding company. The voting shares of Midi Participations
are in turn owned 60% by Finaxa, a French corporation that is a
holding company, and 40% by subsidiaries of Assicurazioni
Generali S.P.A., an Italian corporation ("Generali") (one of
which, Belgica Insurance Holding S.A., a Belgian corporation,
owned 34.2%). As of June 30, 1994, 61.5% of the voting shares<PAGE>
-54-
(representing 70.4% of the voting power) of Finaxa were owned by
five French mutual insurance companies (the "Mutuelles AXA") (one
of which, AXA Assurances I.A.R.D. Mutuelle, owned 31.1% of the
voting shares (representing 44.7% of the voting power)), and
26.3% of the voting shares (representing 19.1% of the voting
power) of Finaxa were owned by Compagnie Finaciere de Paribas, a
French financial institution engaged in banking and related
activities. Including the shares owned by Midi Participations,
as of June 30, 1994, the Mutuelles AXA directly or indirectly
owned 51.7% of the voting shares (representing 65.4% of the
voting power of AXA. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa. The Mutuelles AXA
have approximately 1.5 million policyholders.
The Adviser is a major international investment adviser
supervising client accounts with assets as of June 30, 1994
totaling more than $122 billion (of which more than $39 billion
represents the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds. The Adviser and its subsidiary
employ approximately 1,400 employees who operate out of domestic
offices and the overseas offices of subsidiaries in London,
Tokyo, Vancouver, Toronto, Melbourne, Dusseldorf, Bombay,
Istanbul, Bahrain, Luxembourg and Singapore. The 49 registered
investment companies managed by the Adviser comprising 93
separate investment portfolios currently have over one million
shareholders. As of June 30, 1994, the Adviser was retained as
an investment adviser of employee benefit fund assets for 28 of
the Fortune 100 companies.
Under the Advisory Agreement, the Adviser provides
investment advisory services and other placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provide persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Advisory Agreement is terminable without penalty by a
vote of a majority of the Fund's outstanding voting securities or
by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
<PAGE>
-55-
The Advisory Agreement became effective on July 22, 1992.
The Advisory Agreement replaced an earlier, substantially
identical agreement (the "First Advisory Agreement") that
terminated because of its technical assignment as a result AXA's
acquisition of control over Equitable. In anticipation of the
assignment of the First Advisory Agreement, the Advisory
Agreement was approved by the unanimous vote, cast in person, by
the Fund's Directors (including the Directors who are not parties
to the Advisory Agreement or "interested persons," as defined in
the 1940 Act, of any such party) at a meeting called for the
purpose held on February 21, 1992, and by the Fund's sole
shareholder on February 21, 1992.
For the services rendered by the Adviser under the Advisory
Agreement, the Fund pays the Adviser a monthly fee at an annual
rate of .65 of 1% of the average daily value of the Fund's
adjusted total assets (i.e., the average daily value of the total
assets of the Fund, minus the sum of accrued liabilities of the
Fund, other than the principal amount of money borrowed). For
the fiscal period March 27, 1992 (commencement of operations)
through November 30, 1992, and the fiscal year ended November 30,
1993, the Adviser received from the Fund advisory fees of
$495,882 and $6,172,486, respectively.
The Advisory Agreement continues in force for successive
twelve-month periods (computed from each November 1), provided
that such continuance is specifically approved at least annually
by the Fund's Directors or by a majority vote of the holders of
the outstanding voting securities of the Fund, and, in either
case, by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons as defined in the 1940
Act of any such party. Most recently, the continuance of the
Advisory Agreement until October 31, 1994 was approved by a vote,
cast in person, of the Directors, including a majority of the
Directors who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for
that purpose and held on September 14, 1993.
The Advisory Agreement provides that the Adviser will
reimburse the Fund to the extent, if any, that its ordinary
operating expenses for the preceding year (exclusive of interest,
taxes, brokerage and other expenditures that are capitalized in
accordance with generally accepted accounting principles and
extraordinary expenses) exceed the limits prescribed by any state
in which the Fund's shares are qualified for sale. The Fund may
not qualify its shares for sale in every state. The Fund believes
that at present the most restrictive state expense ratio
limitation imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the
mutual fund's average net assets, 2.0% of the next $70 million of
its average net assets and 1.5% of its average net assets in<PAGE>
-56-
excess of $100 million. For the fiscal period March 27, 1992
(commencement of operations) through November 30, 1992 and the
fiscal year ended November 30, 1993, no reimbursements were
required to be made pursuant to the most restrictive expense
limitation.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Counterpoint Fund, Alliance Global Fund,
Alliance Global Dollar Government Fund, Inc., Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Mortgage Strategy Trust, Inc., Alliance Multi-
Market Income Trust, Inc., Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance Municipal
Income Fund II, Alliance Municipal Trust, Alliance New Europe
Fund, Inc., Alliance North American Government Income Trust,
Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., The Alliance Portfolios, Fiduciary Management
Associates and The Hudson River Trust, all registered open-end
investment companies; ACM Government Income Fund, Inc., ACM
Government Securities Fund, Inc., ACM Government Spectrum Fund,
Inc., ACM Government Opportunity Fund, Inc., ACM Managed Income
Fund, Inc., ACM Managed Multi-Market Trust, Inc., ACM Managed
Dollar Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government<PAGE>
-57-
Fund II, Inc., The Austria Fund, Inc., The Global Privatization
Fund, Inc., The Korean Investment Fund, Inc., The Spain Fund,
Inc. and The Southern Africa Fund, Inc. all registered closed-end
investment companies; and Alliance Global Bond Fund, SICAV,
Alliance Global Leisure Fund, Alliance Global Growth Trends
Portfolio, Alliance Global Income Fund, Alliance International
Currency Reserves, Alliance International Health Care Fund,
SICAV, Alliance International Technology Fund, SICAV, Alliance
Worldwide Income Fund, ML-Alliance Asset Allocation N.V. and The
Spanish Smaller Companies Fund, all foreign investment companies.
DIRECTORS
DAVID H. DIEVLER*, Chairman of the Board and President, is a
Senior Vice President of ACMC, with which he has been associated
since prior to 1989.
RUTH BLOCK was formerly Executive Vice President and Chief
Insurance Officer of The Equitable Life Assurance Society of the
United States. She is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). Her
address is Box 4653, Stamford, Connecticut 06903.
JOHN D. CARIFA* is the President, Chief Operating Officer,
and a Director of ACMC, with which he has been associated since
prior to 1989.
JOHN H. DOBKIN is President of Historic Hudson Valley
(historic preservation) since 1990. Previously, he was Director
of the National Academy of Design. From 1988 to 1992, he was a
Director of ACMC. His address is 105 West 55th Street, New York,
New York 10019.
WILLIAM H. FOULK, JR. is Senior Manager of Barrett
Associates, Inc., a registered investment adviser, since prior
to 1989. His address is 521 Fifth Avenue, New York, New York
10175. He was President of Competrol (BVI) Limited and Cresent
Diversified Limited (private investments) since prior to 1989.
DR. JAMES M. HESTER is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation. He was formerly President of New York University,
The New York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
____________________
* An "interested person" of the Fund as defined in the
Investment Company Act of 1940.<PAGE>
-58-
CLIFFORD L. MICHEL is a member of the law firm of Cahill
Gordon & Reindel since prior to 1989. He is also Chief Executive
Officer of Wenonah Development Company (investments) and a
Director of Placer Dome, Inc. (mining) and Faber-Castell
Corporation (writing products). His address is 80 Pine Street,
New York, New York 10005.
ROBERT C. WHITE is a Vice President and the Chief Financial
Officer of the Howard Hughes Medical Institute with which he has
been associated since prior to 1989. He is a Director of MEDSTAT
Systems, Inc. (healthcare information) and he is also a Trustee
of St. Clair Fixed Income Fund, St. Clair Tax-Free Fund and
St. Clair Equity Fund (registered investment companies).
Formerly, he was Assistant Treasurer of the Ford Motor Company.
His address is 8101 Connecticut Avenue, Apt. S501, Chevy Chase,
Maryland 20815.
OFFICERS
DAVID H. DIEVLER, Chairman and President, see biography,
above.
WAYNE D. LYSKI, Senior Vice President, is a Senior Vice
President of ACMC with which he has been associated since prior
to 1989.
ROBERT M. SINCHE, Senior Vice President, is a Vice President
of ACMC with which he has been associated since prior to 1989.
EDMUND P. BERGAN, JR., Secretary, is a Senior Vice President
and General Counsel of Alliance Fund Distributors, Inc. and
Alliance Fund Services, Inc. and is a Vice President and
Assistant General Counsel of ACMC with which he has been
associated since prior to 1989.
EMILIE D. WRAPP, Assistant Secretary, is Special Counsel of
ACMC with which she has been associated since 1989.
MARK D. GERSTEN, Treasurer and Chief Financial Officer , is
a Senior Vice President of Alliance Fund Services, Inc. with
which he has been associated since prior to 1989.
PATRICK J. FARRELL, Assistant Treasurer, is a Vice President
of Alliance Fund Services, Inc. with which he has been associated
since prior to 1989.
JOSEPH J. MANTINEO, Assistant Treasurer, is a Vice President
of Alliance Fund Services, Inc. since July 1989; formerly, he was<PAGE>
-59-
Manager of Fixed Income Mutual Fund Accounting for Alliance Fund
Services, Inc., with which he has been associated since prior to 1989.
The Directors of the Fund who are officers or employees of
the Adviser or any of its affiliates receive no remuneration from
the Fund. During the fiscal year ended November 30, 1993, fees
and expenses paid to the disinterested Directors aggregated
$22,581. On August 5, 1994, the Directors and officers of the
Fund individually or as a group owned less than 1% of the
outstanding shares of the Fund.
- -----------------------------------------------------------------
EXPENSES OF THE FUND
- -----------------------------------------------------------------
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services Agreement
(the "Agreement") with Alliance Fund Distributors, Inc., the
Fund's principal underwriter (the "Principal Underwriter"), to
permit the Fund directly or indirectly to pay expenses associated
with the distribution of its shares in accordance with a plan of
distribution which is included in the Agreement duly adopted and
approved in accordance with Rule 12b-1 adopted by the Securities
and Exchange Commission under the 1940 Act (the "Rule 12b-1
Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and, in the case of Class C shares, without
the assessment of a contingent deferred sales charge, and at the
same time to permit the Principal Underwriter to compensate
broker-dealers in connection with the sale of such shares. In
this regard the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class
B shares, and the distribution services fee on the Class C
shares, are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and/or distribution services
fee provide for the financing of the distribution of the Fund's
shares.
Under the Agreement, the Treasurer of the Fund reports the
amounts expended under the Rule 12b-1 Plan and the purposes for
which such expenditures were made to the Directors of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are<PAGE>
-60-
not interested persons of the Fund (as defined in the 1940 Act)
are committed to the discretion of such disinterested Directors
then in office.
The Agreement became effective on July 22, 1992 and was
amended as of April 30, 1993 to permit the distribution of an
additional class of shares, Class C shares. The amendment to the
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on February 23, 1993, and by the initial holder of Class
C shares of the Fund on April 30, 1993.
The Adviser may from time to time and from its own funds or
such other resources as may be permitted by rules of the
Securities and Exchange Commission make payments for distribution
services to the Principal Underwriter; the latter may in turn pay
part or all of such compensation to brokers or other persons for
their distribution assistance.
During the Fund's fiscal year ended November 30, 1993, with
respect to Class A shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $469,400 which constituted approximately .30% of the average
daily net assets attributable to the Class A shares during the
period and the Adviser made payments from its own resources, as
described above, aggregating $413,096. Of the $882,496 paid by
the Fund and the Adviser under the Plan with respect to the Class
A shares, $881 was spent on advertising, $16,800 on printing and
mailing of prospectuses for persons other than current
shareholders, $657,255 for compensation to broker-dealers and
other financial intermediaries (including $279,135 to the Fund's
Principal Underwriter), $52,418 for compensation to sales
personnel and $155,142 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses.
During the Fund's fiscal year ended November 30, 1993, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $6,642,539 which constituted approximately 1.00% of the
average daily net assets attributable to the Class B shares
during the period and the Adviser made payments from its own
resources, as described above, aggregating $21,696,920. Of the
$28,339,279 paid by the Fund and the Adviser under the Plan,
$4,742 was spent on advertising, $113,300 on printing and mailing
of prospectuses for persons other than current shareholders,
$27,479,911 for compensation to broker-dealers and other
financial intermediaries (including $985,380 to the Fund's
Principal Underwriter), $286,914 for compensation to sales
personnel and $454,412 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional<PAGE>
-61-
expenses.
During the period May 3, 1993 (commencement of distribution)
through November 30, 1993, with respect to Class C shares, the
Fund paid distribution services fees for expenditures under the
Agreement in the aggregate amount of $789,107 which constituted
approximately 1.00% of the average daily net assets attributable
to the Class C shares during the period and the Adviser made
payments from its own resources, as described above, aggregating
$905,455. Of the $1,694,562 paid by the Fund and the Adviser
under the Plan, with respect to Class C shares $783 was spent on
advertising, $57,700 on printing and mailing of prospectuses for
persons other than current shareholders, $1,349,656 for
compensation to broker-dealers and other financial intermediaries
(including $607,081 to the Fund's Principal Underwriter), $96,703
for compensation to sales personnel and $189,720 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
The Agreement will continue in effect for successive twelve-
month periods (computed from each November 1), provided, however,
that such continuance is specifically approved at least annually
by the Directors of the Fund or by vote of the holders of a
majority of the outstanding voting securities (as defined in the
1940 Act) of that class, and, in either case, by a majority of
the Directors of the Fund who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as Directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto. Most recently the
continuance of the Agreement until October 31, 1994 was approved
by a vote, cast in person, of the Directors, including a majority
of the Directors who are not "interested persons", as defined in
the 1940 Act, at their meeting held on September 14, 1993.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be approved by
a vote of the Directors or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either
case, by a majority of the disinterested Directors, cast in
person at a meeting called for the purpose of voting on such<PAGE>
-62-
approval; and the Agreement may not be amended in order to
increase materially the costs that a particular class, may bear
pursuant to the Agreement without the approval of a majority of
the holders of the outstanding voting shares of the class
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, any party
must give the other parties 60 days' written notice; to terminate
the Rule 12b-1 Plan only, the Fund need give no notice to the
Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A, Class B and Class C shares
of the Fund, plus reimbursement for out-of-pocket expenses. The
transfer agency fee with respect to the Class B shares is higher
than the transfer agency fee with respect to the Class A shares
or the Class C shares reflecting the additional costs associated
with the Class B contingent deferred sales charge. For the
fiscal year ended November 30, 1993, the Fund paid Alliance Fund
Services, Inc. $748,372 for transfer agency services.
- -----------------------------------------------------------------
PURCHASE OF SHARES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares
- -- How To Buy Shares."
GENERAL
Shares of the Fund will be offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase (the "initial sales charge
alternative"), with a contingent deferred sales charge (the
"deferred sales charge alternative"), or without any initial or
contingent deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Fund are
offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository<PAGE>
-63-
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Fund offers an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
personnel of selected dealers and agents distributing the Fund's
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
Investors may purchase shares of the Fund in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Fund may refuse any
order for the purchase of shares. The Fund reserves the right to
suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
The public offering price of shares of the Fund is their net
asset value, plus, in the case of Class A shares, a sales charge
which will vary depending on the purchase alternative chosen by
the investor, as shown in the table below. On each Fund business
day on which a purchase or redemption order is received by the
Fund and trading in the types of securities in which the Fund
invests might materially affect the value of Fund shares, the per
share net asset value is computed in accordance with the Fund's
Articles of Incorporation and By-Laws as of the next close of
regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. New York time) by dividing the value of the
Fund's total assets, less its liabilities, by the total number of
its shares then outstanding. The respective per share net asset
values of the Class A, Class B and Class C shares are expected to
be substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset value of the Class A
shares as a result of the daily expense accruals of the
distribution and transfer agency fees applicable with respect to
the Class B and Class C shares. Even under those circumstances,
the per share net asset values of the three classes eventually
will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense
accrual differential among the classes. A Fund business day is
any weekday, exclusive of national holidays on which the Exchange
is closed and Good Friday. For purposes of this computation,
Exchange-listed securities and over-the-counter securities
admitted to trading on the NASDAQ National List are valued at the<PAGE>
-64-
last quoted sale or, if no sale, at the mean of closing bid and
asked prices and portfolio bonds are presently valued by a
recognized pricing service. If accurate quotations are not
available, securities will be valued at fair value determined in
good faith by the Board of Directors.
The Fund will accept unconditional orders for its shares to
be executed at the public offering price equal to their net asset
value next determined (plus applicable Class A sales charges), as
described below. Orders received by the Principal Underwriter
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the net asset
value computed as of the close of regular trading on the Exchange
on that day (plus applicable Class A sales charges). In the case
of orders for purchase of shares placed through selected dealers
or agents, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer or
agent receives the order prior to the close of regular trading on
the Exchange and transmits it to the Principal Underwriter prior
to its close of business that same day (normally 5:00 p.m. New
York time). The selected dealer or agent is responsible for
transmitting such orders by 5:00 p.m. If the selected dealer or
agent fails to do so, the investor's right to that day's closing
price must be settled between the investor and the selected
dealer or agent. If the selected dealer or agent receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if
the shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "Literature" telephone number shown on the cover of
this Statement of Additional Information. Payment for shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, stock
certificates representing shares of the Fund are not issued
except upon written request to the Fund by the shareholder or his
or her authorized selected dealer or agent. This facilitates<PAGE>
-65-
later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
selected dealers or agents, the Principal Underwriter may from
time to time pay additional cash bonuses or other incentives to
selected dealers in connection with the sale of shares of the
Fund. On some occasions, such bonuses or incentives may be
conditioned upon the sale of a specified minimum dollar amount of
the shares of the Fund and/or other Alliance Mutual Funds, as
defined below, during a specific period of time. At the option
of the dealer such bonuses or other incentives may take the form
of payment for travel expenses, including lodging incurred in
connection with trips taken by persons associated with the dealer
and members of their families to places within or outside of the
United States.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund issues three classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative,
Class B shares are sold to investors choosing the deferred sales
charge alternative, and Class C shares are sold to investors
choosing the asset-based sales charge alternative. The three
classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and
are identical in all respects, except that (i) Class A shares
bear the expense of the initial sales charge and Class B shares
bear the expense of the deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and in the case of Class B shares,
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid which
relates to a specific class and other matters for which separate
class voting is appropriate under applicable law, provided that,
if the Fund submits to a vote of both the Class A shareholders
and the Class B shareholders an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder
with respect to the Class A shares, the Class A shareholders and
the Class B shareholders will vote separately by Class, and (iv)
only the Class B shares are subject to a conversion feature.
Each class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor to
choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor<PAGE>
-66-
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee on Class
C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans) for more than $250,000 for Class B shares.
Class C shares will normally not be suitable for the investor who
qualifies to purchase Class A shares at net asset value. For
this reason, the Principal Underwriter will reject any order for
more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution services
fee and, accordingly, pay correspondingly higher dividends per
share than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase,
investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be
more advantageous to purchase Class B shares or Class C shares in
order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge for a four-year period. For example, based
on current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee, to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of<PAGE>
-67-
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
The Directors of the Fund have determined that currently no
conflict of interest exists between or among the Class A, Class B
and Class C shares. On an ongoing basis, the Directors of the
Fund, pursuant to their fiduciary duties under the 1940 Act and
state laws, will seek to ensure that no such conflict arises.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for purchasers
choosing the initial sales charge alternative is the net asset
value plus a sales charge, as set forth below.
Sales Discount or
Sales Charge Commission
Charge As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
- -------- -------- -------- ----------
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
250,000. . . 3.36 3.25 3.00
250,000 but
less than
500,000. . . 2.30 2.25 2.00
500,000 but
less than
1,000,000. . . 1.78 1.75 1.50
1,000,000 but
less than
3,000,000. . . 1.27 1.25 1.00
3,000,000 but
less than
5,000,000. . . 0.76 0.75 0.50
____________________
There is no sales charge on transactions of $5,000,000 or more.
With respect to purchases of $5,000,000 or more made through<PAGE>
-68-
selected dealers or agents, the Adviser may, pursuant to the
Agreement described above, pay such dealers or agents from its
own resources a fee of up to .25 of 1% of the amount invested to
compensate such dealers or agents for their distribution
assistance in connection with such purchases.
Shares issued pursuant to the automatic reinvestment of
income dividends or capital gains distributions are not subject
to any sales charges. The Fund receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act of 1933, as
amended.
Set forth below is an example of the method of computing the
offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on November 30, 1993.
Net Asset Value per Class A
Share at November 30, 1993 $10.35
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .46
-----
Class A Per Share Offering Price
to the Public $10.81
------
------
During the fiscal period March 27, 1992 (commencement of
operations) through November 30, 1992, and the fiscal year ended
November 30, 1993, the aggregate amount of underwriting
commission payable with respect to shares of the Fund was
$1,569,026 and $7,548,144, respectively. Of that amount, the
Principal Underwriter received the amounts of $3,868 and $23,371,
respectively, representing that portion of the sales charges paid<PAGE>
-69-
on shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Fund's fiscal year ended
November 30, 1993, the Principal Underwriter received $740,205 in
contingent deferred sales charges with respect to Class B shares.
Investors choosing the initial sales charge alternative may
under certain circumstances be entitled to pay reduced sales
charges. The circumstances under which such investors may pay
reduced sales charges are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may qualify
for the sales charge reductions indicated in the schedule of such
charges above by combining purchases of shares of the Fund into a
single "purchase," if the resulting "purchase" totals at least
$100,000. The term "purchase" refers to: (i) a single purchase by
an individual, or to concurrent purchases, which in the aggregate
are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years
purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
The Alliance Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Counterpoint Fund
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.<PAGE>
-70-
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Income Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
The Alliance Portfolios
-The Alliance Growth Fund
-The Alliance Conservative Investors Fund
-The Alliance Growth Investors Fund
-The Alliance Balanced Fund
-The Alliance Short-Term U.S. Government Fund
AFD Exchange Reserves
Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the front
cover of this Statement of Additional Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C
shares of the Fund held by the investor and (b) all
shares of any other Alliance Mutual Fund held by the<PAGE>
-71-
investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible to
combine his or her purchase with that of the investor
into a single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through a selected
dealer or agent, the investor or selected dealer or agent must
provide the Principal Underwriter with sufficient information to
verify that each purchase qualifies for the privilege or
discount.
STATEMENT OF INTENTION. Class A investors may also obtain
the reduced sales charges shown in the table above by means of a
written Statement of Intention, which expresses the investor's
intention to invest not less than $100,000 within a period of 13
months in Class A shares (or Class A, Class B and/or Class C
shares) of the Fund or any other Alliance Mutual Fund. Each
purchase of shares under a Statement of Intention will be made at
the public offering price or prices applicable at the time of
such purchase to a single transaction of the dollar amount
indicated in the Statement of Intention. At the investor's
option, a Statement of Intention may include purchases of shares
of the Fund or any other Alliance Mutual Fund made not more than
90 days prior to the date that the investor signs a Statement of
Intention; however, the 13-month period during which the
Statement of Intention is in effect will begin on the date of the
earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation upon<PAGE>
-72-
the investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount. Shares purchased with the first 5% of such amount will
be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable
to the shares actually purchased if the full amount indicated is
not purchased, and such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed shares, whether paid in cash or reinvested
in additional Fund shares, are not subject to escrow. When the
full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the
dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in sales charge will be used
to purchase additional shares of the Fund subject to the rate of
sales charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention in
conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period, and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
REINSTATEMENT PRIVILEGE. A Class A shareholder who has
caused any or all of his or her shares of the Fund to be redeemed
or repurchased may reinvest all or any portion of the redemption
or repurchase proceeds in Class A shares of the Fund at net asset
value without any sales charge, provided that such reinvestment<PAGE>
-73-
is made within 30 calendar days after the redemption or
repurchase date. Shares are sold to a reinvesting shareholder at
the net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund. The reinstatement
privilege may be used by the shareholder only once, irrespective
of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with
transactions whose sole purpose is to transfer a shareholder's
interest in the Fund to his or her individual retirement account
or other qualified retirement plan account. Investors may
exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of
Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value, i.e., without any sales charge, to
certain categories of investors including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers
and present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser; officers, directors and present or retired full-time
employees of ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; officers, directors and
present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant
(collectively "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the
benefit of any such person or relative; or the estate of any such
person or relative, if such shares are purchased for investment
purposes (such shares may not be resold except to the Fund);
(iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; (iv) persons who were shareholders of the
Fund before the commencement of sales of shares of the Fund
subject to a sales charge; and (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer and approved by the Principal Underwriter, pursuant
to which such persons pay an asset-based fee to such broker-
dealer, or its affiliate or agent, for service in the nature of
investment advisory or administrative services. These provisions
are intended to provide additional job-related incentives to
persons who serve the Fund or work for companies associated with
the Fund and selected dealers and agents of the Fund. Since
these persons are in a position to have a basic understanding of
the nature of an investment company as well as a general
familiarity with the Fund, sales to these persons, as compared to<PAGE>
-74-
sales in the normal channels of distribution, require
substantially less sales effort. Similarly, these provisions
extend the privilege of purchasing shares at net asset value to
certain classes of institutional investors who, because of their
investment sophistication, can be expected to require
significantly less than normal sales effort on the part of the
Fund and the Principal Underwriter.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.
Proceeds from the contingent deferred sales charge are paid
to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are
redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
Year Since Purchase of Dollar Amount Subject to Charge <PAGE>
-75-
- ------------------- -----------------------------------
First 3%
Second 2%
Third 1%
Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any Class A shares or Class C shares in
the shareholder's Fund account, second of Class B shares held for
over three years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B
shares held longest during the three-year period. When Class B
shares acquired in an exchange are redeemed, the applicable
contingent deferred sales charge and conversion schedules will be
those schedules that applied to Class B shares of the Alliance
Mutual Fund originally purchased by the shareholder at the time
of their purchase. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the
time of purchase.
To illustrate, assume an investor purchased 100 Class B
shares at $10 per share (at a cost of $1,000) and in the second
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional Class B
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to charge because
of dividend reinvestment. With respect to the remaining 40
Class B shares, the charge is applied only to the original cost
of $10 per share and not to the increase in net asset value of $2
per share. Therefore, $400 of the $600 redemption proceeds will
be charged at a rate of 2.0% (the applicable rate in the second
year after purchase).
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2 or (iii) that had been purchased
by present or former Directors of the Fund, by the relative of
any such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative.
CONVERSION FEATURE. At the end of the period ending six
years after the end of the calendar month in which the
shareholder's purchase order was accepted, Class B shares will<PAGE>
-76-
automatically convert to Class A shares and will no longer be
subject to a higher distribution services fee. Such conversion
will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to reduce the
distribution services fee paid by holders of Class B shares that
have been outstanding long enough for the Principal Underwriter
to have been compensated for distribution expenses incurred in
the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and (ii)
the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending six years after
the end of the calendar month in which the shareholder's purchase
order was accepted.
ASSET-BASED SALES CHARGE ALTERNATIVE--CLASS C SHARES
Investors choosing the asset-based sales charge alternative
purchase Class C shares at the public offering price equal to the
net asset value per share of the Class C shares on the date of
purchase without the imposition of a sales charge either at the
time of purchase or upon redemption. Class C shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment and without a
contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge. Class C shares do not
convert to any other class of shares of the Fund and incur higher<PAGE>
-77-
distribution services fees than Class A shares, and will thus
have a higher expense ratio and pay correspondingly lower
dividends than Class A shares.
- -----------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares-
- -How to Sell Shares."
REDEMPTION
Subject only to the limitations described below, the Fund's
Articles of Incorporation requires that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class B shares, there is no redemption charge. Payment of the
redemption price will be made within seven days after the Fund's
receipt of such tender for redemption.
The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the New York Stock Exchange (the "Exchange") is closed
(other than customary weekend and holiday closings) or during
which the Securities and Exchange Commission determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or for such
other periods as the Securities and Exchange Commission may by
order permit for the protection of security holders of the Fund.
Payment of the redemption price may be made either in cash
or in portfolio securities (selected at the discretion of the
Directors of the Fund and taken at their value used in
determining the redemption price), or partly in cash and partly
in portfolio securities. However, payments will be made wholly
in cash unless the Directors believe that economic conditions
exist which would make such a practice detrimental to the best
interests of the Fund. The Fund has filed a formal election with
the Securities and Exchange Commission pursuant to which the Fund
will only effect a redemption in portfolio securities where the
particular shareholder of record is redeeming more than $250,000<PAGE>
-78-
or 1% of the Fund's total net assets, whichever is less, during
any 90-day period. In the opinion of the Fund's management,
however, the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of total net assets
before a redemption wholly or partly in portfolio securities
would be made. If payment for shares redeemed is made wholly or
partly in portfolio securities, brokerage costs may be incurred
by the investor in converting the securities to cash.
The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to
the shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class B shares will reflect
the deduction of the contingent deferred sales charge, if any.
Payment (either in cash or in portfolio securities) received by a
shareholder upon redemption or repurchase of his shares, assuming
the shares constitute capital assets in his hands, will result in
long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
institution that is an "eligible guarantor" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Requests
for redemption of shares for which no stock certificates have
been issued can also be made by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request must be for
at least $500 and may not exceed $100,000, and must be made
between 9:00 a.m. and 4:00 p.m. New York time on a Fund business
day as defined above. Proceeds of telephone redemptions will be
sent by Electronic Funds Transfer to a shareholder's designated
bank account at a bank selected by the shareholder that is a
member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Except as noted below, each
Fund shareholder is eligible to request redemption, once in any
30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an
amount not exceeding $25,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in<PAGE>
-79-
nominee or "street name" accounts, (iii) purchased within 15
calendar days prior to the redemption request, (iv) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (v) held in any retirement plan
account. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
GENERAL. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
REPURCHASE
<PAGE>
-80-
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class B shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. New York time). The selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the selected dealer or agent fails
to do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the dealer or
agent. A shareholder may offer shares of the Fund to the
Principal Underwriter either directly or through a selected
dealer or agent. Neither the Fund nor the Principal Underwriter
charges a fee or commission in connection with the repurchase of
shares (except for the contingent deferred sales charge, if any,
with respect to Class B shares). Normally, if shares of the Fund
are offered through a selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and
the Fund may suspend or terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for at least 60 days
after at least 30 days' written notice to the shareholder
subsequent to such period. No contingent deferred sales charge
will be deducted from the proceeds of this redemption. In the
case of a redemption or repurchase of shares of the Fund recently
purchased by check, redemption proceeds will not be made
available until the Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase
date.
- -----------------------------------------------------------------
SHAREHOLDER SERVICES
- -----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares-
- -Shareholder Services." The shareholder services set forth below
are applicable to all three classes of shares of the Fund.
<PAGE>
-81-
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
Class A shareholders of the Fund can exchange their Class A
shares for Class A shares of the Alliance Mutual Funds without
the payment of any sales or service charges. Class A
shareholders may also exchange their Class A shares for shares of
Alliance World Income Trust, Inc. ("AWIT"), a short-term global
income fund. Prospectuses for each Alliance Mutual Fund and AWIT
(each an "Alliance Fund"), may be obtained by contacting Alliance
Fund Services, Inc. at the address shown on the cover of this
Statement of Additional Information or by telephone at (800) 227-
4618 or, in Illinois, (800) 227-4170.
Class B shareholders of the Fund can exchange their Class B
shares ("original Class B shares") for Class B shares of any
other Alliance Mutual Fund that offers Class B shares ("new Class
B shares") without the payment of any contingent deferred sales
or service charges. For purposes of computing both the time
remaining before the new Class B shares convert to Class A shares
of that fund and the contingent deferred sales charge payable
upon disposition of the new Class B shares, the period of time
for which the original Class B shares have been held is added to
the period of time for which the new Class B shares have been
held, and the original fund's contingent deferred sales charge
schedule is applied.
Class C shareholders of the Fund can exchange their Class C
shares for Class C shares of the other Alliance Mutual Funds.<PAGE>
-82-
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Fund whose shares are being acquired.
An exchange is effected through the redemption of the shares
tendered for exchange and the purchase of shares being acquired
at their respective net asset values as next determined following
receipt by the Alliance Fund whose shares are being exchanged of
(i) proper instructions and all necessary supporting documents as
described in such fund's Prospectus, or (ii) a telephone request
for such exchange in accordance with the procedures set forth in
the following paragraph. Exchanges involving the redemption of
shares recently purchased by check will be permitted only after
the Alliance Fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally up to 15
calendar days following the purchase date. Exchanges of shares
of Alliance Mutual Funds will generally result in the realization
of a capital gain or loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected dealer
or agent, are authorized to make telephone requests for exchanges
unless Alliance Fund Services, Inc., receives written instruction
to the contrary from the shareholder, or the shareholder declines
the privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 between 9:00
a.m. and 4:00 p.m., New York time, on a Fund business day as
defined above. Telephone requests for exchange received before
4:00 p.m. New York time on a Fund business day will be processed
as of the close of business on that day. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund<PAGE>
-83-
business day prior thereto. Auto Exchange is not currently
available between Alliance Cash Management Funds and Alliance
Mutual Funds.
Neither the Alliance Funds nor the Adviser, the Principal
Underwriter or Alliance Fund Services, Inc. will be responsible
for the authenticity of telephone requests for exchanges that the
Fund reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part or
all of the assets held in various types of retirement plans, such
as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the<PAGE>
-84-
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
If the aggregate net asset value of shares of the Alliance
Mutual Funds held by the qualified plan reaches $5 million on or
before December 15 in any year, all Class B or C shares of the
Fund held by such plan can be exchanged at the Plan's request
without any sales charge, for Class A shares of such Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole proprietors,
partnerships and corporations may sponsor a SEP under which they
make annual tax-deductible contributions to an IRA established by
each eligible employee within prescribed limits based on employee
compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt organizations
and public educational institutions may sponsor retirements plans
under which an employee may agree that monies deducted from his
or her compensation (minimum $25 per pay period) may be
contributed by the employer to a custodial account established
for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance
Fund Services, Inc. as compensation for its services to the
retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to certain
Code requirements in addition to normal redemption procedures.
For additional information please contact Alliance Fund Services,
Inc.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his or
her Class A, Class B or Class C Fund account, a Class A, Class B
or Class C account(s) with one or more other Alliance Mutual
Funds may direct that income dividends and/or capital gains paid
on his or her Class A, Class B or Class C Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such<PAGE>
-85-
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the cover
of this Statement of Additional Information. Investors wishing
to establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Fund
having a current net asset value of at least $4,000 (for
quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions. Shares acquired with
reinvested dividends and distributions will be liquidated first
to provide such withdrawal payments and thereafter other shares
will be liquidated to the extent necessary, and depending upon
the amount withdrawn, the investor's principal may be depleted.
A systematic withdrawal plan may be terminated at any time by the
shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares -- General." Purchases of
additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. While an
occasional lump-sum investment may be made by a shareholder of
Class A shares who is maintaining a systematic withdrawal plan,
such investment should normally be an amount equivalent to three
times the annual withdrawal or $5,000, whichever is less.
For Class A shareholders, Class B shareholders that
purchased their Class B shares under a retirement plan and Class
C shareholders, payments under a systematic withdrawal plan may
be made by check or electronically via the Automated Clearing<PAGE>
-86-
House ("ACH") network. Investors wishing to establish a
systematic withdrawal plan in conjunction with their initial
investment in shares of the Fund should complete the appropriate
portion of the Subscription Application found in the Prospectus,
while current Fund shareholders desiring to do so can obtain an
application form by contacting Alliance Fund Services, Inc. at
the address or the "Literature" telephone number shown on the
cover of this Statement of Additional Information.
STATEMENTS AND REPORTS
Each shareholder of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
Shareholder Services Applicable to
Class A and Class C Shareholders Only
- -------------------------------------
CHECKWRITING
A new Class A or Class C investor may fill out the Signature
Card which is included in the Prospectus to authorize the Fund to
arrange for a checkwriting service through State Street Bank and
Trust Company (the "Bank") to draw against Class A or Class C
shares of the Fund redeemed from the investor's account. Under
this service, checks may be made payable to any payee in any
amount not less than $500 and not more than 90% of the net asset
value of the Class A or Class C shares in the investor's account
(excluding for this purpose the current month's accumulated
dividends and shares for which certificates have been issued). A
Class A or Class C shareholder wishing to establish this
checkwriting service subsequent to the opening of his or her
account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
<PAGE>
-87-
When a check is presented to the Bank for payment, the Bank,
as the shareholder's agent, causes the Fund to redeem, at the net
asset value next determined, a sufficient number of full and
fractional shares in the shareholder's account to cover the
check. Because the level of net assets in a shareholder's
account constantly changes, due, among various factors, to market
fluctuations, a shareholder should not attempt to close his or
her account by use of a check. In this regard, the Bank has the
right to return checks (marked "insufficient funds") unpaid to
the presenting bank if the amount of the check exceeds 90% of the
assets in the account. Cancelled (paid) checks are returned to
the shareholder. The checkwriting service enables the
shareholder to receive the daily dividends declared on the shares
to be redeemed until the day that the check is presented to the
Bank for payment.
- -----------------------------------------------------------------
NET ASSET VALUE
- -----------------------------------------------------------------
Portfolio securities that are actively traded in the over-
the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at
the mean between the most recently quoted bid and asked prices
provided by the principal market makers. Any security for which
the primary market is on an exchange is valued at the last sale
price on such exchange on the day of valuation or, if there was
no sale on such day, the last bid price quoted on such day.
Options will be valued at market value or fair value if no market
exists. Futures contracts will be valued in a like manner,
except that open futures contracts sales will be valued using the
closing settlement price or, in the absence of such a price, the
most recently quoted asked price. Securities and assets for
which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund. However, readily
marketable fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed by the Adviser to reflect the fair market value of such
securities. The prices provided by a pricing service take into
account institutional size trading in similar groups of
securities and any developments related to specific securities.
U.S. Government Securities and other debt instruments having 60
days or less remaining until maturity are stated at amortized
cost if their original maturity was 60 days or less, or by
amortizing their fair value as of the 61st day prior to maturity
if their original term to maturity exceeded 60 days (unless in
either case the Fund's Board of Directors determines that this
method does not represent fair value).
<PAGE>
-88-
For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies will be converted into United States dollars at the
mean of the bid and asked prices of such currencies against the
United States dollar last quoted by a major bank which is a
regular participant in the institutional foreign exchange markets
or on the basis of a pricing service which takes into account the
quotes provided by a number of such major banks.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio. The net asset value of each class will be
determined separately by subtracting the accrued expenses and
liabilities allocated to that class from the assets belonging to
that class pursuant to an order issued by the Commission.
- -----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------
United States Federal Income Taxation
of Dividends and Distributions
- -------------------------------------
General
The Fund qualified for the fiscal period ended November 30,
1993 and intends to qualify in the future for tax treatment as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code"). Qualification relieves the Fund
of federal income tax liability on the part of its net ordinary
income and net realized capital gains which it timely distributes
to its shareholders. Such qualification does not, of course,
involve governmental supervision of management or investment
practices or policies. Investors should consult their own
counsel for a complete understanding of the requirements the Fund
must meet to qualify to be taxed as a "regulated investment
company."
In order to qualify as a regulated investment company for
any taxable year, the fund must, among other things, (i) derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock or foreign currency or
securities or certain other income (including, but not limited
to, gains from options, futures and forward contracts) derived
with respect to its business of investing in such stock,
securities or currency, and (ii) derive less than 30% of its
gross income in such years from the sale or other disposition<PAGE>
-89-
within three months of their acquisition by the Fund of stocks,
securities, options, futures or forward contracts. These
requirements will limit the Fund's ability to write and purchase
options, to purchase and sell futures contracts, to purchase or
sell forward foreign currency contracts, to enter into interest
rate swaps and to purchase or sell interest rate caps and floors.
In addition, the Fund will qualify as a regulated investment
company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
The information set forth in the Prospectus and the
following discussion relate solely to the significant United
States federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies to be taxed as a
regulated investment company. Investors should consult their own
tax counsel with respect to the specific tax consequences of
their being shareholders of the Fund, including the effect and
applicability of federal, state, local and foreign tax laws to
their own particular situation and the possible effects of
changes therein.
The Fund intends to declare and distribute dividends in the
amounts and at the times necessary to avoid the application of
the 4% federal excise tax imposed on certain undistributed income
of regulated investment companies. The Fund will be required to
pay the 4% excise tax to the extent it does not distribute to its
shareholders during any calendar year an amount equal to the sum
of (i) 98% of its ordinary taxable income for the calendar year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve months ended November 30 of such year, (or
December 31 if elected by the Fund), and (iii) any ordinary
income or capital gain net income from the preceding calendar
year that was not distributed during such year. For this
purpose, income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been distributed
by the Fund by year-end. For federal income and excise tax
purposes, dividends declared and payable to shareholders of
record as of a date in October, November or December but actually
paid during the following January will be taxable to these
shareholders for the year declared, and not for the subsequent
calendar year in which the shareholders actually receive the
dividend.
Dividends of the Fund's net ordinary income and
distributions of any net realized short-term capital gain are
taxable to shareholders as ordinary income. Since the Fund
expects to derive substantially all of its gross income
(exclusive of capital gains) from sources other than dividends,
it is expected that none of the Fund's dividends or distributions<PAGE>
-90-
will qualify for the dividends-received deduction for
corporations.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his or her Fund shares. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as
described above. If a shareholder has held shares in the Fund
for six months or less and during that period has received a
distribution taxable to the shareholder as a long-term capital
gain, any loss recognized by the shareholder on the sale of those
shares during the six-month period will be treated as a long-term
capital loss to the extent of the dividend.
Dividends are taxable in the manner discussed regardless of
whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund's Common Stock.
The Fund generally will be required to withhold tax at the
rate of 31% with respect to dividends of net ordinary income and
net distributions of realized capital gains payable to a
noncorporate shareholder unless the shareholder certifies on his
or her subscription application that the social security or
taxpayer identification number provided is correct and that the
shareholder has not been notified by the Internal Revenue Service
that he or she is subject to backup withholding.
FOREIGN TAX CREDIT
Investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes,
including taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of such taxes or exemption
from taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested within various countries is not
known. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of stocks or securities
of foreign corporations (which for this purpose should include
obligations issued by foreign governments), the Fund will be
eligible to file an election with the Internal Revenue Service to
pass through to its shareholders the amount of foreign taxes paid
by the Fund. If eligible, the Fund intends to file such an<PAGE>
-91-
election. However, there can be no assurance that the Fund will
be able to do so. Pursuant to this election a United States
shareholder will be required to (i) include in gross income(in
addition to taxable dividends actually received) his pro rata
share of any foreign income taxes paid by the Fund, (ii) treat
his pro rata share of such foreign taxes as having been paid by
him; and (iii) either deduct such pro rata share of foreign taxes
in computing his taxable income or treat such foreign taxes as a
credit against United States federal income taxes. Shareholders
who normally are not liable for Federal income taxes, such as
retirement plans qualified under section 401 of the Code, will
not be affected by any such pass-through of taxes by the Fund.
No deduction for foreign income taxes may be claimed by an
individual United States shareholder who does not itemize
deductions. In addition, certain individual United States
shareholders may be subject to rules which limit or reduce their
ability to fully deduct their pro rata share of the foreign
income taxes paid by the Fund. Each shareholder will be notified
within 60 days after the close of the Fund's taxable year whether
the foreign income taxes paid by the Fund will pass through for
that year and, if so, such notification will designate (i) such
shareholder's portion of the foreign income taxes paid to each
such country, and (ii) the portion of dividends that represents
income derived from sources within each such country.
Generally, a credit for foreign taxes may not exceed the
shareholder's United States tax attributable to the shareholder's
total foreign source taxable income. Generally, the source of
the Fund's income flows through to its shareholders. The overall
limitation on a foreign tax credit is also applied separately to
specific categories of foreign source income, including foreign
source "passive income," including dividends, interest and
capital gains. Further, the foreign tax credit is allowed to
offset only 90% of any alternative minimum tax to which a
shareholder may be subject. As a result of these rules, certain
shareholders may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the
Fund. If a shareholder could not credit his full share of the
foreign tax paid, double taxation of such income could be
mitigated only by deducting the foreign tax paid, which may be
subject to limitation as described above.
The federal income tax status of each year's distributions
by the Fund will be reported to shareholders and to the Internal
Revenue Service. The foregoing is only a general description of
the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax
credit or deduction will depend on the particular circumstances
of each shareholder, potential investors are advised to consult
their own tax advisers.
<PAGE>
-92-
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. Under
the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his or her Fund shares. To
the extent that such distributions exceed such shareholder's
basis, each will be treated as a gain from the sale of shares.
OPTIONS, FUTURES CONTRACTS, AND FORWARD FOREIGN CURRENCY
CONTRACTS. Certain listed options, regulated futures contracts
and forward foreign currency contracts are considered "section
1256 contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts other than forward foreign currency contracts will
be considered 60% long-term and 40% short-term capital gain or
loss unless the Fund elects to have the gain or loss it realizes
on these contracts taxed as "section 988" gains or losses. Gain
or loss realized by the Fund on forward foreign currency
contracts will be treated as section 988 gain or loss and will<PAGE>
-93-
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. Recently
issued regulations under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to over-the-counter put and call options, gain
or loss realized by the Fund upon the lapse or sale of such
options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period
with respect to such option. However, gain or loss realized upon
the lapse or closing out of such options that are written by the
Fund will be treated as short-term capital gain or loss. In
general, if the Fund exercises an option, or if an option that
the Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or
paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.
Gain or loss realized by the Fund on the lapse or sale of
put and call options on foreign currencies which are traded over-
the-counter or on certain foreign exchanges will be treated as
section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount
of the Fund's net investment income available to be distributed
to shareholders as ordinary income, as described above. The
amount of such gain or loss shall be determined by subtracting
the amount paid, if any, for or with respect to the option
(including any amount paid by the Fund upon termination of an
option written by the Fund) from the amount received, if any, for
or with respect to the option (including any amount received by
the Fund upon termination of an option held by the Fund. In
general, if the Fund exercises such an option on a foreign
currency, or if such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their<PAGE>
-94-
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
TAX STRADDLES. Any option, futures contract, or forward
foreign currency contract, or other position entered into or held
by the Fund in conjunction with any other position held by the
Fund may constitute a "straddle" for federal income tax purposes.
The Treasury Department recently has issued proposed regulations
which, if adopted, would treat interest rate swaps, caps and
floors entered into or purchased by the Fund as positions which
may also constitute part of a straddle for federal income tax
purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules
that may affect the character and timing of the Fund's gains and
losses with respect to straddle positions by requiring, among
other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position consists of an ordinary
asset and at least one position consists of a capital asset. No
such regulations have yet been issued. Various elections are
available to the Fund which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any
straddles held by the Fund all of the offsetting positions of
which consist of section 1256 contracts.
ZERO COUPON TREASURY SECURITIES. Under current federal tax
law, the Fund will receive net investment income in the form of
interest by virtue of holding Treasury bills, notes and bonds,
and will recognize interest attributable to it from holding zero
coupon Treasury securities. Current federal tax law requires
that a holder (such as the 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 Fund receives no interest<PAGE>
-95-
payment in cash on the security during the year. Accordingly,
the Fund may be required to pay out as an income distribution
each year an amount which is greater than the total amount of
cash interest the Fund actually received. Such distributions
will be made from the cash assets of the Fund or by liquidation
of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Adviser
will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net
capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they
would have in the absence of such transactions.
TAXATION OF FOREIGN STOCKHOLDERS
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
- -----------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- -----------------------------------------------------------------
Subject to the general supervision of the Board of Directors
of the Fund, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and<PAGE>
-96-
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Portfolio securities
will not be purchased from or sold to Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser, or
any other subsidiary or affiliate of the Equitable Life Assurance
Society of the United States.
- -----------------------------------------------------------------
GENERAL INFORMATION
- -----------------------------------------------------------------
CAPITALIZATION
The Fund's shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they
choose to do so, and in such event the holders of the remaining
less than 50% of the shares voting for such election of Directors
will not be able to elect any person or persons to the Board of
Directors.
The authorized capital stock of the Fund currently consists
of 3,000,000,000 shares of Class A Common Stock, 3,000,000,000
shares of Class B Common Stock and 3,000,000,000 shares of Class
C Common Stock, each having a par value of $.001 per share. All
shares of the Fund, when issued, are fully paid and non-
assessable. The Board of Directors is authorized to reclassify
and issue any unissued shares to any number of additional series
without shareholder approval. Accordingly, the Board in the
future, for reasons such as the desire to establish one or more
additional portfolios of the Fund with different investment
objectives, policies or restrictions, may create additional
series of shares. Any issuance of shares of another series would
be governed by the 1940 Act and the law of the State of Maryland.
If shares of another series were issued in connection with the
creation of a second portfolio, each share of either portfolio
would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single
series for the election of directors and on any other matter that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Advisory Agreement and changes in investment policy, shares
of each portfolio would vote as separate series.
<PAGE>
-97-
Procedures for calling a shareholders meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the Commission permitting
the issuance and sale of three classes of shares representing
interests in the Fund. The issuance and sale of any additional
classes will require an additional order from the Commission.
There is no assurance that such exemptive relief would be
granted.
The outstanding voting shares of the Fund as of August 5,
1994 consisted of 282,483,194.019 shares of Common Stock. Of this
amount, 36,479,660.681 were Class A shares, 198,434,279.902 were
Class B shares and 47,569,253.436 were Class C shares. Set forth
below is certain information as to all persons who owned of
record or beneficially 5% or more of either class of the Fund's
outstanding shares at August 5, 1994.
No. of % of % of % of
Name and Address Shares Class A Class B Class C
- ---------------- -------- -------- -------- -------
Merrill Lynch 6,259,571.881 17.16%
Mutual Fund Operations
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, Florida
32246-6484
No. of % of % of % of
Name and Address Shares Class A Class B Class C
- ---------------- ------ ------- ------- -------
Merrill Lynch 62,659,087.690 31.58%
Mutual Fund Operations
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, Florida
32246-6484
Merrill Lynch 25,627,335.803 53.87%
Mutual Fund Operations
4800 Deer Lake Dr. East
3rd Floor<PAGE>
-98-
Jacksonville, Florida
32246-6484
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109, acts as custodian for the securities and
cash of the Fund but plays no part in deciding the purchase or
sale of portfolio securities. Subject to the supervision of the
Fund's Directors, Brown Brothers Harriman & Co. may enter into
sub-custodial agreements for the holding of the Fund's foreign
securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and the
Principal Underwriter, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act of 1933, as
amended.
COUNSEL
Legal matters in connection with the issuance of the shares
of common stock offered hereby are passed upon by Messrs. Seward
& Kissel, One Battery Park Plaza, New York, New York 10004.
Seward & Kissel has relied upon the opinion of Venable, Baetjer
and Howard, 1800 Mercantile Bank & Trust Building, 2 Hopkins
Plaza, Baltimore, Maryland 21201, for matters relating to
Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, have been appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield", "actual
distribution rate" and "total return". The Fund's yield for any
30-day (or one-month) period is computed by dividing the net<PAGE>
-99-
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Fund's
"actual distribution rate," which may be advertised in items of
sales literature, is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question is substituted for net investment income per share.
The actual distribution rate is compounded separately for Class A
shares, Class B shares and Class C shares. Advertisements of the
Fund's total return disclose the Fund's average annual compounded
total return for its most recently completed one, five and ten
year periods (or the period since the Fund's inception). The
Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the
average annual compounded rate of return over the period that
would equate an assumed initial amount invested in the value of
such investment at the end of the period. For purposes of
computing total return, income dividends and capital gains
distributions paid on shares of the Fund are assumed to have been
reinvested when received and the maximum sales charge applicable
to purchases of Fund shares is assumed to have been paid.
The Fund's yield for the month ended November 30, 1993 for
Class A shares was 7.22%, for Class B shares was 6.83% and for
Class C shares was 6.83%. The Fund's actual distribution rate
for such period for Class A shares was 9.95%, for Class B shares
was 9.96% and for Class C shares was 9.72%. The Fund's average
annual total returns for the period March 27, 1992 (commencement
of operations) through November 30, 1993 and for the fiscal year
ended November 30, 1993 were 10.53% and 13.94%, respectively, for
Class A shares and 11.49% and 15.15%, respectively, for Class B
shares. The average annual total return for Class C shares for
the period May 3, 1993 (commencement of distribution) through
November 30, 1993 was 9.00%. The Fund will compute yield and
total return figures separately for Class A shares, Class B
shares and Class C shares.
Yield and total return are not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type, and quality of the securities in the Fund's portfolio, the
Fund's average portfolio maturity and its expenses. Quotations
of yield and total return do not include any provision for the
effect of individual income taxes. An investor's principal
invested in the Fund is not fixed and will fluctuate in response
to prevailing market conditions. The Fund may advertise the
fluctuation of its net asset value over certain time periods and
compare its performance to that available from other investments,
including money market funds and certificates of deposit, the
later of which, unlike the Fund, are insured and have fixed rates<PAGE>
-100-
of return.
Advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc.
("Lipper"), and advertisements presenting the historical record
of payments of income dividends by the Fund may also from time to
time be sent to investors or placed in newspapers, magazines such
as The Wall Street Journal, The New York Times, Barrons,
Investor's Daily, Money Magazine, Changing Times, Business Week
and Forbes or other media on behalf of the Fund. It is expected
that the Fund will be ranked by Lipper in the category known as
"World Income Funds."
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
<PAGE>
APPENDIX A
BOND RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's Corporation ("S&P") corporate debt
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. Debt rated "AAA"
has the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. Debt
rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than a debt of a higher rated category. 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 to repay principal for debt in this category
than for higher rated categories.
Debt rated "BB", "B", "CCC" or "CC" is regarded, on balance,
as predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions. The rating "C" is reserved for income bonds
on which no interest is being paid. Debt rated "D" is in default
and payments of interest and/or repayment of principal is in
arrears.
The ratings from "AA" to "B" may be modified by the addition
of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations;
Baa - considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured and have speculative
characteristics as well; Ba, B, Caa, Ca, C - protection of
interest and principal payments is questionable; Ba indicates<PAGE>
A-2
some speculative elements while Ca represents a high degree of
speculation and C represents the lowest rated class of bonds;Caa,
Ca and C bonds may be in default. Moody's applies numerical
modifiers 1, 2 and 3 in each generic rating classification from
Aa to B in it 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 at the
lower end of its generic rating category.
<PAGE>
APPENDIX B
DESCRIPTION OF OBLIGATIONS ISSUED
OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued
by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.
MARITIME ADMINISTRATION BONDS--are bonds issued and provided
by the Department of Transportation of the U.S. Government and
are guaranteed by the U.S. Government.
FHA DEBENTURES--are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the
U.S. Government.
GNMA CERTIFICATES--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Each mortgage loan
included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
FHLMC BONDS--are bonds issued and guaranteed by the Federal
Home Loan Mortgage Corporation.
FNMA BONDS--are bonds issued and guaranteed by the Federal
National Mortgage Association.
FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds
issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.
STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND
BONDS--are notes and bonds issued by the Student Loan Marketing
Association.
Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which the Fund intends to invest, the Fund may invest in
obligations of U.S. Government agencies or instrumentalities
other than those listed above.
<PAGE>
APPENDIX C
FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS AND FOREIGN CURRENCIES
OPTIONS ON U.S. AND FOREIGN GOVERNMENT SECURITIES
The Fund intends to write covered put and call options and
purchase put and call options on U.S. Government Securities and
foreign government securities that are traded on United States
and foreign securities exchanges and over-the-counter. The Fund
also intends to write call options that are not covered for
cross-hedging purposes.
The 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 would
exceed that which would be received from writing a covered call
option, while at the same time achieving the desired hedge.
The writer of an option may have no control when the
underlying securities must be sold, in the case of a call option,
or purchased, in the case of a put option, since with regard to
certain options, the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains the amount
of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its
obligation may effect a "closing purchase transaction". This is
accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the
writer's position will be cancelled by the clearing corporation.
However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an
investor who is the holder of an option may liquidate its
position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or<PAGE>
C-2
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if
the price of the purchase transaction is less than the premium
received from writing the option or the price received from a
sale transaction is more than the premium paid to purchase the
option; the Fund will realize a loss from a closing transaction
if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a
sale transaction is less than the premium paid to purchase the
option. Because increases in the market of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
An option position may be closed out only where there exists
a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing<PAGE>
C-3
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and then
write a call option against that security. The exercise price of
the call Fund determines to write will depend upon the expected
price movement of the underlying security. The exercise price of
a call option may be below ("in-the-money"), equal to ("at-the-
money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-
write transactions using in-the-money call options may be used
when is expected that the price of the underlying security will
remain flat or decline moderately during the option period. Buy-
and-write transactions using at-the-money call options may be
used when it is expected that the price of the underlying
security will remain fixed or advance moderately during the
option period. Buy-and-write transactions using out-of-the-money
call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in
the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in
such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of
the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by
the premium received.
The writing of covered put options is similar in terms of
risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
options minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at-the-
money, and in-the-money put options may be used by the Fund in
the same market environments that call options are used in
equivalent buy-and-write transactions.
The Fund may purchase put options to hedge against a decline
in the value of its portfolio. By using put options in this way,
the Fund will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.<PAGE>
C-4
The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or sale
for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities or foreign government
securities. U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through
their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The Fund will enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of
the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S.
Treasury Bills. The Fund may also enter into futures contracts
which are based on bonds issued by entities other than the U.S.
government.
At the same time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial deposit
would be approximately 1 1/2%-5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment
of "variation margin" may be required, since each day the Fund
would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the<PAGE>
C-5
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as the portfolio of
the Fund, which holds or intends to acquire fixed-income
securities, is to attempt to protect the Fund from fluctuations
in interest or foreign exchange rates without actually buying or
selling fixed-income securities or foreign currency. For
example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as
selling an equivalent value of the debt securities owned by the
Fund. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. The Fund could
accomplish similar results by selling debt securities and
investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more
liquid than the cash market, the use of futures contracts as an
investment technique allows the Fund to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Fund could
take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect
to such futures contracts will consist of cash, cash equivalents
or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the
initial and variation margin payments made by the Fund with<PAGE>
C-6
respect to such futures contracts.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although the
Fund believes that use of such contracts will benefit the Fund,
if the Adviser's investment judgment about the general direction
of interest rates is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Fund intends to purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on
a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying
debt securities, it may or may not be less risky than ownership<PAGE>
C-7
of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Fund is not fully
invested it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which
provides as partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call
option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes
in the value of portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the U.S.
Dollar value of a foreign currency in which portfolio securities
are denominated will reduce the U.S. Dollar value of such
securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the<PAGE>
C-8
value of portfolio securities, the Fund may purchase put options
on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a
fixed amount in U.S. Dollars and will thereby offset, in whole or
in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the U.S. Dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the U.S. Dollar value of foreign
currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected
decline occurs, the option will most likely not be exercised, and
the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the U.S. Dollar cost of
securities to be acquired, the Fund could write a put option on
the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge
such increased cost up to the amount of the premium. As in the
case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised
and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies,
the Fund also may be required to lose all or a portion of the
benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the<PAGE>
C-9
Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash or liquid high-grade Government
Securities in a segregated account with its Custodian.
The Fund also intends to write call options on foreign
currencies that are not covered for cross-hedging purposes. A
call option on a foreign currency is for cross-hedging purposes
if it is not covered, but is designed to provide a hedge against
a decline in the U.S. Dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or liquid high-grade Government Securities in an
amount not less than the value of the underlying foreign currency
in U.S. Dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS
FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC.
To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on currencies may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.<PAGE>
C-10
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on such exchanges. As a result, many of the
protections provided to traders on organized exchanges will be
available with respect to such transactions. In particular, all
foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of
a liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or
would result in undue burdens on the OCC or its clearing member,
impose special procedures on exercise and settlement, such as
technical changes in the mechanics of delivery of currency, the
fixing of dollar settlement prices or prohibitions, on exercise.
In addition, options on U.S. Government Securities, futures
contracts, options on futures contracts, forward contracts and
options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of
data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States, (iv) the
imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and
(v) lesser trading volume.
K:|\wit-mit\sai994.nag<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
--------------------
Included in the Prospectus:
Financial Highlights
Included in the Registrant's Statement of Additional
Information filed herewith:
To be filed by amendment.
(b) Exhibits
--------
(1) Copy of Articles of Incorporation of the Registrant as
now in effect - Incorporated by reference from
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on February
3, 1992.
(2) Copy of existing By-Laws of the Registrant -
Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on February 3, 1992.
(3) Not applicable.
(4) (a) Form of Stock Certificate for Class A Shares -
Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on February 3, 1992.
(b) Form of Stock Certificate for Class B Shares -
Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on February 3, 1992.
(5) Copy of Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference from Registrant's Registration Statement on
Form N-1A, filed with the Securities and Exchange
Commission on February 1, 1993.
(6) (a) Distribution Services Agreement between the Registrant
and Alliance Fund Distributors, Inc. - Incorporated by
reference from Post-Effective Amendment No. 4 to<PAGE>
C-2
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on January
31, 1994.
(b) Selected Dealer Agreement between Alliance Fund
Distributors, Inc. and selected dealers offering shares
of Registrant - Incorporated by reference from
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on March 2,
1993.
(c) Form of Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making available
shares of Registrant - Incorporated by reference from
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on March 2,
1993.
(7) Not applicable.
(8) Copy of Custodian Contract between the Registrant and
Brown Brothers Harriman & Co. - Incorporated by
reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on August
11, 1992.
(9) Copy of Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc -
Incorporated by reference from Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-
1A, filed with the Securities and Exchange Commission
on August 11, 1992.
(10) (a) Opinion of Seward & Kissel- Incorporated by reference
from Registrant's Registration Statement on Form N-1A,
filed with the Securities and Exchange Commission on
February 21, 1992.
(b) Opinion and Consent of Venable, Baetjer and Howard -
Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on
February 21, 1992.
(11) Consent of Independent Auditors - Filed herewith.
(12) Not applicable.
(13) Not applicable.
<PAGE>
C-3
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Schedule for computation of performance quotations -
Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on February 21,
1992.
Other Exhibit: Powers of Attorney of Messrs. Dievler,
Foulk and White - Incorporated by reference from
Registrant's Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on February
21, 1992.
Powers of Attorney of Messrs. Carifa, Dobkin and Hester
- Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on August 11, 1992.
Power of Attorney of Clifford L. Michel - Incorporated
by reference from Registrant's Registration Statement
on Form N-1A, filed with the Securities and Exchange
Commission on February 1, 1993.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
As of January 30, 1995, the Registrant had 13,549 record
holders of Class A shares of common stock, 60,500 record holders
of Class B shares of common stock and 8,698 record holders of
Class C shares of common stock.
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its directors and
officers, employees and other agents to the maximum extent
permitted by Section 2-418 of the General Corporation Law of
the State of Maryland and as set forth in Article EIGHTH of
Registrant's Articles of Incorporation, filed as Exhibit 1,
Article VII and Article VIII of the Registrant's By-Laws
filed as Exhibit 2 and Section 10 of the Distribution
Services Agreement filed as Exhibit 6(a), all as set forth
below. The liability of the Registrant's directors and
officers is dealt with in Article EIGHTH of Registrant's
Articles of Incorporation, and Article VII, Section 7 and
Article VIII, Section 1 through Section 6 of the
Registrant's By-Laws, as set forth below. The Adviser's<PAGE>
C-4
liability for any loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the Advisory
Agreement filed as Exhibit 5 to this Registration Statement,
as set forth below.
Section 2-418 of the Maryland General Corporation Law
reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meaning indicated.
(1) "Director" means any person who is or
was a director of a corporation and any person
who, while a director of a corporation, is or was
serving at the request of the corporation as a
director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation,
partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation in a
merger, consolidation, or other transaction in
which the predecessor's existence ceased upon
consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other than
a director as contemplated in subsection (j), the
elective or appointive office in the corporation
held by the officer, or the employment or agency
relationship undertaken by the employee or agent
in behalf of the corporation.
(iii) "Official capacity" does not include
service for any other foreign or domestic
corporation or any partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is,
or is threatened to be made a named defendant or
respondent in a proceeding.
(6) "Proceeding" means any threatened,<PAGE>
C-5
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative.
(b)(1) A corporation may indemnify any
director made a party to any proceeding by reason
of service in that capacity unless it is
established that:
(i) The act or omission of the director was
material to the matter giving rise to the
proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act
or omission was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with
the proceeding.
(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not
be made in respect of any proceeding in which the
director shall have been adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding by
judgment, order or settlement does not create a
presumption that the director did not meet the
requisite standard of conduct set forth in this
subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the
director did not meet that standard of conduct.
(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to the
director, whether or not involving action in the
director's official capacity, in which the director was<PAGE>
C-6
adjudged to be liable on the basis that personal
benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the
merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this
section shall be indemnified against reasonable
expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction upon
application of a director and such notice as the
court shall require, may order indemnification in
the following circumstances:
(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this
subsection, the court shall order indemnification,
in which case the director shall be entitled to
recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly
and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not
the director has met the standards of conduct set
forth in subsection (b) of this section or has
been adjudged liable under the circumstances
described in subsection (c) of this section, the
court may order such indemnification as the court
shall deem proper. However, indemnification with
respect to any proceeding by or in the right of
the corporation or in which liability shall have
been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may
be the same court in which the proceeding
involving the director's liability took place.
(e)(1) Indemnification under subsection (b)
of this section may not be made by the corporation
unless authorized for a specific proceeding after
a determination has been made that indemnification
of the director is permissible in the
circumstances because the director has met the
standard of conduct set forth in subsection (b) of
this section.
<PAGE>
C-7
(2) Such determination shall be made:
(i) By the board of directors by a majority
vote of a quorum consisting of directors not, at
the time, parties to the proceeding, or, if such a
quorum cannot be obtained, then by a majority vote
of a committee of the board consisting solely of
two or more directors not, at the time, parties to
such proceeding and who were duly designated to
act in the matter by a majority vote of the full
board in which the designated directors who are
parties may participate;
(ii) By special legal counsel selected by the
board or a committee of the board by vote as set
forth in subparagraph (i) of this paragraph, or,
if the requisite quorum of the full board cannot
be obtained therefor and the committee cannot be
established, by a majority vote of the full board
in which directors who are parties may
participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses
shall be made in the same manner as the
determination that indemnification is permissible.
However, if the determination that indemnification
is permissible is made by special legal counsel,
authorization of indemnification and determination
as to reasonableness of expenses shall be made in
the manner specified in subparagraph (ii) of
paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are parties
to the proceeding may not be voted on the subject
matter under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may be
paid or reimbursed by the corporation in advance
of the final disposition of the proceeding, upon
receipt by the corporation of:
(i) A written affirmation by the director of the
director's good faith belief that the standard of
conduct necessary for indemnification by the
corporation as authorized in this section has been
met; and<PAGE>
C-8
(ii) A written undertaking by or on behalf of the
director to repay the amount if it shall
ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph
(ii) of paragraph (1) of this subsection shall be
an unlimited general obligation of the director
but need not be secured and may be accepted
without reference to financial ability to make the
repayment.
(3) Payments under this subsection shall be
made as provided by the charter, bylaws, or
contract or as specified in subsection (e) of this
section.
(g) The indemnification and advancement of
expenses provided or authorized by this section
may not be deemed exclusive of any other rights,
by indemnification or otherwise, to which a
director may be entitled under the charter, the
bylaws, a resolution of stockholders or directors,
an agreement or otherwise, both as to action in an
official capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the
corporation's power to pay or reimburse expenses
incurred by a director in connection with an
appearance as a witness in a proceeding at a time
when the director has not been made a named
defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit
plan where the performance of the director's
duties to the corporation also imposes duties on,
or otherwise involves services by, the director to
the plan or participants or beneficiaries of the
plan:
(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the<PAGE>
C-9
performance of the director's duties for a purpose
reasonably believed by the director to be in the
interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which
is not opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be
indemnified as and to the extent provided in
subsection (d) of this section for a director and
shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or agent of the
corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may
indemnify and advance expenses to an officer,
employee, or agent who is not a director to such
further extent, consistent with law, as may be
provided by its charter, bylaws, general or
specific action of its board of directors or
contract.
(k)(1) A corporation may purchase and
maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of
the corporation, or who, while a director,
officer, employee, or agent of the corporation, is
or was serving at the request, of the corporation
as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against
any liability asserted against and incurred by
such person in any such capacity or arising out of
such person's position, whether or not the
corporation would have the power to indemnify
against liability under the provisions of this
section.
(2) A corporation may provide similar
protection, including a trust fund, letter of
credit, or surety bond, not inconsistent with this
section.
<PAGE>
C-10
(3) The insurance or similar protection may
be provided by a subsidiary or an affiliate of the
corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with this
section, if arising out of a proceeding by or in
the right of the corporation, shall be reported in
writing to the stockholders with the notice of the
next stockholders' meeting or prior to the
meeting."
Article EIGHTH of the Registrant's Articles of Incorporation
reads as follows:
"(1) To the full extent that limitations on
the liability of directors and officers are
permitted by the Maryland General Corporation Law,
no director or officer of the Corporation shall
have any liability to the Corporation or its
stockholders for damages. This limitation on
liability applies to events occurring at the time
a person serves as a director or officer of the
Corporation whether or not such person is a
director or officer at the time of any proceeding
in which liability is asserted.
"(2) The Corporation shall indemnify and
advance expenses to its currently acting and
its former directors to the full extent that
indemnification of directors is permitted by
the Maryland General Corporation Law. The
Corporation shall indemnify and advance
expenses to its officers to the same extent
as its directors and to such further extent
as is consistent with law. The Board of
Directors may by By-Law, resolution or
agreement make further provisions for
indemnification of directors, officers,
employees and agents to the full extent
permitted by the Maryland General Corporation
Law.
"(3) No provision of this Article shall be
effective to protect or purport to protect
any director or officer of the Corporation
against any liability to the Corporation or
its stockholders to which he would otherwise
be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office.<PAGE>
C-11
"(4) References to the Maryland General
Corporation Law in this Article are to that
law as from time to time amended. No
amendment to the Charter of the Corporation
shall affect any right of any person under
this Article based on any event, omission or
proceeding prior to the amendment."
Article VII, Section 7 of the Registrant's By-Laws reads as
follows:
Section 7. INSURANCE AGAINST CERTAIN
LIABILITIES. The Corporation shall not bear the
cost of insurance that protects or purports to
protect directors and officers of the Corporation
against any liabilities to the Corporation or its
security holders to which any such director or
officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in
the conduct of his office.
ARTICLE VIII of the Registrant's By-laws reads as follows:
Section B. INDEMNIFICATION OF DIRECTORS AND
OFFICERS. The Corporation shall indemnify
its directors to the full extent that
indemnification of directors is permitted by
the Maryland General Corporation Law. The
Corporation shall indemnify its officers to
the same extent as its directors and to such
further extent as is consistent with law.
The Corporation shall indemnify its directors
and officers who while serving as directors
or officers also serve at the request of the
Corporation as a director, officer, partner,
trustee, employee, agent or fiduciary of
another corporation, partnership, joint
venture, trust, other enterprise or employee
benefit plan to the full extent consistent
with law. The indemnification and other
rights provided by this Article shall
continue as to a person who has ceased to be
a director or officer and shall inure to the
benefit of the heirs, executors and
administrators of such a person. This
Article shall not protect any such person
against any liability to the Corporation or
any stockholder thereof to which such person<PAGE>
C-12
would otherwise be subject by reason of
willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of his office
("disabling conduct").
Section B. ADVANCES. Any current or former
director or officer of the Corporation
seeking indemnification within the scope of
this Article shall be entitled to advances
from the Corporation for payment of the
reasonable expenses incurred by him in
connection with the matter as to which he is
seeking indemnification in the manner and to
the full extent permissible under the
Maryland General Corporation Law. The person
seeking indemnification shall provide to the
Corporation a written affirmation of his good
faith belief that the standard of conduct
necessary for indemnification by the
Corporation has been met and a written
undertaking to repay any such advance if it
should ultimately be determined that the
standard of conduct has not been met. In
addition, at least one of the following
additional conditions shall be met: (a) the
person seeking indemnification shall provide
a security in form and amount acceptable to
the Corporation for his undertaking; (b) the
Corporation is insured against losses arising
by reason of the advance; or (c) a majority
of a quorum of directors of the Corporation
who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, nor parties
to the proceeding ("disinterested non-party
directors"), or independent legal counsel, in
a written opinion, shall have determined,
based on a review of facts readily available
to the Corporation at the time the advance is
proposed to be made, that there is reason to
believe that the person seeking
indemnification will ultimately be found to
be entitled to indemnification.
Section B. PROCEDURE. At the request of any
person claiming indemnification under this
Article, the Board of Directors shall
determine, or cause to be determined, in a
manner consistent with the Maryland General
Corporation Law, whether the standards<PAGE>
C-13
required by this Article have been met.
Indemnification shall be made only following:
(a) a final decision on the merits by a court
or other body before whom the proceeding was
brought that the person to be indemnified was
not liable by reason of disabling conduct or
(b) in the absence of such a decision, a
reasonable determination, based upon a review
of the facts, that the person to be
indemnified was not liable by reason of
disabling conduct by (i) the vote of a
majority of a quorum of disinterested non-
party directors or (ii) an independent legal
counsel in a written opinion.
Section B. INDEMNIFICATION OF EMPLOYEES AND
AGENTS. Employees and agents who are not
officers or directors of the Corporation may
be indemnified, and reasonable expenses may
be advanced to such employees or agents, as
may be provided by action of the Board of
Directors or by contract, subject to any
limitations imposed by the Investment Company
Act of 1940.
Section B. OTHER RIGHTS. The Board of
Directors may make further provision
consistent with law for indemnification and
advance of expenses to directors, officers,
employees and agents by resolution, agreement
or otherwise. The indemnification provided
by this Article shall not be deemed exclusive
of any other right, with respect to
indemnification or otherwise, to which those
seeking indemnification may be entitled under
any insurance or other agreement or
resolution of stockholders or disinterested
directors or otherwise. The rights provided
to any person by this Article shall be
enforceable against the Corporation by such
person who shall be presumed to have relied
upon it in serving or continuing to serve as
a director, officer, employee, or agent as
provided above.
Section B. AMENDMENTS. References in this
Article are to the Maryland General
Corporation Law and to the Investment Company
Act of 1940 as from time to time amended. No
amendment of these By-laws shall affect any
right of any person under this Article based<PAGE>
C-14
on any event, omission or proceeding prior to
the amendment.
The Advisory Agreement between Registrant and Alliance
Capital Management L.P. provides that Alliance Capital
Management L.P. will not be liable under such
agreements for any mistake of judgment or in any event
whatsoever except for lack of good faith and that
nothing therein shall be deemed to protect Alliance
Capital Management L.P. against any liability to
Registrant or its security holders to which it would
otherwise be subject by reason of wilful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard
of its duties and obligations thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
provides that the Registrant will indemnify, defend and
hold Alliance Fund Distributors, Inc., and any person
who controls it within the meaning of Section 15 of the
Securities Act of 1933 (the "Securities Act"), free and
harmless from and against any and all claims, demands,
liabilities and expenses which Alliance Fund
Distributors, Inc. or any controlling person may incur
arising out of or based upon any alleged untrue
statement of a material fact contained in Registrant's
Registration Statement, Prospectus or Statement of
Additional Information or arising out of, or based upon
any alleged omission to state a material fact required
to be stated in any one of the foregoing or necessary
to make the statements in any one of the foregoing not
misleading.
The foregoing summaries are qualified by the entire
text of Registrant's Articles of Incorporation and By-
Laws, the Advisory Agreement between Registrant and
Alliance Capital Management L.P. and the Distribution
Services Agreement between Registrant and Alliance Fund
Distributors, Inc. which are filed herewith as Exhibits
1, 2, 5 and 6(a), respectively, in response to Item 24
and each of which are incorporated by reference
herein.Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to
directors, officer and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against<PAGE>
C-15
such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director,
officer or the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued
by the court or other body before whom the proceeding
was brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the
facts, that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or
on behalf of the indemnitee to repay the advance unless
it is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of
disinterested, non-party directors of the Registrant,
or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
ITEM 28. Business and Other Connections of Investment Adviser.
<PAGE>
C-16
The descriptions of Alliance Capital Management L.P. under
the captions "Management of the Fund" in the Prospectus and in
the Statement of Additional Information constituting Parts A and
B, respectively, of this Registration Statement are incorporated
by reference herein.
The information as to the directors and executive officers
of Alliance Capital Management Corporation, the general partner
of Alliance Capital Mangement L.P., set forth in Alliance Capital
Management L.P.'s Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and amended
through the date hereof, is incorporated by reference herein.
ITEM 29. Principal Underwriters
(a) Alliance Fund Distributors, Inc. is the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant, also acts as Principal
Underwriter or Distributor for the following investment
companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Fund
Alliance Global Small Cap Fund, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Stategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund, Inc. II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government
Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.<PAGE>
C-17
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Hudson River Trust
The Alliance Portfolios
(b) The following are the Directors and officers of
Alliance Fund Distributors, Inc., the principal
place of business of which is 1345 Avenue of the
Americas, New York, New York 10105.
Positions and Offices Positions and Offices
Name With Underwriter With Registrant
- ---- ----------------------- ---------------------
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President Secretary
& General Counsel
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
David H. Dievler Senior Vice President
Mark D. Gersten Senior Vice President Treasurer and
Chief
Financial Officer
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumseik Senior Vice President
William F. O'Grady Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
James P. Syrett Senior Vice President
Peter J. Szabo Senior Vice President
Richard A. Winge Senior Vice President
<PAGE>
C-18
Jim A. Yockey Senior Vice President
Michael T. Anderson Vice President
Kenneth F. Barkoff Vice President
Kevin T. Cannon Vice President
Mark J. Dunbar Vice President
Linda A. Finnerty Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President
Troy L. Glawe Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Steven P. Hecht Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Mark H. Huston Vice President
Robert H. Joseph Vice President & Controller
Marek E. Lakotko Vice President
Sheila M. Lamb Vice President
Stephen R. Laut Vice President
Thomas Leavitt, III Vice President
Christopher J. MacDonald Vice President
George O. Martinez Vice President &
Associate General Counsel
John A. McClain Vice President
Gregory T. McCombs Vice President
Daniel D. McGinley Vice President<PAGE>
C-19
Matthew P. Mintzer Vice President
Nicole M. Nolan Vice President
Robert T. Pigozzi Vice President
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Joseph F. Sumanski Vice President
Richard E. Tambourine Vice President
Nicholas K. Willett Vice President
Warren W. Babcock III Assistant Vice President
Benji A. Baer Assistant Vice President
Angela F. Bisagna Assistant Vice President
Casimir F. Bolanowski Assistant Vice President
Maria L. Carreras Assistant Vice President
Leo H. Cook Assistant Vice President
John W. Cronin Assistant Vice President
Richard W. Dabney Assistant Vice President
Gerard P. DiSalvo Assistant Vice President
Sohaila S. Farsheed Assistant Vice President
Leon M. Fern Assistant Vice President
William C. Fisher Assistant Vice President
Joseph W. Gibson Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
Daniel M. Hazard Assistant Vice President
John C. Hershock Assistant Vice President
<PAGE>
C-20
James J. Hill Assistant Vice President
Kenneth R. Hill Assistant Vice President
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Donna M. Lamback Assistant Vice President
David P. Lambert Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Michael F. Mahoney Assistant Vice President
Renate S. Mars Assistant Vice President
Daniel G. McCabe Assistant Vice President
Shawn P. McClain Assistant Vice President
Maura A. McGrath Assistant Vice President
Paul J. McIntyre Assistant Vice President
Charles R. Mechler Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Joanna D. Murray Assistant Vice President
Jeanette M. Nardella Assistant Vice President
William E. Noe Assistant Vice President
Marilyn I. Noonan Assistant Vice President
Camilo R. Pedraza Assistant Vice President
Robert E. Powers Assistant Vice President
Patrick J. Pung Assistant Vice President
Carol H. Rappa Assistant Vice President
Karen C. Satterberg Assistant Vice President
Raymond S. Scalfani Assistant Vice President
Rodney J. Shull Assistant Vice President<PAGE>
C-21
Robert M. Smith Assistant Vice President
William J. Strott Assistant Vice President
Joseph T. Tocyloski Assistant Vice President
Neil B. Wood Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents required to
be maintained by Section 31(a) of the Investment Company Act of
1940
and the rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained
principally at the offices of Alliance Fund Services, Inc., 500
Plaza
Drive, Secaucus, New Jersey, 07094 and at the offices of Brown
Brothers Harriman & Co., the Registrant's Custodian, 40 Water
Street,
Boston, MA, 02109. All other records so required to be maintained
are maintained at the offices of Alliance Capital Management L.P.,
1345 Avenue of the Americas, New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings
The Registrant undertakes to provide assistance to shareholders in
communications concerning the removal of any Director of the Fund
in
accordance with Section 16 of the Investment Company Act of 1940.
(c) The Registrant undertakes to furnish each person to whom a
prospectus
is delivered with a copy of the Registrant's latest annual report
to
shareholders upon request and without charge.
<PAGE>
C-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State
of New York on the 1st day of February, 1995.
ALLIANCE NORTH AMERICAN GOVERNMENT
INCOME TRUST, INC.
By: John D. Carifa
----------------------------
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by
the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
1. Principal
Executive Officer:
Chairman and
John D. Carifa President February 1, 1995
--------------
John D. Carifa
2. Principal Financial
and Accounting Officer:
Mark D. Gersten
--------------- Treasurer and February 1, 1995
Mark D. Gersten Chief Financial
Officer
3. A Majority of the Directors:
David H. Dievler
John D. Carifa
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Robert C. White
By Edmund P. Bergan, Jr. February 1, 1995
------------------
(attorney-in-fact)
Edmund P. Bergan, Jr.<PAGE>
C-23
Index To Exhibits
-------------------
{11} Consent of Independent Auditors
wit-mit\p-c195.nag<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Shareholder Services - Statements and Reports" and "General
Information - Independent Auditors" in this Registration
Statement (Form N-1A No. 33-45328) of Alliance North American
Government Income Trust, Inc.
Ernst & Young LLP
-----------------
ERNST & YOUNG LLP
New York, New York
February 1, 1995
