<PAGE>
As filed with the Securities and Exchange
Commission on October 30, 1998
File Nos. 33-45328
811-06554
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. 18 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 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)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
__X__ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
<PAGE>
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
- ------------ ----------------------
PART A
- ------
Item 1. Cover Page....................... Cover Page
Item 2. Synopsis......................... The Funds at a Glance
Item 3. Condensed Financial Information.. Financial Highlights
Item 4. General Description of
Registrant..................... Description of the
Funds
Item 5. Management of the Fund........... Management of the
Funds; 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........ General Information
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.. Description 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......................... Description of the
Fund; Additional
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............ Management of the
Fund; 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....................... Description of the
Fund; 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>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
NOVEMBER 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUND
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 23
Certain Fundamental Investment Policies 35
Risk Considerations 36
Purchase and Sale of Shares 41
Management of the Funds 43
Dividends, Distributions and Taxes 46
General Information. 47
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Fund diversifies its investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Funds invest primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase (the
"Class A shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within three years of purchase (four years of purchase for
Alliance Global Strategic Income Trust and Alliance High Yield Fund) (the
"Class B shares"), or (iii) without any initial or contingent deferred sales
charge, as long as the shares are held for one year or more (the "Class C
shares"). See "Purchase and Sale of Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Alliance (R)
INVESTING WITHOUT THE MYSTERY.(SM)
(R)/(SM) These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 120 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $262
billion in assets under management as of June 30, 1998. Alliance provides
investment management services to 32 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. The Board of
Directors of the Fund has approved, and recommended to shareholders for their
approval, changes to the Fund's investment objective and policies. See
"Description of the Funds--U.S. Government Portfolio."
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUND
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. The
Fund expects to maintain at least 25% of its assets in securities denominated
in the U.S. Dollar. In addition, the Fund may invest up to 25% of its total
assets in debt securities issued by governmental entities in Argentina.
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
2
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Fund and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See "Description of the Funds--Additional
Investment Practices" and "--Risk Considerations."
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
ALLIANCE CAPITAL (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund and annual operating expenses for each class of
shares of each Fund. For each Fund, the "Examples" below show the cumulative
expenses attributable to a hypothetical $1,000 investment, assuming a 5% annual
return, in each class for the periods specified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES--HOW TO BUY SHARES" --PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES--HOW TO BUY SHARES" --PAGE 41.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES--HOW TO BUY
SHARES"--PAGE 41.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
SHORT-TERM U.S. GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 60 $ 56 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $ 97 $ 89 $ 79 $ 79 $ 79
Other expenses After 5 years $137 $136 $136 $136 $136
Interest expense .42% .45% .45% After 10 years $246 $254 $254 $289 $289
Other operating expenses(a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.52% 1.55% 1.55%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.82% 2.55% 2.55%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
U.S. GOVERNMENT
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 75 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .21% .21% .21% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating expenses 1.06% 1.76% 1.76% After 10 years $166 $172 $172 $207 $207
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
LIMITED MATURITY GOVERNMENT
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
MULTI-MARKET STRATEGY
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses(d) 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
NORTH AMERICAN GOVERNMENT INCOME
Management fees(f) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(g) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL DOLLAR GOVERNMENT
Management fees .75% .75% .75% After 1 year $ 57 $ 53 $ 23 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 87 $ 79 $ 69 $ 69 $ 69
Other expenses(b) .43% .47% .44% After 5 years $120 $119 $119 $117 $117
Total fund operating After 10 years $212 $220 $220 $252 $252
expenses 1.48% 2.22% 2.19%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL STRATEGIC INCOME
Management fees(h)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 37 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(h) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(h)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
CORPORATE BOND
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .20% .20% .20% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating After 10 years $165 $171 $171 $206 $206
expenses 1.05% 1.75% 1.75%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
HIGH YIELD
Management fees .75% .75% .75% After 1 year $ 56 $ 62 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 86 $ 87 $ 67 $ 67 $ 67
Other expenses(b)(i) After 5 years $117 $114 $114 $114 $114
(after reimbursement) .38% .38% .38% After 10 years $207 $228 $228 $246 $246
Total fund operating expenses(i)
(after reimbursement) 1.43% 2.13% 2.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.97% FOR CLASS A, 2.09% FOR CLASS B AND 2.04% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.82% FOR CLASS A,
3.64% FOR CLASS B AND 3.59% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN REFLECT THE
APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C, 2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C, 1.77%.
(F) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL NET
ASSETS.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C, 2.08%.
(H) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B, AND 3.02% FOR
CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN 4.06% FOR CLASS A, 4.76%
FOR CLASS B, AND 4.77% FOR CLASS C.
(I) NET OF EXPENSE REIMBURSEMENTS. ABSENT SUCH REIMBURSEMENTS, OTHER EXPENSES
WOULD HAVE BEEN .41% FOR CLASS A, .41% FOR CLASS B, AND .41% FOR CLASS C; AND
TOTAL OPERATING EXPENSES WOULD HAVE BEEN 1.46% FOR CLASS A, 2.16% FOR CLASS B,
AND 2.16% FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. See "Management of the Funds--Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "interest expense"
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See "Description of Funds--Risk
Considerations--Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (c), (d), (e), (g),
(h) and (i) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. THE EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables relating to SHORT-TERM U.S. GOVERNMENT has been
audited by PricewaterhouseCoopers LLP, the independent accountants for the
Fund, and the information in the tables relating to U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME,
CORPORATE BOND and HIGH YIELD has been audited by Ernst & Young LLP, the
independent auditors for these Funds. A report of PricewaterhouseCoopers LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/98 $ 9.63 $ .49(h) $(.11) $ .38 $(.50) $0.00
Year Ended 8/31/97 9.66 .47(h) .03 .50 (.46) 0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/98 $ 9.74 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.77 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/98 $ 9.73 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.76 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/98 $ 7.41 $ .54(h) $ .18 $ .72 $(.54) $0.00
Year Ended 6/30/97 7.52 .57(h) (.10) .47 (.57) 0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
CLASS B
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
12/1/97 to 5/31/98 $ 9.44 $ .25(h) $ .01 $ .26 $(.27) $0.00
Year Ended 11/30/97 9.45 .51(h) .02 .53 (.52) 0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(.03) $(.53) $ 9.48 4.04% $ 5,535 1.83%(i) 5.00% 206%
0.00 (.07) (.53) 9.63 5.29 3,901 1.41(d)(e) 4.90 65
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40*(d) 3.98* 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $(.03) $(.46) $ 9.62 3.52% $ 10,827 2.56%(i) 4.49% 206%
0.00 (.07) (.46) 9.74 4.45 6,458 2.11(d)(e) 4.13 65
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10*(d) 3.22* 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $(.03) $(.46) $ 9.61 3.53% $ 5,074 2.56%(i) 4.48% 206%
0.00 (.07) (.46) 9.73 4.45 5,012 2.11(d)(e) 4.15 65
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10*(d) 3.26* 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $(.02) $(.56) $ 7.57 10.02% $352,749 1.06% 7.08% 153%
0.00 (.01) (.58) 7.41 6.49 354,782 1.02 7.66 330
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
$0.00 $(.02) $(.50) $ 7.57 9.20% $390,523 1.76% 6.37% 153%
0.00 (.01) (.53) 7.41 5.69 471,889 1.73 6.95 330
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $(.02) $(.50) $ 7.57 9.21% $114,392 1.76% 6.38% 153%
0.00 (.01) (.53) 7.41 5.69 115,607 1.72 6.96 330
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $0.00 $(.27) $ 9.43 2.78% $ 17,154 2.79%(e)* 5.21%* 176%
0.00 (.02) (.54) 9.44 5.79 16,197 2.41(e) 5.52 249
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.52% $ 32,294 3.47%(e)* 4.49%* 176%
0.00 (.02) (.47) 9.44 5.04 33,613 3.14(e) 4.80 249
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.53% $ 24,022 3.45%(e)* 4.50%* 176%
0.00 (.02) (.47) 9.44 5.05 28,738 3.13(e) 4.82 249
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
CLASS A
1/1/98 to 6/30/98 $ 8.63 $ .26(h) $ .02 $ .28 $ (.28) $ 0.00
Year Ended 12/31/97 8.51 .54(h) .15 .69 (.54) 0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
CLASS B
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
MULTI-MARKET STRATEGY
CLASS A
11/1/97 to 4/30/98 $ 7.11 $ .23(h) $ .04 $ .27 $ (.59) $ 0.00
Year Ended 10/31/97 7.23 .47(h) .08 .55 (.47) 0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
11/1/97 to 4/30/98 $ 7.11 $ .18(h) $ .07 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .06 .48 (.42) 0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
11/1/97 to 4/30/98 $ 7.11 $ .20(h) $ .05 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .07 .49 (.42) 0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
12/1/97 to 5/31/98 $ 8.02 $ .44(h) $ (.11) $ .33 $ (.48) $ 0.00
Year Ended 11/30/97 8.01 1.03(h) (.05) .98 (.97) 0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (.28) $ 8.63 3.32% $ 367,230 1.90%(e)* 6.18%* 86%
(.03) 0.00 (.57) 8.63 8.04 372,494 1.41(e) 6.30 184
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 263,783 2.59%(e)* 5.45%* 86%
(.03) 0.00 (.51) 8.63 7.60 323,916 2.14(e) 5.60 184
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 26,044 2.59%(e)* 5.47%* 86%
(.03) 0.00 (.51) 8.63 7.60 27,859 2.12(e) 5.61 184
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$ 0.00 $ 0.00 $ (.59) $ 6.79 4.00% $ 100,629 1.69%* 6.55%* 12%
(.20) 0.00 (.67) 7.11 7.82 96,133 1.58(i) 6.50 173
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.69% $ 9,948 2.37%* 5.67%* 12%
(.18) 0.00 (.60) 7.11 6.90 29,949 2.29(i) 5.79 173
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.70% $ 848 2.37%* 5.80%* 12%
(.19) 0.00 (.61) 7.11 6.92 1,203 2.28(i) 5.80 173
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
$ 0.00 $ 0.00 $ (.48) $ 7.87 4.20% $ 719,954 1.99%(f)* 10.93%* 128%
0.00 0.00 (.97) 8.02 12.85 511,749 2.15(f) 12.78 118
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $1,401,892 2.71%(f)* 10.26%* 128%
0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(f) 12.15 118
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $ 292,894 2.70%(f)* 10.27%* 128%
0.00 0.00 (.90) 8.02 11.88 283,483 2.85(f) 12.14 118
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/98 $10.64 $ .73(h) $(4.03) $(3.30) $(.73) $(1.37)
Year Ended 8/31/97 10.01 .88(h) 1.85 2.73 (.95) (1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .81(h) 1.84 2.65 (.87) (1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .82(h) 1.84 2.66 (.88) (1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
11/1/97 to 4/30/98 $11.46 $ .38(h) $ .48 $ .86 $(.55) $(.36)
Year Ended 10/31/97 10.83 .74(h) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
11/1/97 to 4/30/98 $11.46 $ .34(h) $ .48 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
11/1/97 to 4/30/98 $11.46 $ .33(h) $ .49 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/98 $14.19 $1.08(h) $ .12 $1.20 $(1.08) $0.00
Year Ended 6/30/97 13.29 1.15(h) .97 2.12 (1.22) 0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
CLASS B
Year Ended 6/30/98 $14.19 $ .98(h) $ .13 $1.11 $(.98) $0.00
Year Ended 6/30/97 13.29 1.05(h) .98 2.03 (1.13) 0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/98 $14.19 $ .99(h) $ .12 $1.11 $(.99) $0.00
Year Ended 6/30/97 13.29 1.04(h) .99 2.03 (1.13) 0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
Year Ended 8/31/98 $11.17 $1.03(h) $(.27) $ .76 $(1.02) $(.14)
4/22/97+ to 8/31/97 10.00 .37(h) 1.15 1.52 (.35) 0.00
CLASS B
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .31(h) 1.19 1.50 (.33) 0.00
CLASS C
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .32(h) 1.18 1.50 (.33) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.04) $(.15) $(2.29) $ 5.05 (38.56)% $ 32,365 1.48% 8.51% 188%
0.00 0.00 (2.10) 10.64 30.04 37,416 1.55 8.49 314
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$(.04) $(.14) $(2.21) $ 5.05 (39.11)% $ 79,660 2.22% 7.78% 188%
0.00 0.00 (2.02) 10.64 29.14 93,377 2.26 7.81 314
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$(.04) $(.14) $(2.22) $ 5.05 (39.09)% $ 23,711 2.19% 7.75% 188%
0.00 0.00 (2.03) 10.64 29.17 25,130 2.25 7.82 314
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$0.00 $0.00 $(.91) $11.41 7.88% $ 21,877 1.90%(d)* 6.91%* 247%
(.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(d) 6.56 417
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 35,840 2.60%(d)* 6.17%* 247%
(.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 8,017 2.60%(d)* 6.18%* 247%
(.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$(.12) $0.00 $(1.20) $14.19 8.66% $510,397 1.05% 7.52% 244%
0.00 0.00 (1.22) 14.19 16.59 370,845 1.12 8.34 307
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
$(.13) $0.00 $(1.11) $14.19 7.95% $672,374 1.75% 6.80% 244%
0.00 0.00 (1.13) 14.19 15.80 480,326 1.82 7.62 307
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$(.12) $0.00 $(1.11) $14.19 7.95% $254,530 1.75% 6.83% 244%
0.00 0.00 (1.13) 14.19 15.80 174,762 1.82 7.61 307
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$(.01) $0.00 $(1.17) $10.76 6.42% $ 43,960 1.43% 8.89% 311%
0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(d) 8.04* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $269,426 2.13% 8.18% 311%
0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(d) 7.19* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $ 48,337 2.13% 8.17% 311%
0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(d) 7.24* 73
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
("EQUITABLE") SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
"TRUST"), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER TO THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) "TOTAL DIVIDENDS AND DISTRIBUTIONS" INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996, 2.42% FOR THE YEAR ENDED AUGUST 31, 1997, 2.82% FOR THE YEAR ENDED AUGUST
31, 1998; WITH RESPECT TO CLASS B SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21%
FOR THE YEAR ENDED APRIL 30, 1994, 3.60% (ANNUALIZED) FOR THE PERIOD ENDED
AUGUST 31, 1994, 4.33% FOR THE YEAR ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR
ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED AUGUST 31, 1997 3.64% FOR
THE YEAR ENDED AUGUST 31, 1998; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996, 3.10% FOR THE YEAR ENDED AUGUST
31, 1997, 3.59% FOR THE YEAR ENDED AUGUST 31, 1998. IF LIMITED MATURITY
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 1.55% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 2.28% (ANNUALIZED) FOR 1992. THE RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS FOR LIMITED MATURITY GOVERNMENT WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 6.47% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 5.86% (ANNUALIZED) FOR 1992. IF NORTH AMERICAN GOVERNMENT
INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT
TO CLASS A SHARES, 2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B
SHARES, 3.16% (ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD BORNE ALL
EXPENSES FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE
RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH
RESPECT TO CLASS B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C
SHARES, 2.59% (ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES
FOR THE RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996, 1997 AND ITS
FISCAL YEAR ENDED IN 1998, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 19.20% (ANNUALIZED), 4.06%, AND 2.00% RESPECTIVELY; WITH
RESPECT TO CLASS B SHARES, 19.57% (ANNUALIZED), 4.76%, AND 2.69% RESPECTIVELY;
AND WITH RESPECT TO CLASS C SHARES, 19.49% (ANNUALIZED), 4.77%, AND 2.71%
RESPECTIVELY. IF HIGH YIELD HAD BORNE ALL EXPENSES FOR THE PERIOD APRIL 22,
1997 TO AUGUST 31, 1997, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 3.11% (ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85%
(ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996, 1997, AND 1998; WITH RESPECT TO CLASS B SHARES, 2.10%
FOR 1996, 1997, AND 1998; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996,
1997, AND 1998. IF LIMITED MATURITY GOVERNMENT HAD NOT BORNE INTEREST EXPENSES,
THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20% FOR 1994,
1.41% FOR 1995, 1.58% FOR 1996, 1.65% FOR 1997, AND 1.64% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 2.10% (ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91%
FOR 1994, 2.11% FOR 1995, 2.30% FOR 1996, 2.39% FOR 1997, AND 2.35% FOR 1998;
WITH RESPECT TO CLASS C SHARES, 1.58% (ANNUALIZED), FOR 1993, 1.89% FOR 1994,
2.10% FOR 1995, 2.29% FOR 1996, 2.37% FOR 1997, AND 2.33% FOR 1998. IF MORTGAGE
SECURITIES INCOME FUND HAD NOT BORNE INTEREST EXPENSE THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES .97% FOR
1994, 1.03% FOR 1995, 1.03% FOR 1996, 1.07% FOR 1997, AND 1.11% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995, 1.74% FOR 1996,
1.78% FOR 1997, AND 1.82% FOR 1998; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, 1.77% FOR 1997, AND 1.80% FOR 1998.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. IF NORTH AMERICAN GOVERNMENT INCOME HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST EXPENSES) TO AVERAGE
NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.66% (ANNUALIZED)
FOR 1992, 1.33% FOR 1993, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996, 1.38%
FOR 1997, AND 1.31% FOR 1998; WITH RESPECT TO CLASS B SHARES, 2.35%
(ANNUALIZED) FOR 1992, 2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12%
FOR 1996, 2.09% FOR 1997, AND 2.02% FOR 1998; AND WITH RESPECT TO CLASS C
SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06% FOR 1994, 2.21% FOR 1995, 2.12% FOR
1996, 2.08% FOR 1997, AND 2.01% FOR 1998.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B SHARES 2.28% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 2.27% FOR 1997. FOR SHORT-TERM U.S. GOVERNMENT THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.82% FOR 1998, WITH RESPECT TO CLASS B SHARES 2.55% FOR 1998 AND WITH RESPECT
TO CLASS C SHARES 2.55% FOR 1998.
14
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds--Additional
Investment Practices" and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
EXCHANGE is the New York Stock Exchange.
15
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices--Mortgage-Related Securities." The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the
box," (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
The Board of Directors of the Fund has approved, and has recommended to
shareholders for their approval, changes to the U.S. Government Portfolio's
investment objective and policies. If approved by shareholders, the foregoing
paragraph describing the U.S. Government Portfolio's investment objective and
policies shall be replaced in its entirety by the following two paragraphs:
U.S. Government Portfolio ("U.S. Government") is a diversified investment
company that seeks a high level of current income that is consistent with
prudent investment risk. As a matter of fundamental policy the Fund pursues its
objective by investing at least 65% of the value of its total assets in U.S.
Government securities and repurchase agreements and forward contracts relating
to U.S. Government securities. The Fund may invest the remaining 35% of the
value of its total assets in non-U.S. Government mortgage-related and
asset-backed securities. The Fund will not invest in any security rated below
BBB or Baa. The Fund may invest in unrated securities of equivalent quality to
the rated securities in which it may invest, as determined by Alliance. The
Fund expects, but is not required, to dispose of securities that are downgraded
below BBB and Baa or, if unrated, are determined by Alliance to have undergone
similar credit quality deterioration subsequent to their purchase. See "Risk
Considerations--Securities Ratings."
The Fund may also (i) enter into repurchase agreements and reverse repurchase
agreements, forward contracts, and dollar rolls, (ii) enter into various
hedging transactions, such as interest rate swaps, caps and floors, (iii)
purchase and sell futures contracts for hedging purposes, and (iv) purchase
call and put options on futures contracts or on securities for hedging
purposes. For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ("Limited Maturity Government")
seeks the highest level of current income, consistent with low volatility of
net asset value. As a
16
matter of fundamental policy, the Fund normally has at least 65% of the value
of its total assets invested in U.S. Government securities, including
mortgage-related securities, and repurchase agreements relating to U.S.
Government securities. For a description of these securities, see "Additional
Investment Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations--Foreign Investment."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
"Additional Investment Practices."
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy") is a
non-diversified investment company that has been designed to offer investors a
higher yield than a money market fund and less fluctuation in net asset value
than a
17
longer-term bond fund. The Fund seeks the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of high quality debt securities having remaining
maturities of not more than five years. The Fund seeks high current yields by
investing in a portfolio of debt securities denominated in the U.S. Dollar and
selected foreign currencies. The Fund seeks investment opportunities in
foreign, as well as domestic, securities markets. The Fund normally expects to
maintain at least 70% of its assets in debt securities denominated in foreign
currencies.
In pursuing its investment objective, the Fund seeks to minimize credit risk
and fluctuations in net asset value by investing only in short-term debt
securities. Normally, a high proportion of the Fund's portfolio consists of
money market instruments. Alliance actively manages the Fund's portfolio in
accordance with a multi-market investment strategy, allocating the Fund's
investments among securities denominated in the U.S. Dollar and the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. Alliance adjusts the Fund's exposure to each currency
such that the percentage of assets invested in securities of a particular
country or denominated in a particular currency varies in accordance with
Alliance's assessment of the relative yield and appreciation potential of such
securities and the relative strength of a country's currency. Fundamental
economic strength, credit quality and interest rate trends are the principal
factors considered by Alliance in determining whether to increase or decrease
the emphasis placed upon a particular type of security or industry sector
within a Fund's investment portfolio. The Fund does not invest more than 25% of
its net assets in debt securities denominated in a single currency other than
the U.S. Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. 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 the Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to the Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
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, the Fund could be in a less advantageous
position than if such a hedge had not been established.
The Fund invests in debt securities denominated in the currencies of countries
whose governments are considered stable by 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, French Franc, Irish Pound, Italian Lira, Japanese Yen, Mexican Peso,
New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish Krona, Swiss Franc
and German Mark. The Fund expects to invest in debt securities denominated in
the Euro.
An issuer of debt securities purchased by the Fund may be domiciled in a
country other than the country in whose currency the instrument is denominated.
In addition, the Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while the principal
amounts of, and value of interest payments on, such securities are determined
with reference to another currency.
The 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.
The Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Fund's
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 high quality
rating, (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 $500 million, and
determined by Alliance to be of high quality, and (v) prime commercial paper or
unrated commercial paper determined by Alliance to be of equivalent quality and
issued by U.S. or foreign companies having outstanding high quality debt
securities.
As a matter of fundamental policy, the Fund concentrates at least 25% of its
total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. Such
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-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."
18
The 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) 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. The 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."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ("Argentine Government securities"). The Fund expects that it will
not retain a debt security which is down graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Government of Canada Treasury bills are debt obligations with maturities
of less than one year. A new issue of Government of Canada bonds frequently
consists of several different bonds with maturities ranging from one to 25
years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
19
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
Argentine Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its total assets less liabilities (other than the
amount borrowed). See "Risk Considerations--Effects of Borrowing."
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as "Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional
Investment Practices--Brady Bonds" and "Risk Considerations--Sovereign Debt
Obligations." The Fund may also invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. See "Risk Considerations--U.S.
Corporate Fixed-Income Securities." The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects that, based
upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15
years and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25 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, 1998, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
5% in A and above, 3% in Baa or BBB 50% in Ba or BB, 22% in B, 3% in CC, 1% in
C and 18% in non-rated. See "Risk Considerations--Securities Ratings,"
"--Investment in Fixed-Income Securities Rated Baa and BBB," "--Investment in
Lower-Rated Fixed-Income Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. See
"Additional Investment Practices--Brady Bonds."
20
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia or Venezuela, each
of which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that it
will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of its
assets in the securities or obligations of issuers located in any particular
country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See "Risk
Considerations--Effects of Borrowing."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in at
least three countries, one of which may be the United States. No more than 25%
of the value of its total assets, however, will be invested in the securities
of any one foreign government. U.S. Government securities in which the Fund may
invest include mortgage-related securities and zero coupon securities.
Fixed-income securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." Unrated securities will be considered for investment
by the Fund when Alliance believes that the financial condition of the issuers
of such obligations and the protection afforded by the terms of the obligations
themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. Lower-rated securities in which the Fund may invest include Brady
Bonds and fixed-income securities of issuers located in emerging markets. There
is no minimum rating requirement applicable to the Fund's investments in
lower-rated fixed-income securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make
21
short sales of securities or maintain a short position. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices" and "Risk Considerations." The Fund may
borrow in order to purchase securities or make other investments, although it
currently intends to limit its ability to borrow to an amount not to exceed 25%
of its total assets. See "Risk Considerations--Effects of Borrowing."
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations--Securities Ratings," "--Investment in Fixed-Income Securities
Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1998, 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 24% in A and above, 51% in Baa or BBB, 22% in
Ba or BB, 3% in B, 1% in CC, 1% in CCC and 1% in non rated securities.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in sovereign debt obligations in the form of foreign
government loan participations and assignments, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal. All of the Fund's investments, whether
foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, the Fund has complete flexibility as to the
types of securities in which it will invest and the relative proportions
thereof, and the Fund plans to vary the proportions of its holdings of long-
and short-term fixed-income securities and of equity securities in order to
reflect its assessment of prospective cyclical changes even if such action may
adversely affect current income. However, substantially all of the Fund's
investments will be income producing. The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between one
year or less and 30 years.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through
mortgage-related securities. As a matter of fundamental policy, the Fund will
not purchase illiquid securities. For additional information on the use, risks
and costs of these practices, see "Additional Investment Practices."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The Fund is
managed to maximize current income by taking advantage of market developments,
yield disparities and variations in the creditworthiness of issuers. The Fund
uses various strategies in attempting to achieve its objective.
22
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than BBB by
S&P) or unrated but deemed by Alliance to be equivalent to such lower-rated
securities. The Fund will not, however, invest more than 10% of its total
assets in (i) fixed-income securities which are rated lower than B3 or B- or
their equivalents by two or more NRSROs or if unrated are of equivalent quality
as determined by Alliance, and (ii) money market instruments of any entity
which has an outstanding issue of unsecured debt that is rated lower than B3 or
B- or their equivalents by two or more NRSROs or if unrated is of equivalent
quality as determined by Alliance.
As of August 31, 1998, 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 5%
in A and above, 4% in Ba or BB, 73% in B, 5% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC by each of
Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance
to be of equivalent quality to securities so rated.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations--Foreign Investment" and
"--Currency Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii) certificates of deposit, bankers'
acceptances, bank notes, time deposits and interest bearing savings deposits
issued or guaranteed by certain domestic and foreign banks, (iii) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not rated, issued
by domestic or foreign companies having high quality outstanding debt
securities) and participation interests in loans extended by banks to such
companies, (iv) corporate debt obligations with remaining maturities of less
than one year rated at least high quality as well as corporate debt obligations
rated at least high grade provided the corporation also has outstanding an
issue of commercial paper rated at least A-1 by S&P or Prime-1 Moody's, and (v)
floating rate or master demand notes.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. A Fund may take a significant
position in those derivatives that are within its investment policies if, in
Alliance's judgement, this represents the most effective response to current or
anticipated market conditions. MULTI-MARKET STRATEGY, HIGH YIELD and GLOBAL
STRATEGIC INCOME, in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging
23
that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
OPTIONS--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
FUTURES--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
FORWARDS--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
SWAPS--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper"
and "Structured Securities" below. The term "derivative" is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under "Mortgage-Related Securities" and "Other
Asset-Backed Securities."
Derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in a Fund.
MARKET RISK--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
MANAGEMENT RISK--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio,
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
CREDIT RISK--This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
24
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
LIQUIDITY RISK--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
LEVERAGE RISK--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
OTHER RISKS--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option
it has written. A put option written by a Fund is covered if the Fund holds a
put option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Alliance has
adopted procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below. Neither MORTGAGE
SECURITIES INCOME nor CORPORATE BOND will purchase an option on a security if,
immediately thereafter, the aggregate cost of all outstanding options purchased
by such Fund would exceed 2% of the Fund's total assets. Nor will either such
Fund write an option if, immediately thereafter, the aggregate value of the
Fund's portfolio securities subject to outstanding options would exceed 15% of
the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an
25
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the
U.S. Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME will not enter into a futures contract or
write or purchase an option on a futures contract if immediately thereafter the
market values of the outstanding futures contracts of the Fund and the
currencies and futures contracts subject to outstanding options written by the
Fund would exceed 50% of its total assets. MORTGAGE SECURITIES INCOME will not
write or purchase options on futures contracts. Nor will LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter into a futures contract or,
if otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward foreign currency exchange contracts ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may
enter into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge"). Instead of entering into a position
hedge, a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a
26
decline in the U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated (a "cross-hedge").
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME may enter into interest rate swaps involving payments in the same
currency or in different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is then rated in the highest
rating category of at least one NRSRO. Each of MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will enter into interest
rate swap, cap or floor transactions with its respective custodian, and with
other counterparties, but only if: (i) for transactions with maturities under
one year, such other counterparty has outstanding prime commercial paper; or
(ii) for transactions with maturities greater than one year, the counterparty
has high quality debt securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
27
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, of their respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full faith
and credit of the United States and differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less with no interest paid and hence issued at a discount and repaid at full
face value upon maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds (generally
maturities of greater than ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are
28
backed by the full faith and credit of the United States; those issued by FNMA
and FHLMC are not so backed. Mortgage-related securities bear interest at
either a fixed rate or an adjustable rate determined by reference to an index
rate. Mortgage-related securities frequently provide for monthly payments that
consist of both interest and principal, unlike more traditional debt
securities, which normally do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. Collateralized
mortgage obligations (CMOs) are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause one or more tranches of the CMO to be retired substantially earlier
than the stated maturities or final distribution dates of the collateral. The
principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. Although payment of the
principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
29
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets; while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
The occurrence of mortgage prepayments is affected by the level of general
interest rates, general economic conditions and other social and demographic
factors. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities
at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rates of
mortgage prepayments and early payments of mortgage-related securities
generally tend to decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome
30
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with
the staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions and Taxes--Zero
Coupon Treasury Securities" in the Statement of Additional Information of each
Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and CORPORATE BOND may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of obligations of the same type rather than cash), which have
characteristics similar to zero coupon securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued
31
structured securities to create securities with different investment
characteristics such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to structured
securities is dependent on the extent of the cash flow on the underlying
instruments. Because structured securities typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. GLOBAL DOLLAR
GOVERNMENT may invest up to 25% of its total assets, and GLOBAL STRATEGIC
INCOME and CORPORATE BOND may invest without limit, in these types of
structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest up to 25%, and
CORPORATE BOND may invest up to 15%, of their total assets, in loan
participations and assignments. The government that is the borrower on the loan
will be considered by a Fund to be the issuer of a loan participation or
assignment for purposes of its fundamental investment policy that it may not
invest 25% or more of its total assets in securities of issuers conducting
their principal business activities in the same industry (i.e., foreign
government).
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a
32
convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease
as interest rates rise and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they enable investors to
benefit from increases in the market price of the underlying common stock.
Convertible debt securities that are rated Baa or lower by Moody's or BBB or
lower by S&P, Duff & Phelps or Fitch and comparable unrated securities may
share some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Risk Considerations--Investment in Lower-Rated
Fixed-Income Securities."
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the broker-dealer
from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may or may not receive any
payments (e.g., dividends or interest) on its collateral deposited with the
broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box"
of securities which are eligible for such deferal. The Fund may not make a
short sale, if as a result, more than 25% of its total assets would be held as
collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT currently enter into repurchase
agreements only with their custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop")
as well as by the interest earned on the cash proceeds of the initial sale.
33
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. See "Risk Considerations--Effects of Borrowing."
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a
Fund lend portfolio securities to any officer, director, employee or affiliate
of the Fund or Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that are different from
or exceed those involved in the practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or 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.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
35
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings, or (v) purchase a
security if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own more than 3% of the
total outstanding voting stock of any investment company or more than 5% of the
value of the Fund's net assets would be invested in securities of any one or
more investment companies.
GLOBAL STRATEGIC INCOME may not (i) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing there is asset coverage of at least 300% as defined in the 1940
Act, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may
36
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected, and Alliance will monitor the effect of any such
factor or factors on a Fund's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a
material adverse effect on the Fund's investments in the securities of Mexican
and other non-Canadian foreign issuers, including investments in securities
denominated in Mexican Pesos or other non-Canadian foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, which
themselves involve certain special risks. See "Additional Investment Practices"
above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring
37
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Funds' investment objectives.
The Funds may have limited legal recourse in the event of a default with
respect to certain sovereign debt obligations it holds. For example, remedies
from defaults on certain sovereign debt obligations, unlike those on private
debt, must, in some cases, be pursued in the courts of the defaulting party
itself. Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation
of such changes, each Fund may increase the percentage of its investment
portfolio invested in U.S. Government securities, which would tend to offset
the negative impact of leverage on Fund shareholders. Each Fund may also
reduce the degree to which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
38
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance and
such sales could cause the Fund to incur related transaction costs and to
realize taxable gains.
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may borrow to repurchase its
shares or to meet redemption requests. In addition, each Fund may borrow for
temporary purposes (including the purposes mentioned in the preceding sentence)
in an amount not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300% asset average
limit described above. See "Certain Fundamental Investment Policies."
SHORT-TERM U.S. GOVERNMENT, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME may also borrow through the use of reverse repurchase agreements, and
GLOBAL DOLLAR GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC
INCOME also through the use of dollar rolls to the extent permitted by the 1940
Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements and
Dollar Rolls."
INVESTMENT IN THE BANKING INDUSTRY. Due to its investment policies with respect
to investments in the banking industry, MULTI-MARKET STRATEGY will have greater
exposure to the risk factors which are characteristic of such investments. In
particular, the value of and investment return on the Fund's shares will be
affected by economic or regulatory developments in or related to the banking
industry. Sustained increases in interest rates can adversely affect the
availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of the
concentration of loan portfolios in particular businesses such as real estate,
energy, agriculture or high technology-related companies; competition within
those industries as well as with other types of financial institutions; and
national and local governmental regulation. In addition, the Fund's investments
in commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking and
diversified securities activities. As discussed above, however, the Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
39
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 MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME is a
"non-diversified" investment company, which means the Fund is not limited in
the proportion of its assets that may be invested in the securities of a single
issuer. However, each Fund intends to conduct its operations so as to qualify
to be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, each Fund will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will
be invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME is a non-diversified investment
company, it may invest in a smaller number of individual issuers than a
diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment
in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, each of GLOBAL STRATEGIC INCOME and NORTH AMERICAN GOVERNMENT INCOME
will be required to diversify its portfolio of foreign government securities in
a manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
YEAR 2000 AND EURO. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer system failures.
This is commonly known as the Year 2000 problem. In addition to the Year 2000
problem, the European Economic and Monetary Union has established a single
currency, the Euro Currency ("Euro") that will replace the national currency of
certain European countries effective January 1, 1999. Computer systems and
applications must be adapted in order to be able to process Euro sensitive
information accurately beginning in 1999. Should any of the computer systems
employed by the Funds' major service providers fail to process Year 2000 or
Euro related information properly, that could have a significant negative
impact on the Funds' operations and the services that are provided to the
Funds' shareholders. In addition, to the extent that the operations of issuers
of securities held by the Funds are impaired by the Year 2000 problem or the
Euro, or prices of securities held by the Funds decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the value of the
Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that the Adviser,
Principal Underwriter and Transfer Agent (collectively, "Alliance") began to
address the Year 2000 issue several years ago in connection with the
replacement or upgrading of certain computer systems and applications. During
1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested by the end of 1998. Full integration testing
of these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of Alliance believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Funds.
With respect to the Euro, the Funds have been advised that Alliance has
established a project team to assess changes that will be required in
connection with the introduction of the Euro. Alliance reports that its project
team has assessed all systems, including those developed or managed internally,
as well as those provided by vendors, in order to determine the modifications
that will be required to process accurately transactions denominated in Euro
after 1998. At this time, management of Alliance expects that the required
modifications for the introduction of the Euro will be completed and tested
before the end of 1998. Management of Alliance believes that the costs
associated with resolving this issue will not have a material adverse effect on
its operations or on its ability to provide the level of services it currently
provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians that they are
also in the process of reviewing their systems with the same goals. As of the
date of this prospectus, the Funds and Alliance have no reason to believe that
the Custodians will be unable to achieve these goals.
40
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund (whether by cash or
through exchange from another Alliance Mutual Fund) is $250. The minimum for
subsequent investments in each Fund is $50. Investments of $25 or more are
allowed under the automatic investment program of each Fund. Share certificates
are issued only upon request. See the Subscription Application and Statements
of Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund offers three classes of shares through this Prospectus, Class A,
Class B and Class C. The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund shares
(including through exchanges) when they appear to evidence a pattern of
frequent purchases and sales made in response to short-term considerations.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced
or eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statements of Additional
Information.
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However, you
may pay a CDSC if you redeem shares within three years (four years in the case
of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of the
CDSC (expressed as a percentage of the lesser of the current net asset value or
original cost) will vary according to the number of years from the purchase of
Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
- ---------------------------------------
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
ALL OTHER FUNDS:
- ---------------------------------------
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (after which they convert to Class A shares). The higher fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of the
Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be
41
waived on redemptions of shares following the death or disability of a
shareholder, to meet the requirements of certain qualified retirement plans or
pursuant to a monthly, bimonthly or quarterly systematic withdrawal plan. See
the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in
a Fund are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Fund's Directors or Trustees believe accurately reflect fair
market value.
EMPLOYEE BENEFIT PLANS
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD offer a fourth class of shares, Advisor
Class shares, by means of separate prospectuses. Advisor Class shares may be
purchased and held solely by (i) accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by AFD, (ii) a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000
participants or $25 million in assets and (iii) certain other categories of
investors described in the prospectuses for the Advisor Class, including
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. Advisor Class shares are offered
without any initial sales charge or CDSC and without an ongoing distribution
fee and are expected, therefore, to have different performance than Class A,
Class B or Class C shares. You may obtain more information about Advisor Class
shares by contacting AFS at 800-221-5672 or by contacting your financial
representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in a Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that
42
day's net asset value (less any applicable CDSC). Your broker is responsible
for furnishing all necessary documentation to a Fund and may charge you for
this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for the purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1998 totaling more than $262 billion (of
which approximately $107 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 58 registered investment companies managed by Alliance
comprising 123 separate investment portfolios currently have over three million
shareholder accounts. As of June 30, 1998,
43
Alliance was retained as an investment manager for employee benefit plan assets
of 32 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Multi-Market Strategy Douglas J. Peebles since Associated with
inception-Senior Vice Alliance.
President
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice Alliance.
President
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.
Vice President
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital Management Corporation, whose advisory business
Alliance acquired on that date, have served as investment adviser to the
Historical Portfolio since its inception in 1987. Wayne C. Tappe, who together
with Nelson Jantzen is primarily responsible for the day-to-day management of
HIGH YIELD, has been the person principally responsible for the day-to-day
management of the Historical Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of September 30, 1998, the assets in the Historical Portfolio totalled
approximately $ million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical Services,
Inc. ("Lipper"), a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, operating expenses and, for funds with Rule 12b-1
plans, asset-based sales charges.
44
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 12.39% 11.13% 11.20% 10.58%
Lipper High Current Yield
Mutual Funds Average (1.77) 8.23 7.78 9.18 8.85
High Yield 8.34**
CUMULATIVE RATES OF RETURN
PERIODS ENDING SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 41.95% 69.47% 189.20% 226.05%
Lipper High Current Yield
Mutual Funds Average (1.77) 26.86 45.69 142.21 172.92
* JANUARY 2, 1987
** RATE OF RETURN IS ANNUALIZED, FOR CLASS A SHARES, ASSUMING IMPOSITION OF THE
MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a 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 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, for distribution expenses. The Trustees of
SHORT-TERM U.S. GOVERNMENT currently limit payments with respect to Class A
shares under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to
.25%, annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
and Class C shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under the
Plan with respect to the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as the Plan is in
effect. Since AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT
is not directly tied to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried
45
over for reimbursement in future years in respect of the Class B and Class C
shares for all Funds (except SHORT-TERM U.S. GOVERNMENT), were, as of that
time, as follows:
Amount of Unreimbursed Distribution Expenses
(As % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 7,204,946 (1.85%) $ 4,179,954 (3.65%)
Limited Maturity Government $ 356,382 (.56%) $ 2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.53%) $ 2,946,979 (9.52%)
Multi-Market Strategy $ 9,474,320 (4.15%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.02%) $ 4,072,381
Global Dollar Government $ 4,281,388 (5.37%) $ 860,038 (3.63%)
Corporate Bond $13,555,599 (2.66%) $ 2,876,562 (1.13%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield $11,190,075 (4.15%) $ 523,224 (1.08%)
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 twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations (including a holding period limitation) imposed by the Code, as a
result of which a shareholder may not be permitted to claim a full credit or
deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a
46
regulated investment company relieves that Fund of Federal income taxes on that
part of its taxable income, including net capital gain, which it pays out to
its shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. The investment objectives of the Funds are such that only a small
portion, if any, of a Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders. In addition, corporate
shareholders who receive qualifying distributions must meet the holding-period
requirements in the Code in order to take the dividends-received deduction.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Fund. Distributions
of net capital gain may be taxable at different rates depending on the length
of time a Fund holds its assets.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. Any loss realized on the sale of shares held six months
or less will be a long-term capital loss to the extent of any distributions of
net capital gain received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the federal tax status
of dividends and capital gains and return of capital distributions made by a
Fund for the preceding year. Shareholders are urged to consult their tax
advisers regarding their own tax situation. Distributions by a Fund may be
subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC. (1991), ALLIANCE NORTH
AMERICAN GOVERNMENT INCOME TRUST, INC. (1992), ALLIANCE GLOBAL DOLLAR
GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
(1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1, 1996,
ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance Mortgage
Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND PORTFOLIO was
known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND is
a series of The Alliance Portfolios, a Massachusetts business trust that was
organized in 1987. Prior to August 2, 1993, The Alliance Portfolios was known
as The Equitable Funds and SHORT-TERM U.S. GOVERNMENT was known as The
Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Funds are empowered to establish, without shareholder approval,
additional portfolios, which may have different investment objectives and
policies than those of the Fund, and additional classes of shares within the
Fund. If
47
an additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors or Trustees, that affect
each portfolio and class in substantially the same manner. Class A, Class B and
Class C shares of each Fund have identical voting, dividend, liquidation and
other rights, except that each class bears its own distribution and transfer
agency expenses. Each class of shares of each Fund votes separately with
respect to a Fund's Rule 12b-1 distribution plan and other matters for which
separate class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and
Trustees and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus
extends only to the disclosure relating to that Fund. Certain additional
matters relating to a Fund's organization are discussed in its Statement of
Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund and
ACMC, alleging violations of the federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint sought certification of a plaintiff class
of all persons who purchased or owned Class A, B or C shares of the Fund from
March 27, 1992 through December 23, 1994. Plaintiffs alleged that during 1995
the Fund's losses exceeded $750,000,000 and sought as relief unspecified
damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second
Decision to the Court of Appeals. On October 15, 1998, the Court of Appeals
affirmed in part and reversed in part the Second Decision. The Court of Appeals
affirmed the District Court's denial of plaintiffs' motion for leave to file
the Amended Complaint insofar as the Amended Complaint alleged that defendants
had made misrepresentations and omissions relating to the Funds' investments in
certain mortgage-backed securities and in the Fund's marketing materials. The
Court of Appeals reversed the District Court's decision to deny plaintiffs'
motions for leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable misrepresentations and
omissions relating to the Fund's hedging practices.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an "actual distribution rate" for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed
48
separately for Class A, Class B and Class C shares. Advertisements of a Fund's
total return disclose its average annual compounded total return for the
periods prescribed by the Commission. A Fund's total return for each such
period is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of a Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of a Fund's shares are assumed to have been paid. A
Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE "GENERAL INFORMATION--ORGANIZATION."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
A-1
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually ocurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctutate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
A-2
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-3
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollars per U.S. Dollar on August 27, 1998. On October 13,
1998 the Canadian Dollar-U.S. Dollar exchange rate was 1.5510:1. The range of
fluctuation that has occurred in the past is not necessarily indicative of the
range of fluctuation that will occur in the future. Future rates of exchange
cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product
and a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates that continued
to be a factor after 1994 have subsided as well. After declining for five
consecutive quarters beginning with the first quarter of 1995, Mexico's gross
domestic product began to grow in the second quarter of 1996. That growth was
sustained in 1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for the first half of 1998 was 5.4%. In addition,
inflation dropped from a 52% annual rate in 1995 to a 27.7% annual rate in 1996
and a 15.7% annual rate in 1997. For the first eight months of 1998, the
inflation rate fluctuated between
B-1
15.0% and 15.5% on an annualized basis. Mexico's economy is influenced by
international economic conditions, particularly those in the United States, and
by world prices for oil and other commodities. The recovery of the economy will
require continued economic and fiscal discipline as well as stable political
and social conditions. In addition, there is no assurance that Mexico's
economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against
other currencies, resulting in a precipitous decline against the U.S. Dollar.
By December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. At the end of the first nine months of
1998, the Peso-Dollar exchange rate decreased approximately 25% from the end of
1997.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product has increased each year since
1991, with the exception of 1995. During 1997, gross domestic product increased
an estimated 8.4% from 1996. Preliminary data indicate that during the first
quarter of 1998 gross domestic product increased 6.9% from the first quarter of
1997. The rate of inflation is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. There is no assurance that Argentina's economic policy initiatives
will be successful or that succeeding administrations will continue these
initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on Argentine bank deposits,
which was brought under control by a series of measures designed to strengthen
the financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted abolishing previous requirements
of a three-year waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
B-2
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'. (If you are eligible for a reduced sales charge,
you must also complete Section 4F). 3 Check off a distribution option for
your dividends. 4 Check off a distribution option for your capital gains.
All distributions (dividends and capital gains) will be reinvested into your
fund account unless you direct otherwise. If you want distributions sent
directly to your bank account, then you must complete Section 4D and attach
a preprinted, voided check for that account. If you want your distributions
sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D. If more than one dividend direction
or monthly exchange is desired, please call our Literature Center to obtain a
Shareholder Account Services Options Form for completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
80888GEN-TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio and High Yield Fund.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
80888GEN-TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
80888GEN-TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
80888GEN-TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
80888GEN-TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. 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
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
80888GEN-TABFAPP-P6
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
STATE STREET BANK AND TRUST COMPANY (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
The Registrant's Advisor Class Prospectus is incorporated herein
by reference to Part A of the Amendment to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
February 28, 1997.
<PAGE>
[LOGO] ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_________________________________________________________________
c/o Alliance Fund Services, Inc.
Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
(as amended November 2, 1998)
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for Alliance North American Government Income Trust,
Inc. (the "Fund") that offers Class A, Class B and Class C shares
of the Fund, and if the Fund begins to offer Advisor Class
shares, the Prospectus that offers the Advisor Class shares of
the Fund (the "Advisor Class Prospectus" and, together with any
Prospectus that offers the Class A, Class B and Class C shares,
the "Prospectus(es)"). The Fund currently does not offer Advisor
Class Shares. Copies of the Prospectus(es) of the Fund may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund...............................
Additional Information About Canada, the United
Mexican States and the Republic of Argentina........
Management of the Fund................................
Expenses of the Fund..................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Dividends, Distributions and Taxes....................
Brokerage and Portfolio Transactions..................
General Information...................................
Report of Independent Auditors and Financial
Statements..........................................
Appendix A (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
Appendix D (Certain Employee Benefit Plans) D-1
<PAGE>
__________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
Except as otherwise indicated, the investment policies
of 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 Fund's investment adviser (the "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 is permitted to 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 over the
long term benefit the economic performance of all three countries
and promote greater correlation of currency fluctuation among the
U.S. and Canadian Dollars and the Mexican Peso notwithstanding
the recent economic crisis and Peso devaluation in Mexico. See
"Additional Information About Canada, the United Mexican States
and the Republic of Argentina--Additional Information about
Mexico."
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 Ratings Services ("S&P"), Duff &
2
<PAGE>
Phelps Credit Rating Co. ("Duff & Phelps") or Fitch IBCA, Inc.
("Fitch") or at least Baa by Moody's Investors Service, Inc.
("Moody's") or, if not so rated, of equivalent investment quality
as determined by the Adviser.
See "Additional Investment Considerations--Securities
Ratings," below. For a description of bond ratings, 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 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 (including zero
coupon securities and other discount obligations).
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
3
<PAGE>
approval. However, the Fund will not change its investment
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
4
<PAGE>
prepayment characteristics of the underlying mortgages vary, it
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.
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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
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even though the Fund receives no interest payment in cash on the
security during the year. For a discussion of the tax treatment
of "zero coupon" Treasury securities see "Taxation--Zero Coupon
Securities." 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 Securities and Exchange 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.
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 Island, 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
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
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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.
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.
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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 Statement of Additional Information, there are
five Mexican Government Securities denominated in the Mexican
Peso that have been rated investment grade by either S&P or
Moody's. These five Mexican Government Securities are Cetes and
Tesobonos, each rated A-2 by S&P, and Ajustabonos, Bondes and
Udibonos, each rated BBB+/stable by S&P. The Adviser, however,
believes that there are other Peso-denominated Mexican Government
Securities that are of investment grade quality. Currently,
Floating Rate Notes, rated BB/stable by S&P, is the only Mexican
Government Security denominated in U.S. Dollars that is rated
investment grade by S&P. 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 (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.
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, which are investment and growth bonds issued
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<PAGE>
directly by the Argentine government with maturities of ten
years; (ii) Bono de Consolidacion Economica, which are economic
consolidation bonds issued directly by the Argentine government
with maturities of ten years and (iii) Bono de Credito a la
Exportacion, 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 CANADA. Canada consists of a
federation of ten Provinces and two federal territories (which
generally fall under federal authority) with a constitutional
division of powers between the federal and Provincial
governments. The Parliament of Canada has jurisdiction over all
areas not assigned exclusively to the Provincial legislatures,
and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal
services, navigation and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise
system, with business organizations ranging from small owner-
operated businesses to large multinational corporations.
Manufacturing and resource industries are large contributors to
the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a
largely goods-producing economy to a predominantly service-based
one. Agriculture and other primary production play a small but
key role in the economy. Canada is also an exporter of energy to
the United States in the form of natural gas (of which Canada has
substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S.
Dollars without foreign exchange controls or other legal
restriction. Since the major developed-country currencies were
permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has
been narrower than the range of fluctuation between the U.S.
Dollar and most other major currencies. During the last several
years, Canada has experienced a weakening of its currency. In
January 1995, the Canadian Dollar fell to a nine-year low against
the U.S. Dollar decreasing in value compared to the U.S. Dollar
by approximately 25% from October 1991, but from January 20, 1995
through October 25, 1996, the Canadian Dollar increased in value
by approximately 5.9% against the U.S. Dollar. 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 accurately predicted.
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<PAGE>
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES.
The United Mexican States ("Mexico") is a nation formed by 31
states and a Federal District (Mexico City). The Political
Constitution of Mexico, which took effect on May 1, 1917,
established Mexico as a Federal Republic and provides for the
separation of executive, legislative and judicial branches. The
President and the members of the General Congress are elected by
popular vote.
While in recent years the Mexican economy has
experienced improvement in a number of areas, including seven
consecutive years (1987-1994) of growth in gross domestic product
and a substantial reduction in the rate of inflation and in
public sector financial deficit, beginning in 1994, Mexico has
experienced an economic crisis that led to the devaluation of the
Peso in December 1994. Much of the past improvement in the
Mexican economy has been attributable to a series of economic
policy initiatives initiated by the Mexican government over the
past decade, which seek to modernize and reform the Mexican
economy, control inflation, reduce the financial deficit,
increase public revenues through the reform of the tax system,
establish a competitive and stable currency exchange rate,
liberalize trade restrictions and increase investment and
productivity, while reducing the government's role in the
economy. In this regard, the Mexican government has been
proceeding with a program for privatizing certain state owned
enterprises, developing and modernizing the securities markets,
increasing investment in the private sector and permitting
increased levels of foreign investment. The adoption effective
January 1, 1994 by Canada, the United States and Mexico of the
North American Free Trade Agreement could also contribute to the
growth of the Mexican economy.
In 1994, Mexico faced internal and external conditions
that resulted in an economic crisis that continues to affect the
Mexican economy adversely. Growing trade and current account
deficits, which could no longer be financed by inflows of foreign
capital, were factors contributing to the crisis. A weakening
economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This
resulted in a large decline in foreign reserves followed by a
sharp and rapid devaluation of the Mexican Peso. The ensuing
economic and financial crisis resulted in higher inflation and
domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that
developed at the end of 1994, the Mexican government instituted a
new economic program; and a new social accord among the
government, business and labor sectors of the country was entered
into in an effort to stabilize the economy and the financial
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<PAGE>
markets. To help relieve Mexico's liquidity crisis and restore
financial stability to Mexico's economy, the Mexican government
also obtained financial assistance from the United States, other
countries and certain international agencies conditioned upon the
implementation and continuation of the economic reform program.
While the Mexican economy has stabilized, it is just
beginning to emerge from a recession and suffers from high
inflation and high interest rates. Its gross domestic product
grew in the second quarter of 1996 after declining for five
consecutive quarters. In October 1995, the Mexican Government
announced a new accord designed to encourage economic growth and
reduce inflation. It cannot be accurately predicted whether this
accord will achieve its purpose. Mexico's economy may also be
influenced by international economic conditions, particularly
those in the United States, and by world prices for oil and other
commodities. The recovery of the economy will require continued
economic and fiscal discipline as well as stable political and
social conditions. There is no assurance that Mexico's economic
policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
In August 1976, the Mexican government established a
policy of allowing the Mexican Peso to float against the U.S.
Dollar and other currencies. Under this policy, the value of the
Mexican Peso consistently declined against the U.S. Dollar.
Under economic policy initiatives implemented since December
1987, the Mexican government introduced a series of schedules
allowing for the gradual devaluation of the Mexican Peso against
the U.S. Dollar. These gradual devaluations continued until
December 1994. On December 20, 1994, the Mexican government
announced a new policy that would allow a more substantial yet
still controlled devaluation of the Mexican Peso. On
December 22, 1994, the Mexican government announced that it would
not continue with the policy announced two days earlier and would
instead permit the Peso to float against other currencies,
resulting in a continued decline against the U.S. dollar. From
December 22, 1994 through October 25, 1996, the Mexican Peso
decreased in value by approximately 40% compared to the U.S.
Dollar.
In 1982, Mexico imposed strict foreign exchange controls
which shortly thereafter were relaxed and were eliminated in
1991. There is no assurance that future regulatory actions in
Mexico would not affect the Fund's ability to obtain U.S. Dollars
in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA.
The Republic of Argentina ("Argentina") consists of 23 provinces
and the federal capital of Buenos Aires. Its federal
constitution provides for an executive branch headed by a
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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 65 years. The most recent military government
ruled the country from 1976 to 1983. Four unsuccessful military
uprisings have occurred since 1983, the most recent in December
1990.
Shortly after taking office in 1989, the country's
current President adopted market-oriented and reformist policies,
including a large privatization program, a reduction in the size
of the public sector and an opening of the economy to
international competition.
In the decade prior to the current announcement of a new
economic plan in March 1991, the Argentine economy was
characterized by low and erratic growth, declining investment
rates and rapidly worsening inflation. Despite its strengths,
which include a well-balanced natural resource base and a high
literacy rate, the Argentine economy failed to respond to a
series of economic plans in the 1980's. The 1991 economic 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. As a result of the economic stabilization reforms,
gross domestic product increased for four consecutive years
before declining in 1995 and the rate of inflation has continued
to decrease.
Significant progress was also made between 1991 and 1994
in rescheduling Argentina's debt with both external and domestic
creditors, which improved fiscal cash flows in the medium term
and allowed a return to voluntary credit markets. Further
reforms are currently being implemented in order to sustain and
continue the progress to date. There is no assurance that
Argentina's economic policy initiatives will be successful or
that succeeding administrations will continue these initiatives.
In 1995, economic policy was directed toward the effects
of the Mexican currency crisis. The Mexican currency crisis led
to a run on bank deposits, which was brought under control by a
series of measures designed to strengthen the financial system.
The measures included the "dollarization" of banking reserves,
the establishment of two trust funds, and the implementation of
limited deposit insurance.
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In 1991 the Argentine government enacted currency
reforms, which required the domestic currency to be fully backed
by foreign exchange reserves, in an effort to make the Argentine
Peso fully convertible into the U.S. Dollar at a rate of one to
one.
The Argentine Peso has been the Argentine currency since
January 1, 1992. Since that date, the rate of exchange from the
Argentine Peso to the U.S. Dollar has remained approximately one
to one. The fixed exchange rate has been instrumental in
stabilizing the economy, but has not reduced pressures from a
slow-growth economy and record unemployment. It is not clear
that the government will be able to resist pressure to devalue
the currency. However, the historic range is not necessarily
indicative of fluctuations that may occur in the exchange rate
over time and future rates of exchange cannot be accurately
predicted. The Argentine foreign exchange market was highly
controlled until December 1989, when a free exchange rate was
established for all foreign currency transactions. Argentina has
eliminated restrictions on foreign direct investment and capital
repatriation. 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
those set forth in the Prospectus.
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.
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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 Board 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
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
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<PAGE>
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"). To the extent required by
applicable law, the Fund's Custodian will place liquid assets in
a segregated account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward
contracts entered into with respect to position hedges and cross-
hedges. If the value of the assets placed in the segregated
account declines, additional liquid assets or securities will be
placed in the account on a daily basis so that the value of the
account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the 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. In addition, the
Fund may use such other methods of "cover" as are permitted by
applicable law.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("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
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<PAGE>
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
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 liquid assets 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.
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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
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
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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.
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
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<PAGE>
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 liquid assets 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.
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 canceled in the event that the required
condition did not occur and the trade was canceled.
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
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<PAGE>
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
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.
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
21
<PAGE>
respect to a number of fixed-income securities and currencies are
relatively new and still developing. It is impossible to predict
the amount of trading interest that may exist in various types of
futures contracts, options and forward contracts. If a secondary
market does not exist with respect to an option purchased or
written by the Fund over-the-counter, it might not be possible to
effect a closing transaction in the option (i.e., dispose of the
option) with the result that (i) an option purchased by the Fund
would have to be exercised in order for the Fund to realize any
profit and (ii) the Fund may not be able to sell currencies or
portfolio securities covering an option written by the Fund until
the option expires or it delivers the underlying futures contract
or currency upon exercise. Therefore, no assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.
LOANS OF PORTFOLIO SECURITIES. The Fund may make
secured loans of its portfolio securities to brokers, dealers and
financial institutions provided that cash, U.S. Government
Securities or bank letters of credit equal to at least 100% of
the market value of the securities loaned is deposited and
maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund 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.
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<PAGE>
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
assets (taken at market value) would be invested in such
securities. In addition, the Fund will not maintain more than
15% of its net assets in illiquid securities. For this purpose,
illiquid securities include, among others (a) direct placements
or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will
not entertain bids or offers), (b) options purchased by the Fund
over-the-counter and the cover for options written by the Fund
over-the-counter, and (c) repurchase agreements not terminable
within seven days.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended ("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
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<PAGE>
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the clearance and settlement of transactions in
unregistered securities of domestic and foreign issuers,
sponsored by the National Association of Securities Dealers, Inc.
The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, among others, the following factors:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) the nature of the security 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
24
<PAGE>
mechanics of the transfer); and (6) any applicable Securities and
Exchange 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.
Management anticipates that the annual turnover in the Fund will
not be in excess of 400%. An annual turnover rate of 400%
occurs, for example, when all of the securities in the Fund's
portfolio are replaced four times in a period of one year. A
high rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital
gains. See Dividends, Distributions and Taxes" and "General
Information-Portfolio Transactions."
For the fiscal years ended in 1996 and 1997, the
portfolio turnover rates of the securities of the Fund were 166%
and 118%, respectively.
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
25
<PAGE>
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.
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 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.
26
<PAGE>
OTHER BORROWINGS. The Fund may also borrow to
repurchase its shares or to meet redemption requests. In
addition, the Fund may borrow for temporary purposes (including
the purposes mentioned in the preceding sentence) in an amount
not exceeding 5% of the value of the total assets of the Fund.
Borrowings for temporary purposes are not subject to the 300%
asset coverage limit described above. See "Certain Fundamental
Investment Policies."
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 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 described 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 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 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
27
<PAGE>
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 the value of a
particular foreign currency 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, 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
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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. 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.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without
shareholder approval, which means the affirmative vote of the
holders of (i) 67% or more of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less.
The Fund may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;
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<PAGE>
2. Participate on a joint or joint and several basis
in any securities trading account;
3. Invest in companies for the purpose of exercising
control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short ("short sales against the
box"), and unless not more than 10% of the Fund's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of gain or
loss for federal income tax purposes);
5. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Fund would own any securities of an open-
end investment company or more than 3% of the total outstanding
voting stock of any closed-end investment company or more than 5%
of the value of the Fund's total assets would be invested in
securities of any one or more closed-end investment companies; or
6. (i) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in real
estate or purchase and sell securities of companies which deal in
real estate or interests therein; (ii) purchase or sell
commodities or commodity contracts (except currencies, futures
contracts on currencies and related options, forward contracts or
contracts for the future acquisition or delivery of fixed-income
securities and related options, futures contracts and options on
futures contracts and other similar contracts); (iii) invest in
interests in oil, gas, or other mineral exploration or
development programs; (iv) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (v) act as an underwriter of securities,
except that the Fund may acquire restricted securities under
circumstances in which, if such securities were sold, the Fund
might be deemed to be an underwriter for purposes of the
Securities Act.
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Fund may
not: (a) 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;
(b) borrow money, except that the Fund may, in accordance with
provisions of the 1940 Act, (i) borrow from a bank, if after such
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<PAGE>
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 (the
"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 of any such maximum.
_______________________________________________________________
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, their economies, or the consequences
of investing in Mexican Government Securities, Canadian
Government Securities or Argentine Government Securities.
31
<PAGE>
_______________________________________________________________
ADDITIONAL INFORMATION ABOUT CANADA
_______________________________________________________________
Territory and Population
Canada is the second largest country in the world in
terms of land mass with an area of 9.22 million square kilometers
(3.85 million square miles). It is located north of the
continental United States of America and east of Alaska. Canada
comprises ten provinces (Alberta, British Columbia, Manitoba, New
Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward
Island, Quebec and Saskatchewan) and two territories (the
Northwest Territories and the Yukon Territory). Its population
is approximately 30 million.
Government
Canada is a constitutional monarchy with Queen Elizabeth
II of the United Kingdom its nominal head of state. The Queen is
represented by the Canadian governor-general, appointed on the
recommendation of the Canadian prime minister. Canada's
government has a federal structure, with a federal government and
ten provincial governments. The legislative branch consists of a
House of Commons (parliament) and the Senate. Members of the
House of Commons are elected by Canadian citizens over 18 years
of age. Senators are appointed on a regional basis by the Prime
Minister. The federal government is headed by the Prime Minister
who is chosen from the party that has won the majority of seats
in the House of Commons. The provincial governments each have a
Legislative Assembly and a Premier. The prime minister has the
privilege of appointing all judges except those of the provincial
courts.
Provinces have extensive power within specific areas of
jurisdiction. The federal government has defined areas of
jurisdiction and the power to act in areas declared by the House
of Commons to be for the general advantage of Canada. This
general power has been used to justify federal action in certain
areas of provincial jurisdiction. Concurrent federal and
provincial jurisdiction exists in certain matters, including
agriculture, immigration and pensions. The power-sharing issue
between the federal government and provincial governments has
been contentious and has proven to be a central issue in the
process of constitutional reform.
32
<PAGE>
Politics
Since World War II, the federal government has been
formed by either the Liberal Party or the Progressive
Conservative Party. In October 1993, the Liberal Party, under
the leadership of Mr. Jean Chretien, won 178 of the 295 seats in
the Canadian House of Commons ending nine years of rule by the
Progressive Conservative Party. The Liberal Party was re-elected
for a second term in the June 2, 1997 general election, but lost
20 seats in the House of Commons. It has been reported that
Mr. Chretien may step down in two years.
Canada has had three major developments regarding unity
and constitutional reform in recent years. The first two major
developments were the rejection of the Meech Lake Agreement in
1990 and the Charlottetown Accord in 1992. Those reforms would
have given Quebec constitutional recognition as a distinct
society, transferred powers from the federal to the provincial
governments and reformed the Senate by providing for more equal
representation among the provinces.
The third major development was the possibility of
Quebec's independence. On September 12, 1994, the Quebec
separatist party, Parti Quebecois, under the leadership of
Jacques Parizeau, won 77 seats in Quebec's provincial election
with 44.7% of the vote. The Liberal Party won 47 seats with 44.3%
of the vote. The Parti Quebecois' agenda included a call for a
referendum supporting independence. On October 30, 1995, the
referendum was defeated in a close ballot, in which 50.6% voted
against secession and 49.4% voted for secession. If the
referendum had been approved, Quebec would have become a separate
country, but would have retained formal political and economic
links with Canada similar to those that join members of the
European Union. Because of the closeness of the vote, it is
possible that there will be federally-sponsored legislation or
the proposal of constitutional amendments with regard to the
relationship between the federal government and the provinces.
In addition, the Parti Quebecois has indicated that if it wins a
second term in the provincial elections that must be held by the
end of 1999, it will call another referendum. In the meantime,
the federal government has initiated a legal action in Canada's
Supreme Court to determine the legality of Quebec's secession.
Court hearings in that case were held in mid-February 1998 and a
decision is anticipated during the summer of 1998. Also,
Canada's provincial leaders (other than Quebec's) met in
September 1997 to formulate a seven-point framework for
discussion on national unity. It is expected that Quebec's
position within Canada will continue to be a matter of political
debate.
33
<PAGE>
Monetary and Banking System
The central bank of Canada is the Bank of Canada. Its
main functions are conducting monetary policy, supervising
commercial banks, acting as a fiscal agent to the federal
government and managing the foreign exchange fund. The currency
unit of Canada is the Canadian Dollar. Canada does not impose
foreign exchange controls on capital receipts or payments by
residents or non-residents.
Trade
Canada and the United States are each other's largest
trading partners and as a result there is a significant linkage
between the two economies. Bilateral trade between Canada and
the United States in 1996 was larger than between any other two
countries in the world. In the summer of 1991, the United
States, Canada and Mexico 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. 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. In July 1997 a
free-trade accord between Canada and Chile took effect and talks
with other South American countries, such as Brazil and
Argentina, are also under way for similar bilateral trade
agreements that are expected eventually to fall under the
umbrella of a new form of NAFTA. When fully-implemented, NAFTA
is designed to create a free trade area in North America, expand
the flow of goods, services and investment, and eventually
eliminate tariff barriers, import quotas and technical barriers
among Canada, the United States, Mexico and future parties to
NAFTA.
Economic Information Regarding Canada
Canada experienced rapid economic expansion during most
of the 1980s. In the early 1990s, however, the economy
experienced a deep recession. This resulted from, among other
things, high government debt and high interest rates. The
recession partly created and partly highlighted some difficulties
which the present government is attempting to resolve. The
relatively low level of economic activity during this period
reduced the growth of tax receipts with the result that the
already high levels of government debt increased.
RECENT DEVELOPMENTS. The deterioration in the
government's fiscal position, which started during the recession
in the early 1990s, was aggravated by a reluctance to decrease
34
<PAGE>
expenditures or increase taxes. In its 1995 budget, however, the
Liberal Party introduced new spending cuts, the largest in over
thirty years, to reduce Canada's budget deficit. For the fiscal
years 1994-95, 1995-96 and 1996-97, the budget deficit was
approximately 5%, 4.2% and 1.1%, respectively of gross domestic
product ("GDP"). On February 24, 1998 the government announced
that the 1998 Budget would be balanced for the first time in
almost 30 years and that the 1999 and 2000 Budgets would be
balanced as well. It has been almost 50 years since Canada has
had three consecutive balanced budgets. While the government's
budget deficit objectives can be achieved, it will require
continued economic growth, lower interest rates and additional
reductions in government spending.
In addition to the growth of the federal government
deficit, provincial government debt rose rapidly in the early
1990s. Several developments, including increased spending on
social services at the provincial level, were responsible for a
significant amount of the growth of public debt from 1990-1992.
In response to the increase in provincial debt, a number of
rating agencies downgraded certain provincial debt ratings. All
provinces undertook plans to balance their respective budgets,
and, with the exception of Ontario and Quebec, the provinces have
achieved, or are close to achieving, their goals. On January 22,
1998, the government announced that the federal transfer payments
to the provinces, which had been reduced, will increase by $236
million in March 1998.
Canada's real GDP growth rate slipped to 2.3% in 1995
and 1.5% in 1996 from 4.1% in 1994. In the first, second and
third quarters of 1997, real GDP grew 0.9%, 5.4% and 4.1% at an
annual rate, respectively, and is estimated to have grown 3.5%
overall in 1997. Canada is forecast to experience real GDP
growth of 3.3% in 1998. The recent growth of the economy has
been broadly based, unlike earlier periods of recovery, when it
was attributable almost entirely to a growth in exports. The
trade sector continues to be an important factor, however, in the
growth of the Canadian economy. In 1995, the trade surplus was
more than three times higher than the average surplus between
1990 and 1994. In 1996, the trade surplus was almost 25% higher
than it was in 1995. Exports grew by 16% in 1995 and by 6% in
1996. According to preliminary data, however, in the first five
months of 1997 the trade surplus was reduced as the rate of
import growth doubled the rate of export growth.
During 1994, despite growing output and low inflation,
concern over the country's deficit and the uncertainty associated
with Quebec's status within Canada led to a weakening of its
currency and higher interest rates. On January 20, 1995, the
exchange rate for the Canadian Dollar fell to .702 against the
U.S. Dollar, which at that time represented a nine-year low and
35
<PAGE>
was close to its then record low of .692. The Bank of Canada
responded by increasing rates on Treasury bills and selling U.S.
Dollars. Between January 20, 1995 and September 30, 1997, the
Canadian Dollar increased in value from .702 to .724 against the
U.S. Dollar. The renewed strength of the Canadian Dollar during
this period facilitated the easing of monetary policy.
Subsequently, however, the Canadian Dollar depreciated, reaching
a record low of .683 against the U.S. Dollar on January 29, 1998.
In June 1997, with a real growth of 4% annualized during the
first two quarters of 1997 and signs of weakness in the Canadian
Dollar, the Bank of Canada decided to raise its Bank Rate for the
first time since 1995, by 25 basis points to 3.5%. The Bank Rate
was raised several more times, most recently on January 30, 1998,
to 5%.
The following provides certain 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
GDP and information concerning yields on certain Canadian
Government Securities. Historical statistical information is not
necessarily indicative of future developments.
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 than the range of
fluctuation between the U.S. Dollar and most other major
currencies. However, the range that has occurred in the past is
not necessarily indicative of future fluctuations in that rate.
Future rates of exchange cannot be predicted, particularly over
extended periods of time.
36
<PAGE>
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:
U.S. Dollars
____________
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
1994 0.73
1995 0.73
1996 0.73
1997 0.72
1998
January 0.69
Source: Federal Reserve Bulletin.
37
<PAGE>
INFLATION RATE OF THE CANADIAN CONSUMER PRICE INDEX.
Since 1991, when the Canadian government adopted inflation
control targets, inflation in Canada has been maintained within
the targeted range of 1% to 3%. The government announced on
February 24, 1998 that the 1991 targets would be extended to the
end of 2001. 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 for the years 1981
through 1996 and for the twelve months January-December 1997
(1986 = 100).
National Consumer
Price Index
_________________
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
1994 . . . . . . . . . . . . . . . 0.2
1995 . . . . . . . . . . . . . . . 2.1
1996 . . . . . . . . . . . . . . . 1.6
1997
January . . . . . . . . . . . . 2.2
February . . . . . . . . . . . . 2.2
March . . . . . . . . . . . . . 2.0
April . . . . . . . . . . . . . 1.7
May . . . . . . . . . . . . . . 1.5
June . . . . . . . . . . . . . . 1.8
July . . . . . . . . . . . . . . 1.8
August . . . . . . . . . . . . . 1.8
September . . . . . . . . . . . 1.6
October . . . . . . . . . . . . 1.5
November . . . . . . . . . . . . 0.9
December . . . . . . . . . . . . 0.7
Source: BANK OF CANADA REVIEW Winter 1996-1997; BANK OF CANADA
WEEKLY FINANCIAL STATISTICS, February 20, 1998.
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<PAGE>
CANADIAN GROSS DOMESTIC PRODUCT. The following table
sets forth Canada's GDP for the years 1981 through the second
quarter of 1997 at historical and constant prices.
Gross Domestic Change from
Gross Domestic Product at 1986 Prior Year at
Product Prices Constant Prices
_____________ ______________ _______________
(millions of Canadian Dollars) (%)
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 5.0
1989 650,748 566,486 2.4
1990 669,467 565,155 (0.2)
1991 676,477 555,052 (1.8)
1992 690,122 559,305 0.8
1993 712,855 571,722 2.2
1994 747,260 594,990 4.1
1995 776,299 608,835 2.3
1996 797,789 617,795 1.5
1997
1st Quarter 821,040 629,940 3.7
2nd Quarter 828,036 637,568 4.9
Source: BANK OF CANADA REVIEW Autumn 1997.
39
<PAGE>
YIELDS ON CANADIAN GOVERNMENT TREASURY BILLS AND BONDS. The
following table sets forth the average monthly yield on 3-month
and 6-month government of Canada Treasury bills and 5-year and
10-year Canada Benchmark Bonds from January 1995 through
September 1997.
Treasury Bills Benchmark Bonds
1995 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________
January 8.10 8.47 9.18 9.34
February 8.11 8.15 8.46 8.76
March 8.29 8.35 8.23 8.57
April 7.87 7.87 7.93 8.31
May 7.40 7.36 7.41 7.88
June 6.73 6.65 7.33 7.81
July 6.65 6.87 7.79 8.27
August 6.34 6.62 7.58 8.00
September 6.58 6.80 7.54 7.89
October 7.16 7.21 7.54 7.86
November 5.83 5.87 6.74 7.19
December 5.54 5.64 6.64 7.11
Treasury Bills Benchmark Bonds
1996 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________
January 5.12 5.20 6.33 7.01
February 5.21 5.38 6.87 7.53
March 5.02 5.25 7.02 7.64
April 4.78 4.97 7.09 7.76
May 4.68 4.88 7.01 7.72
June 4.70 4.94 7.05 7.77
July 4.39 4.75 6.96 7.62
August 4.02 4.32 6.60 7.34
September 3.86 4.13 6.28 7.16
October 3.17 3.33 5.59 6.47
November 2.73 2.89 5.10 6.05
December 2.85 3.24 5.44 6.37
40
<PAGE>
Treasury Bills Benchmark Bonds
1997 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________
January 2.87 3.21 5.67 6.65
February 2.91 3.17 5.44 6.38
March 3.14 3.45 5.75 6.59
April 3.14 3.55 5.92 6.68
May 2.99 3.39 5.86 6.65
June 2.86 3.19 5.32 6.14
July 3.29 3.62 5.18 5.80
August 3.11 3.68 5.36 6.06
September 2.86 3.49 5.17 5.70
Source: BANK OF CANADA REVIEW Summer 1997.
_________________________________________________________________
ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES
_________________________________________________________________
Territory and Population
The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
thousand square miles). To the north, Mexico shares a border
with the United States of America, and to the south it has
borders with Guatemala and Belize. Its coastline is along both
the Gulf of Mexico and the Pacific Ocean. Mexico comprises 31
states and a Federal District (Mexico City). It is the second
most populous nation in Latin America, with an estimated
population of 91.1 million, as reported by the National Institute
of Statistics, Geography and Informatics in 1995.
Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1995 of
16.4 million, 3.3 million and 2.9 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas, have resulted in a reduction of
the population growth rate to a projected 1.6% in 1997.
Government
The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
establishes Mexico as a Federal Republic and provides for the
separation of the executive, legislative and judicial branches.
The President and the members of Congress are elected by popular
vote of Mexican citizens over 18 years of age.
41
<PAGE>
Executive authority is vested in the President, who is
elected for a single six-year term. The executive branch
consists of 17 ministries, the office of the Federal Attorney
General, the Federal District Department and the office of the
Attorney General of the Federal District.
Federal Legislative authority is vested in the Congress,
which is composed of the Senate and the Chamber of Deputies.
Senators serve a six-year term. Deputies serve a three-year
term, and neither Senators nor Deputies may serve consecutive
terms in the same Chamber. The Senate has 128 members, four from
each state and four from the Federal District. The Chamber of
Deputies has 500 members, of whom 300 are elected by direct vote
from the electoral districts and 200 are elected by a system of
proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.
Federal Judicial authority is vested in the Supreme
Court of Justice, the Circuit and District courts, and the
Federal Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.
Mexico has diplomatic relations with approximately 176
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States, the
International Monetary Fund (the "IMF"), the World Bank, the
International Finance Corporation, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
Mexico became a member of the Organization for Economic
Corporation and Development (the "OECD") on April 14, 1994 and
the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).
Politics
The Partido Revolucionario Institucional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and until the 1997 Congressional
elections held a majority in Congress. Until 1989 it had also
won all of the state governorships. The oldest opposition party
in Mexico is the Partido Accion Nacional ("PAN"). The third
major party in Mexico is the Partido de la Revolucion Democratica
("PRD").
On August 21, 1994, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
42
<PAGE>
1994. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PRI, Ernesto Zedillo Ponce de Leon, won the Presidential election
with 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with
16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD had the
third largest representation with 10 seats in the Senate and 70
seats in the Chamber of Deputies. The PRI won two additional
seats pursuant to proportional representation and the PAN and the
PRD each won one seat in extraordinary elections held on
April 30, 1995. In the mid-term Congressional elections on
July 6, 1997, the PRI lost its majority in the Chamber of
Deputies and now holds 239 of its 500 seats. In the Senate, the
PRI retained its overall majority but lost the two-thirds
majority important in constitutional amendments. The PRI also
failed to win the election for mayor of Mexico City. More than
40% of Mexico's population is now governed by an opposition party
at the state or municipal level. Elections will next be held by
2000 (Presidential).
At the beginning of 1994 armed insurgents attacked (and
in some cases temporarily seized control of) several villages in
the southern state of Chiapas. While the Government responded by
providing support to the local authorities and publicly offering
to negotiate a peaceful resolution that would address the
underlying concerns of the local population, the conflict
remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the
spring of 1994, but subsequently were broken off. In December of
1994, the Congress approved the creation of a Congressional peace
commission, to be formed by members of both chambers of Congress,
which would be responsible for mediating the negotiations between
the Government and the insurgents. By the end of 1994, however,
the insurgents had not agreed to resume negotiations and there
were additional incidents of civil unrest.
In the Spring of 1995, the Government renewed its
efforts to resolve its differences with the insurgents in the
Chiapas region by facilitating their participation in the
political process. On March 9, 1995, Congress approved a law
granting temporary amnesty to insurgents who participate in peace
talks with the Government, and on March 13, 1995, the law
establishing the framework for these peace talks took effect. On
September 11, 1995, the Government and the insurgents reached an
agreement pursuant to which both sides accepted a common
political agenda and procedural rules, and agreed to the creation
of a working committee regarding the rights of indigenous
43
<PAGE>
peoples. This agreement was expected to represent a first step
toward a comprehensive peace agreement between the parties. The
working committee began negotiations on October 17, 1995 and
concluded a second round of meetings on November 19, 1995 having
made significant progress in laying out the framework for a
plenary session that took place from January 10 through
January 19, 1996. The attendees at the plenary session drafted
an agreement on a series of measures aimed at enhancing and
guaranteeing the rights of the indigenous population. The
agreement was signed on February 16, 1996, but further
negotiations between the government and the insurgents were
unsuccessful.
On August 28, 1996, a newly formed group calling itself
the Popular Revolutionary Army attacked military and police
targets in small cities of some southern states of Mexico. It is
generally believed that this group does not enjoy popular
support, and its terrorists attacks have been condemned by both
Government and nongovernment representatives. The Government has
announced the apprehension of several alleged members of the
group.
On December 22, 1997, a paramilitary group went on a
rampage in Chiapas that resulted in the massacre of 45 civilians,
mostly women and children. The government is investigating the
incident and has also announced measures to alleviate some of the
conditions that have made Chiapas susceptible to violence and
unrest. It is widely believed, however, that violence and unrest
will continue to plague Chiapas as well as surrounding regions.
In addition to the civil unrest in Chiapas, certain
national developments have led to disillusionment among the
electorate with the institutions of government. These events
include the assassination of Luis Donaldo Colosio, the likely
successor to former President Salinas and the murder of Mr. Jose
Francisco Ruiz Massieu, a high-ranking PRI official. Links
between Mexico's drug cartels and high Government and military
officials have also been discovered. These links could
jeopardize Mexico's status as an ally of the U.S. in the war
against narcotics smuggling. While Mexico is currently certified
as an ally there is no assurance that the certification will be
maintained. A loss of certification could result in the
termination of U.S. economic assistance to Mexico.
On January 17, 1995, the major political parties of
Mexico entered into a new accord to further the opening of the
political process in Mexico. On July 25, 1996, the Mexican
Government announced certain proposed constitutional amendments
aimed at reforming the electoral law that were ratified on
August 22, 1996. The amendments, which had been agreed to by the
President and the leaders of the four major political parties
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represented in Congress, among other things, exclude the
President from the Federal Electoral Institute, an autonomous
agency charged with organizing elections; eliminate the Electoral
Committee of the Chamber of Deputies, which had been responsible
for determining the validity of presidential elections; impose
limits on expenditures on political campaigns and controls on the
source of and uses of funds contributed to a political party;
grant voting rights to Mexican citizens residing abroad; reduce
from 315 to 300 the maximum number of congressional
representatives who may belong to a single party, and establish
an electoral procedure intended to result in a more proportional
representation in the Senate. The Mexican Supreme Court is
empowered to determine the constitutionality of electoral laws
and the Mexican Federal Electoral Court, which has been part of
the executive branch, will become part of the judicial branch.
Money and Banking
Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary authority for
the execution of monetary policy and the regulation of currency
and credit. It is authorized by law to regulate interest rates
payable on time deposits, to establish minimum reserve
requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of
Mexico is the Peso. Mexico repealed its exchange control rules
in 1991 and now maintains only a market exchange rate.
A constitutional amendment relating to Banco de Mexico's
activities and role within the Mexican economy became effective
on August 23, 1993. The amendment's purpose was to reinforce the
independence of Banco de Mexico, which may in the future act as a
counterbalance to the executive and legislative branches in
monetary policy matters. The amendment significantly strengthens
Banco de Mexico's authority with respect to monetary policy,
foreign exchange and related activities and the regulation of the
financial services industry. On April 1, 1994, a new law
governing the activities of Banco de Mexico became effective.
The new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional
amendment described above and also established a Foreign Exchange
Commission charged with determining the nation's exchange rate
policies.
Trade Reform
Mexico became a member of the GATT in 1986 and has been
a member of the WTO since January 1, 1995, the date on which the
WTO superseded the GATT. Mexico has also entered into NAFTA with
the United States and Canada. In addition, Mexico signed an
agreement providing for a framework for a free trade agreement in
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1992 with Costa Rica, El Salvador, Guatemala, Honduras and
Nicaragua as a step toward establishing a free-trade area.
Mexico entered into definitive free trade agreements with Costa
Rica in April 1994 and Nicaragua in December 1997. A free trade
agreement between Mexico and Chile went into effect on January 1,
1992. A free trade agreement with Colombia and Venezuela was
signed in June 1994 and a similar agreement with Bolivia was
signed in September 1994; both agreements entered into force in
January 1995. In addition, Mexico is expected to begin
negotiations in 1998 with the European Union for a trade
agreement. In connection with the implementation of NAFTA,
amendments to several laws relating to financial services
(including the Banking Law and the Securities Market Law) became
effective on January 1, 1994. These measures permit non-Mexican
financial groups and financial intermediaries, through Mexican
subsidiaries, to engage in various activities in the Mexican
financial system, including banking and securities activities.
Economic Information Regarding Mexico
During the period from World War II through the mid-
1970's, Mexico experienced sustained economic growth. During the
mid 1970's, Mexico experienced high inflation and, as a result,
the government embarked on a high-growth strategy based on oil
exports and external borrowing. The steep decline in oil prices
in 1981 and 1982, together with high international interest rates
and the credit markets' unwillingness to refinance maturing
external Mexican credits, led in 1982 to record inflation,
successive devaluations of the peso by almost 500% in total, a
pubic sector deficit of 16.9% of GDP and, in August 1982, a
liquidity crisis that precipitated subsequent restructurings of a
large portion of the country's external debt. Through much of
the 1980's, the Mexican economy continued to experience high
inflation and large foreign indebtedness. In February 1990,
Mexico became the first Latin American country to reach an
agreement with external creditor banks and multi-national
agencies under the U.S. Treasury's approach to debt reduction
known as the "Brady Plan."
The value of the peso has been central to the
performance of the Mexican economy. From late 1982 until
November 11, 1991, Mexico maintained a dual foreign exchange rate
system, with a "controlled" rate and a "free market" rate. The
controlled exchange rate applied to certain imports and exports
of goods, advances and payments of registered foreign debt and
funds used in connection with the in-bond industry (the industry
is comprised of companies which import raw materials without
paying a duty), and payments of royalties and technical
assistance under registered agreements requiring such payments.
The free market rate was used for all other types of
transactions. The dual system assisted in controlling the value
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of the Mexican Peso, particularly from 1983 to 1985. In later
years the difference between the two rates was not significant.
Mexico has since repealed the controlled rate.
A fixed exchange rate was maintained from February to
December 1988. Thereafter, under a Government implemented
devaluation schedule, the intended annual rate of devaluation was
gradually lowered from 16.7% in 1989 to 11.4% in 1990, 4.5% in
1991 and 2.4% in 1992. From October 1992 through December 20,
1994, the peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, which
was the maximum selling rate, depreciated at a daily rate of
0.0004 pesos (equal to approximately 4.5% per year), while the
floor of the band, i.e., the minimum buying rate, remained fixed.
Banco de Mexico agreed to intervene in the foreign exchange
market to the extent that the peso/dollar exchange rate reached
either the floor or the ceiling of the band.
RECENT DEVELOPMENTS. Beginning on January 1, 1994,
volatility in the peso/dollar exchange rate began to increase,
with the value of the peso relative to the dollar declining at
one point to an exchange rate of 3.375 pesos to the U.S. Dollar,
a decline of approximately 8.69% from the high of 3.1050 pesos
reached in early February. This increased volatility was
attributed to a number of political and economic factors,
including a growing current account deficit, the relative
overvaluation of the peso, investor reactions to the increase in
U.S. interest rates, lower than expected economic growth in
Mexico in 1993, uncertainty concerning the Mexican Presidential
elections in August 1994 and certain related developments.
On December 20, 1994, increased pressure on the
peso/dollar exchange rate led Mexico to increase the ceiling of
the Banco de Mexico intervention band. That action proved
insufficient to address the concerns of foreign investors, and
the demand for foreign currency continued. On December 22, the
Government adopted a free exchange rate policy, eliminating the
intervention band and allowing the peso to float freely against
the dollar. The value of the peso continued to weaken relative
to the dollar in the following days. There was substantial
volatility in the peso/dollar exchange during the first quarter
of 1995, with the peso/dollar exchange rate falling to a low
point of 7.588 pesos to the U.S. Dollar on March 13, 1995. By
the end of April and through September 1995, the exchange rate
began to stabilize; however, the exchange rate began to show
signs of renewed volatility in October and November 1995. The
peso/dollar exchange rate fell to a low for the year of 8.14
pesos to the U.S. Dollar on November 13, 1995.
In order to address the adverse economic situation that
developed at the end of 1994, the Government announced in January
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1995 a new economic program and a new accord among the Government
and the business and labor sectors of the economy, which,
together with a subsequent program announced in March 1995 and
the international support package described below, formed the
basis of Mexico's 1995 economic plan (the "1995 Economic Plan").
The objectives of the 1995 Economic Plan were to stabilize the
financial markets, lay the foundation for a return to lower
inflation rates over the medium-term, preserve Mexico's
international competitiveness, maintain the solvency of the
banking system and attempt to reassure long-term investors of the
strong underlying fundamentals of the Mexican economy.
The central elements of the 1995 Economic Plan were
fiscal reform, aimed at increasing public revenues through price
and tax adjustments and reducing public sector expenditures;
restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining
the current floating exchange rate policy; reduction of the
current account deficit; introduction of certain financial
mechanisms to enhance the stability of the banking sector; and
maintenance and enhancement of certain social programs, to ease
the transition for the poorest segments of society.
In addition to the actions described above, in the
beginning of 1995, the Government engaged in a series of
discussions with the IMF, the World Bank, the Inter-American
Development Bank and the U.S. and Canadian Governments in order
to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial
stability to Mexico's economy. The proceeds of the loans and
other financial support have been and will be used to refinance
public sector short-term debt, primarily Tesobonos, to restore
the country's international reserves and to support the banking
sector. The largest component of the international support
package is up to $20 billion in support from the United States
pursuant to four related agreements entered into on February 21,
1995. During 1995, the U.S. Government and the Canadian
Government disbursed $13.7 billion of proceeds to Mexico under
these agreements and the North American Framework Agreement
("NAFA"), the proceeds of which were used by Mexico to refinance
maturing short-term debt, including Tesobonos and $1 billion of
short-term swaps under the NAFA.
Using resources made available through the international
support package as well as operations by Banco de Mexico, in 1995
Mexico altered its debt profile significantly. The outstanding
Tesobono balance was reduced from $29.2 billion at December 31,
1994 to $16.2 billion at the end of the first quarter of 1995,
$10.0 billion at the end of the second quarter, $2.5 billion at
the end of the third quarter and $246 million at the end of the
fourth quarter. By February 16, 1996, Mexico had no Tesobonos
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outstanding, and has not issued Tesobonos since that date. As of
December 31, 1996, 100% of Mexico's net internal debt was
denominated and payable in pesos, as compared with only 44.3% of
such debt at the end of 1994.
On May 31, 1995, the Government announced the Plan
Nacional de Desarrollo 1995-2000 (1995-2000 National Development
Plan, or the "Development Plan"). The Development Plan covers
five topics: sovereignty; the rule of law; democratic
development; social development; and economic growth. The
fundamental strategic objective of the Development Plan is to
promote vigorous and sustainable economic growth. Among other
things, the Development Plan calls for steps to increase domestic
savings, preferences for channeling foreign investment into
direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive
activities and further deregulation of the economy.
On October 29, 1995, the Government announced the
establishment of a new accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para la Recuperacion Economica (Alliance for Economic
Recovery or "ARE"). The chief objectives of the ARE, which was
replaced by the ACE (as defined below), were to stimulate
economic recovery and job creation, and to strengthen the basis
for gradual and sustainable economic growth.
On October 26, 1996, the Government announced the
establishment of another accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para el Crecimiento Economico (Alliance for Economic
Growth or "ACE"). The chief objectives of the ACE are to foster
sustainable economic growth by emphasizing (i) the export sector,
particularly through domestic and foreign investment, (ii) public
investment, particularly in the hydrocarbon, electricity,
transportation and water sectors and (iii) fiscal and monetary
discipline in order to encourage an environment of greater price
stability and lower interest rates.
On June 3, 1997, the Government announced the Programa
Nacional de Financiamiento del Desarrollo 1997-2000 (National
Development Financing Program 1997-2000, or "PRONAFIDE"). The
PRONAFIDE's goals are to: (i) achieve, on average, real GDP
growth of 5% per year, (ii) generate more than one million jobs
per year, (iii) increase real wages and salaries, (iv) strengthen
the capacity of the Government to respond to social needs and
(v) avoid economic crises of the types suffered by Mexico during
the past 20 years.
The effects of the devaluation of the peso, as well as
the Government's response to that and related events, were
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apparent in the performance of the Mexican economy during 1995
and 1996. Recent trade figures show a reversal of Mexico's trade
deficit during 1995. The value of imports (including in-bond
industries) decreased by 8.7% between 1994 and 1995, to $72.5
billion in 1995. Although the value of imports (including in-
bond industries) in 1996 increased approximately 23.4% from 1995,
to $89.5 billion, exports increased by almost the same amount.
During 1995, Mexico registered a $7.089 billion trade surplus,
its first annual trade surplus since 1989. Mexico registered a
surplus in its trade balance of $6.531 billion during 1996, down
approximately 7.9% from 1995, and in 1997 Mexico registered an
estimated trade surplus of $582 million, down approximately 90%
from 1996. During 1996, Mexico's current account balance
registered a deficit of $1.922 billion, as compared with a
deficit of $1.577 billion in 1995.
Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1997, Mexico's international
reserves amounted to $28,000 million, as compared to $17,509
million at December 31, 1996, $15,741 million at December 31,
1995, $6,148 million at December 31, 1994 and $24,538 million at
December 31, 1993.
During 1995 real GDP decreased by 6.9%, as compared with
a growth rate of 3.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP has continued to grow since that
time, resulting in an overall GDP growth rate of 5.1% for 1996
and 7.3% for 1997. The Government currently projects a 5.0%
increase in the GDP for 1998. Although the Mexican economy has
stabilized, there can be no assurance that the government's plan
will lead to a full recovery.
Statistical and Related Information
Concerning Mexico
The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning
inflation rates, historical information regarding the Mexican GDP
and information concerning interest rates on certain Mexican
Government Securities. Historical information is not necessarily
indicative of future fluctuations or exchange rates. In 1982,
Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991.
CURRENCY EXCHANGE RATES. There is no assurance that
future regulatory actions in Mexico will not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
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The following table sets forth the exchange rates of the
Mexican Peso to the U.S. Dollar with respect to each year from
1981 to 1997.
Free Market Rate Controlled Rate
________________ _______________
End of End of
Period Average Period Average
______ ________ _______ _______
1981. . . . . . . 26 24 -- --
1982. . . . . . . 148 57 96 57
1983. . . . . . . 161 150 143 120
1984. . . . . . . 210 185 192 167
1985. . . . . . . 447 310 371 256
1986. . . . . . . 915 637 923 611
1987. . . . . . . 2.209 1.378 2.198 1.366
1988. . . . . . . 2.281 2.273 2.257 2.250
1989. . . . . . . 2.681 2.483 2.637 2.453
1990. . . . . . . 2.943 2.838 2.939 2.807
1991. . . . . . . 3.075 3.016 3.065* 3.007*
1992. . . . . . . 3.119 3.094 -- --
1993. . . . . . . 3.192 3.155 -- --
1994. . . . . . . 5.325 3.222 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.598 -- --
1997. . . . . . . 8.070 7.918 -- --
* Through November 10, 1991.
Source: Banco de Mexico; Federal Reserve Statistics.
INFLATION AND CONSUMER PRICES. Through much of the
1980's, the Mexican economy continued to be affected by high
inflation, low growth and high levels of domestic and foreign
indebtedness. The annual inflation rate, as measured by the
consumer price index, rose from 28.7% in December 1981 to 159.2%
in December 1987. In December 1987, the Mexican Government
agreed with labor and business to curb the economy's inflationary
pressures by freezing wages and prices (the "1987 accord"). The
1987 accord included the implementation of restrictive fiscal and
monetary policies, the elimination of trade barriers and the
reduction of import tariffs. After substantive increases in
public sector prices and utility rates, price controls were
introduced.
The 1987 accord was succeeded by a series of additional
accords, each of which continued to stress the moderation of
inflation, fiscal discipline and a gradual devaluation of the
peso. There was a gradual reduction in the number of goods and
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services whose prices were covered by such accords. The two most
recent of these accords also incorporated a reduction in the
income tax rate applicable to corporations and certain self-
employed individuals from 35% to 34% and a reduction in the
withholding tax applicable to interest payments on publicly
issued external debt and external debt payable to certain
financial institutions from 15% to 4.9%. Under the later of
these two accords, tax benefits were proposed for workers
receiving salaries not exceeding twice the minimum wage and asset
taxes to be reduced to 1.8%. These policies lowered the consumer
inflation rate from 159.2% in 1987 to 7.1% in 1994.
Over the medium-term, the Government is committed to
reversing the decline in real wages experienced in the last
decade through control of inflation, a controlled gradual upward
adjustment of wages and a reduction in income taxes for the lower
income brackets. Nonetheless, the effect of the devaluation of
the peso and the Government's response to that event and related
developments caused a significant increase in inflation in 1995,
as well a decline in real wages for much of the population during
1995. Inflation during 1995, 1996 and 1997 (as measured by the
increase in the National Consumer Price Index), was 52.0%, 27.7%
and 15.7%, respectively.
CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for the year
ended December 31 for the years 1981 through 1997.
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Annual
Increases in
National Consumer
Price Index
_________________
1981 .................................. 28.7%
1982................................... 98.9
1983................................... 80.8
1984................................... 59.2
1985................................... 63.7
1986...................................105.7
1987...................................159.2
1988................................... 51.7
1989................................... 19.7
1990................................... 29.9
1991................................... 18.8
1992................................... 11.9
1993................................... 8.0
1994................................... 7.1
1995................................... 52.0
1996................................... 27.7
1997................................... 15.7
Source: Banco de Mexico.
MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1990 through 1996 at current and constant prices.
Gross Gross Change from
Domestic Product Domestic Product Prior Year at
at Current Prices at 1993 Prices(1) Constant Prices
________________ _________________ _______________
(millions of Mexican New Pesos) (percentage)
1991. . . . 949,148 1,189,017 4.2
1992. . . . 1,125,334 1,232,162 3.6
1993. . . . 1,256,196 1,256,196 2.0
1994. . . . 1,420,159 1,311,661 4.4
1995. . . . 1,837,776 1,230,994 (6.2)
1996(2) . . 2,544,290 1,293,675 5.1
(1) Constant peso with purchasing power at December 31, 1993,
expressed in new pesos.
(2) Preliminary.
Source: Banco de Mexico.
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INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day CETES,
which are peso-denominated Treasury bills, the average weighted
cost of term deposits for commercial banks ("CPP"), the average
interest rate ("TIIP") and the equilibrium interest rate ("TIIE")
for the periods listed below. The government plans to issue
medium-term CETES for the first time in 1998.
Average CETES and Interest Rates
_________________________________
28-Day 91-Day
CETES CETES CPP TIIP TIIE
_____ _____ _____ _____ _____
1990:
Jan.-June 41.2 40.7 43.2% _____ _____
July-Dec. 28.3 29.4 31.0 _____ _____
1991:
Jan.-June 21.2 21.7 24.3 _____ _____
July-Dec. 17.3 18.0 20.8 _____ _____
1992:
Jan.-June 13.8 13.8 16.9 _____ _____
July-Dec. 17.4 18.0 20.7 _____ _____
1993:
Jan.-June 16.4 17.3 20.9 20.4(1) _____
July-Dec. 13.5 13.6 16.2 16.1 _____
1994:
Jan.-June 13.0 13.5 14.2 15.3 _____
July-Dec. 15.2 15.7 16.8 20.4 _____
1995:
Jan.-June 55.0 54.3 49.6 63.6 71.2(2)
July-Dec. 41.9 42.2 40.7 44.5 44.5
1996:
Jan.-June 35.4 37.2 34.5 37.3 37.2
July-Dec. 27.4 28.6 26.9 30.2 30.1
1997:
January 23.6 24.6 24.1 25.9 26.0
February 19.8 22.0 21.1 22.2 22.1
March 21.7 22.3 21.1 24.0 24.0
April 21.4 22.4 21.1 23.8 24.0
May 18.4 20.6 18.7 20.6 20.7
June 20.2 21.4 18.8 22.5 22.5
(1) February-June average.
(2) Average for the last two weeks of March.
Source: Banco de Mexico.
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________________________________________________________________
ADDITIONAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
________________________________________________________________
Territory and Population
The Republic of Argentina ("Argentina") is the second
largest country in Latin America, occupying a territory of 2.8
million square kilometers (1.1 million square miles) (3.8 million
square kilometers (1.5 million square miles) if territorial
claims in the Antarctic and certain South Atlantic islands are
included). It is located at the extreme south of the South
American continent, bordered by Chile, Bolivia, Paraguay, Brazil,
Uruguay and the South Atlantic Ocean. Argentina consists of 23
provinces and the federal capital of Buenos Aires. In 1991, the
year of the last Census, it had a population of approximately
34.6 million.
The most densely inhabited areas and the traditional
agricultural wealth are on the wide temperate belt that stretches
across central Argentina. About one-third of the population lives
in the greater Buenos Aires area. Six other urban centers,
Cordoba, Rosario, Mendoza, San Miguel de Tucuman, Mar del Plata
and La Plata, have a population of over 500,000 each.
Approximately 79% of the country's population is urban. During
the period 1980-1990, Argentina's population grew at a 1.4%
average annual rate. In the 1990-1995 period, Argentina's
population grew at a 1.2% average annual rate.
Government
The current Argentine federal constitution (the
"Constitution"), was promulgated on August 24, 1994 and became
effective immediately. The Constitution retains the basic
principles of the Constitution first established in 1853. The
Constitution 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 of Justice (the "Supreme Court") is the highest
body of authority. The President is directly elected by the
voters and may serve for a maximum of two consecutive four-year
terms. The next election for the Presidency is scheduled to take
place in 1999. 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 72-member Senate consists of three Senators for
each province and the federal capital of Buenos Aires. Senators
are elected for six-year terms, and serve in staggered terms so
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that one-third of the Senate's seats are subject to elections
every two years. The Chamber of Deputies consists of 257 seats
which are allocated according to each province's population.
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,
which has nine members who are appointed for life by the
President (subject to ratification by the Senate). In addition,
in 1994 Argentina's two largest political parties entered into an
agreement whereby future Supreme Court justices will be selected
from a list of nominees mutually agreed upon by both parties.
Each province has its own constitution, and elects its
own governor, legislators and judges, without the intervention of
the federal government.
Politics
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 in 1890. 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. Following the October 26, 1997 Congressional
elections, the PJ held 119 seats and the UCR and others held 138
seats in the Chamber of Deputies.
Since the 1930's, Argentina's political parties have had
difficulty in resolving the inter-group conflicts that arose 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 68 years. Poor economic
management by the military 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, failed due to a lack of support from the
public and the military as a whole.
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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.
President Menem, the leader of the PJ, was first 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. President Menem won reelection in May 1995, but his
popularity has eroded recently as the government has faced
allegations of corruption and criticism from both the ruling and
opposition parties concerning its economic policies. In the
October 26, 1997 Congressional elections, the PJ lost 12 seats in
the lower house, leaving it with 119 of the 257 seats, far short
of its pre-election majority.
Argentina has diplomatic relations with more than 135
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States. It is
also a member of the IMF and the World Bank. Argentina became a
member of the WTO on January 1, 1995 (the date on which the WTO
superseded GATT).
Monetary and Banking System
The central bank of Argentina is the Banco Central de la
Republica Argentina ("Central Bank of Argentina"). Its primary
functions include the administration of the financial sector,
note issue, credit control and regulation of foreign exchange
markets. The currency unit of Argentina is the Peso. Under the
Government's medium-term program with the IMF, the Government has
agreed to maintain the present fixed exchange rate of one peso
per dollar. Due to the ease of convertibility between the peso
and the dollar as a result of the Government's exchange rate
policies, changes in U.S. interest rates constitute a significant
factor in determining peso-dollar capital flows.
Economic Information Regarding Argentina
The Argentina economy has many strengths including a
well balanced natural resource base and a high literacy rate.
Since World War II, however, it has had a record of erratic
growth, declining investment rates and rapid inflation. Since
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the implementation of the current reform program in March 1991,
significant progress has been made in reducing inflation and
increasing real GDP growth. Although the GDP declined by 4.4% in
1995, GDP increased 4.3% in 1996. During the third quarter of
1997, GDP increased 8.6% compared to the third quarter of 1996,
and preliminary estimates indicate the GDP grew by more than 8%
in 1997. The basis for Argentina's recent economic growth has
been an increase in investment and exports.
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, steps were taken to remove various
regulations that restricted both international trade and domestic
commerce. 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.
On October 31, 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 continuing 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
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(by applying cash proceeds and through the selective use of debt-
to-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.
The Government completed 32 major privatizations in 1993, 11 in
1994 and 3 in 1995. On March 13, 1995 the Government announced a
new fiscal package, which included, among other measures, an
acceleration in the sale of assets and the privatization of
several additional companies. In July 1997, the postal service
was privatized and on February 11, 1998, the Government
officially unveiled a decree awarding the management of 33 of
Argentina's airports to a private consortium, bringing to more
than $30 billion the amount of assets sold since the
privatization program began. Efforts to privatize the Yacireta
hydroelectric dam and the national mortgage bank are ongoing.
The following provides certain 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
GDP and information concerning interest rates on certain
Argentine Government Securities. Historical statistical
information is not necessarily indicative of future developments.
CURRENCY EXCHANGE RATES. The Argentine foreign exchange
market was highly controlled until 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. Under
the Convertibility Law, the Central Bank of Argentina must
maintain a reserve in foreign currencies, gold and certain public
bonds denominated in foreign currencies equal to the amount of
outstanding Argentine currency and is obliged to sell dollars to
any person who so requires at a rate of one peso to one 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.
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Free Rate
_____________
1990 . . . . . . . . . . . . .5590
1991 . . . . . . . . . . . . .9990
1992 . . . . . . . . . . . . .9990
1993 . . . . . . . . . . . . .9990
1994 . . . . . . . . . . . . 1.0
1995 . . . . . . . . . . . . 1.0
1996 . . . . . . . . . . . . 1.0
1997 . . . . . . . . . . . . 1.0
Source: Banco Central de la Republica Argentina.
WAGES AND PRICES. Prior to the adoption of a new
economic plan announced by former Economy Minister Domingo F.
Cavallo 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. High
inflation combined with the lag between the accrual and receipt
of taxes reduced real tax revenues and increased 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 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 government's efforts proved inadequate, however, 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
restrain the public deficit which was believed to be 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
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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 loaned 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. Between December 1989 and
December 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 stability through reforms relating
to the tax system, privatizations and the opening of the economy
that are intended to address underlying structural problems that
had distorted fiscal and monetary policy.
The Convertibility Plan is centered on the two following
fundamental principles:
(1) Full international reserve backing for the monetary
base. The monetary base (consisting of currency in circulation
and peso 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
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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 Integraction ("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; and
(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 IMF has supported the implementation of the
Convertibility Plan and designed a financial program for the
Argentine public sector. In the event of any noncompliance 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. In the
second half of 1994, the Government decided to seek private
financing rather than utilize its EFF allotment for that period.
After the onset of the Mexican currency crisis, however, the
Government determined that it was necessary to seek further
funding through the EFF program, including drawing down on its
unused quota for the later part of 1994. Negotiations with the
IMF led to approval in April 1995 of economic performance waivers
for the last two quarters of 1994, an extension of the EFF credit
for a fourth year through March 30, 1996, and an increase in the
amount of the EFF credit by the equivalent of approximately US
$2.4 billion to a total of approximately US$6.3 billion. On
February 4, 1998, the IMF, citing Argentina's strong
macroeconomic performance in 1997, announced its approval of a
new three-year EFF credit for Argentina in the amount of
approximately US$2.8 billion to support the government's medium-
term economic reform program for 1998-2000.
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 index declined from a 27.0%
monthly rate in February 1991 to a 0.3% monthly rate in December
1992 and resulted in a 24.8% annual rate for 1992. Inflation
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continued to decrease in 1993 (to 10.6%), in 1994 (to 4.3%), in
1995 (to 3.3%), in 1996 (to 0.4%) and for the twelve months ended
November 30, 1997 (to -0.1%).
The dismissal of Economy Minister Cavallo by President
Menem in July 1996 has had no effect on the economic priorities
of the government. There is no assurance, however, that in the
future, the Convertibility Plan will not be modified or
abandoned.
CONSUMER PRICE INDEX. The following table sets forth
for each year indicated the change in Argentine Consumer Prices
for the twelve months ended December 31, 1989-96, and for the
twelve months ended November 30, 1997.
INFLATION
Consumer Prices,
Increase Over
Previous Period
----------------
1989............................................ 4,923.6
1990............................................ 1,343.9
1991............................................ 84.1
1992............................................ 24.8
1993............................................ 10.6
1994............................................ 4.3
1995(1)......................................... 3.3
1996(1)......................................... 0.4
1997(2)......................................... (0.1)
(1) In 1996, a new index was introduced called the
Indice Precios Internos al por Mayor (IPIM). The IPIM is broadly
similar to the index formerly used to determine wholesale price
inflation, but varies slightly as to the weighted average of the
goods measured in the index. The 1995 figures were also
recalculated using the new IPIM index.
(2) For the twelve months ended November 30, 1997.
___________________
Source: Banco Central de la Republica Argentina.
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ARGENTINE GROSS DOMESTIC PRODUCT. The following table
sets forth Argentina's GDP for the years 1989 through 1996 and
the first quarter of 1997 at historical and constant prices.
Gross Domestic Change from Prior
Gross Product at Year at
Domestic Product Constant 1986 Prices Constant Prices
________________ ___________________ _______________
(millions of Argentine Pesos) (percent)
1991 180,898 10,270 8.9
1992 226,847 11,159 8.7
1993 257,570 11,832 6.0
1994 281,600 12,710 7.4
1995 279,500 12,150 (4.6)
1996 294,100 12,672 4.3
1997
1st Qtr N/A N/A 8.2
2nd Qtr N/A N/A 8.2
3rd Qtr N/A N/A 8.6
_______________
Source: Banco Central de la Republica Argentina.
1996 and 1997 data are preliminary.
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998, totaling more than $262 billion (of which more than $107
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 58 registered investment
companies managed by the Adviser, comprising 123 separate
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<PAGE>
investment portfolios, currently have more than 3.5 million
shareholders. As of September 30, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of June 30, 1998, the Adviser was
retained as an investment manager for employee benefit plan
assets of 32 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 the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
65
<PAGE>
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provide persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
to registration with the Securities and Exchange Commission and
with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Fund's Board of Directors. The Fund paid to the
Adviser a total of $141,895 in respect of such services during
the fiscal year of the Fund ended in 1997.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement became effective on July 22,
1992. 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 that purpose held on February 21, 1992, and by
the Fund's sole shareholder on February 21, 1992. The Advisory
Agreement continues in force for successive twelve-month periods
66
<PAGE>
(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, 1999 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
October 15, 1998.
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 years of the Fund ended in 1995, 1996 and 1997 the
Adviser received from the Fund advisory fees of $11,774,101,
$13,118,739 and $15,056,849, respectively.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to Alliance 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
Global Dollar Government Fund, Inc., Alliance Global Environment
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Institutional Funds, Inc., Alliance International Fund, Alliance
67
<PAGE>
International Premier Growth Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Select Investor Series, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance Worldwide Privatization
Fund, Inc., The Alliance Portfolios and The Hudson River Trust,
all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc. and The
Spain Fund, Inc., all registered closed-end investment
companies.
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a trustee,
director or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the
address of each such person is 1345 Avenue of the Americas, New
York, New York 10105.
JOHN D. CARIFA,* 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
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<PAGE>
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
OFFICERS
JOHN D. CARIFA, Chairman and President, see biography,
"Directors" section above.
KATHLEEN A. CORBET, 38, Senior Vice President, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department since prior to 1993.
WAYNE D. LYSKI, 57, Senior Vice President, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1993.
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EDMUND P. BERGAN, JR., 48, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1993.
ANDREW L. GANGOLF, 44, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc. since prior to 1993.
DOMENICK PUGLIESE, 37, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was a Vice
President and Counsel of Concord Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since prior to 1993.
EMILIE D. WRAPP, 42, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993.
MARK D. GERSTEN, 48, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1993.
JUAN J. RODRIGUEZ, 41, Controller, is an Assistant Vice
President of AFS, with which he has been associated since prior
to 1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended November 30, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
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Total Number
Total Number of Investment
of Registered Portfolios
Investment within the
Companies the Alliance
Alliance Fund Fund Complex,
Complex, Including
Total Including the the Fund,
Compensation Fund, as to which as to which
Aggregate from the the Director the Director
Compensation Alliance is a Director is a Director
Name of Director From the Fund Fund Complex or Trustee or Trustee
John D. Carifa $-0- $-0- 53 118
Ruth Block $3,414 $164,000 40 81
David H. Dievler $3,421 $188,500 46 83
John H. Dobkin $3,405 $126,500 43 80
William H. Foulk, Jr. $3,481 $149,145 48 113
Dr. James M. Hester $3,381 $156,500 40 77
Clifford L. Michel $3,150 $194,500 41 93
Donald J. Robinson $3,346 $217,358 44 107
As of October 9, 1998, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter"), to permit the Principal
Underwriter to distribute the Fund's shares and to permit the Fund
to pay distribution services fees to defray expenses associated
with the distribution of its Class A, Class B and Class C shares
in accordance with a plan of distribution which is included in the
Agreement and has been duly adopted and approved in accordance
with Rule 12b-1 adopted by the 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 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
71
<PAGE>
the combined contingent deferred sales charges and distribution
services fees on the Class B shares and Class C shares are the
same as those of the initial sales charge and distribution
services fee with respect to the Class A shares in that in each
case the sales charge and distribution services fee provide for
the financing of the distribution of the relevant class of the
Fund's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not interested persons of the Fund (as defined in the 1940 Act)
are committed to the discretion of such disinterested Directors
then in office.
The Agreement became effective on July 22, 1992 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 Agreement
became effective on September 30, 1996 with respect to Advisor
Class shares.
In approving the Agreement, the Directors of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of the Principal Underwriter will be
presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the
Agreement. In their review of the Agreement, the Directors will
be asked to take into consideration separately with respect to
each class the distribution expenses incurred with respect to such
class. The distribution services fee of a particular class will
not be used to subsidize the provision of distribution services
with respect to any other class.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Securities and Exchange Commission (the "Commission") make
payments for distribution services to the Principal Underwriter;
the latter may in turn pay part or all of such compensation to
brokers or other persons for their distribution assistance.
During the Fund's fiscal year ended November 30, 1997,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class A shares, in amounts
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<PAGE>
aggregating $1,323,985 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 $1,105,526. Of the $2,429,511
paid by the Fund and the Adviser under the Plan with respect to
the Class A shares, $107,289 was spent on advertising, $38,955 on
the printing and mailing of prospectuses for persons other than
current shareholders, $1,366,174 for compensation to broker-
dealers and other financial intermediaries (including $221,488 to
the Fund's Principal Underwriter), $541,295 for compensation to
sales personnel and $375,798 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses.
During the Fund's fiscal year ended November 30, 1997,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class B shares, in amounts
aggregating $13,592,258 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 $1,123,699. Of the
$14,715,957 paid by the Fund and the Adviser under the Plan,
$247,341 was spent on advertising, $81,807 on the printing and
mailing of prospectuses for persons other than current
shareholders, $11,595,442 for compensation to broker-dealers and
other financial intermediaries (including $514,477 to the Fund's
Principal Underwriter), $564,030 for compensation to sales
personnel and $670,504 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $1,556,833 in interest on Class B shares
financing.
During the Fund's fiscal year ended November 30, 1997,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class C shares, in amounts
aggregating $2,658,842 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 $780,862. Of the
$3,439,704 paid by the Fund and the Adviser under the Plan, with
respect to Class C shares $62,926 was spent on advertising,
$20,437 on the printing and mailing of prospectuses for persons
other than current shareholders, $2,780,034 for compensation to
broker-dealers and other financial intermediaries (including
$130,092 to the Fund's Principal Underwriter), $135,260 for
compensation to sales personnel and $165,155 was spent on the
printing of sales literature, travel, entertainment, due diligence
and other promotional expenses and $275,892 in interest on Class C
shares financing.
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<PAGE>
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, 1999 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 October 15, 1998.
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
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 Fund or the
class or classes of the Fund affected. The Agreement may be
terminated (a) by the Fund without penalty at any time by a
majority vote of the 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.
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<PAGE>
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Class A shares, Class B shares, Class C
shares and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B shares and Class C shares is higher than the
transfer agency fee with respect to the Class A shares and Advisor
Class shares, reflecting the additional costs associated with the
Class B and Class C contingent deferred sales charges. For the
fiscal year ended November 30, 1997, the Fund paid AFS $2,844,422
pursuant to the Transfer Agency.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under the heading "Purchase and Sale of Shares
- --How to Buy Shares."
GENERAL
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase ("Class A shares"), with a contingent
deferred sales charge ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or
more, without any contingent deferred sales charge ("Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge, in each case as described below. Shares of the Fund
that are offered subject to a sales charge are offered through
(i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents") and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through
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<PAGE>
(iv) under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or (iv) by
directors and present or retired full-time employees of CB Richard
Ellis, Inc. Generally, a fee-based program must charge an asset-
based or other similar fee and must invest at least $250,000 in
Advisor Class shares of the Fund in order to be approved by AFD
for investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or other
financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to the
purchase, sale or exchange of Class A, Class B, Class C or Advisor
Class shares made through such financial representative. Such
financial representative may also impose requirements with respect
to the purchase, sale or exchange of shares that are different
from, or in addition to, those imposed by the Fund, including
requirements as to the minimum initial and subsequent investment
amounts. Sales personnel of selected dealers and agents
distributing the Funds shares may receive differing compensation
for selling Class A, Class B, Class C or Advisor Class shares.
The Fund may refuse any order for the purchase of shares.
The Fund reserves the right to suspend the sale of its shares to
the public in response to conditions in the securities markets or
for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "Class A
Shares". On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the
Exchange (currently 4:00 p.m. Eastern time) by dividing the value
of the Fund's total assets, less its liabilities, by the total
number of its shares then outstanding. A Fund business day is any
day on which the Exchange is open for trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
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<PAGE>
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset values of the Class A and
Advisor Class shares as a result of the differential daily expense
accruals of the distribution and transfer agency fees applicable
with respect to those classes of shares. Even under those
circumstances, the per share net asset values of the four classes
eventually will tend to converge immediately after the payment of
dividends, which will differ by approximately the amount of the
expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the
Exchange on that day (plus applicable Class A sales charges). In
the case of orders for purchase of shares placed through selected
dealers, agents or financial representatives, as applicable, the
applicable public offering price will be the net asset value as so
determined, but only if the selected dealer, agent or financial
representative receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time (certain selected
dealers, agents or financial representatives may enter into
operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value). The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. If the selected dealer,
agent or financial representative fails to do so, the investor's
right to that day's closing price must be settled between the
investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of regular
trading on the Exchange on the next day it is open for
trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate portion
of the Subscription Application or an "Autobuy" application
obtained by calling the "For Literature" telephone number shown on
the cover of this Statement of Additional Information. Except
with respect to certain omnibus accounts, telephone purchase
orders may not exceed $500,000. Payment for shares purchased by
telephone can be made only by Electronic Funds Transfer from a
bank account maintained by the shareholder at a bank that is a
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<PAGE>
member of the National Automated Clearing House Association
("NACHA"). If a shareholder's telephone purchase request is
received before 3:00 p.m. Eastern time on a Fund business day, the
order to purchase shares is automatically placed the following
Fund business day, and the applicable public offering price will
be the public offering price determined as of the close of
business on such following business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense to
the Fund, stock certificates representing shares of the Fund are
not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives will take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of the
deferred sales charge, (ii) Class B shares and Class C shares each
bear the expense of a higher distribution services fee than that
borne by Class A shares, and Advisor Class shares do not bear such
a fee, (iii) Class B shares and Class C shares bear higher
transfer agency costs than those borne by Class A and Advisor
Class shares; (iv) each of Class A, Class B and Class C shares has
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exclusive voting rights with respect to provisions of the Rule
12b-1 Plan pursuant to which its distribution services fee is paid
and other matters for which separate class voting is appropriate
under applicable law, provided that, if the Fund submits to a vote
of the Class A shareholders, an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder
with respect to the Class A shares, then such amendment will also
be submitted to the Class B shareholders and Advisor Class
shareholders and the Class A, Class B and Advisor Class
shareholders will vote separately by class, and (v) Class B shares
and Advisor Class shares are subject to a conversion feature.
Each class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares.**
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans and certain employee benefit plans.) for more
than $250,000 for Class B shares. (See Appendix D for information
concerning the eligibility of certain employee benefit plans to
purchase Class B shares at net asset value without being subject
to a contingent deferred sales charge and the ineligibility of
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
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<PAGE>
certain such plans to purchase Class A shares.) Class C shares
will normally not be suitable for the investor who qualifies to
purchase Class A shares at net asset value. For this reason, the
Principal Underwriter will reject any order for more than
$1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all
their funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year period and one-year period, respectively. For example, based
on current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value of
money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the fiscal years ended in 1995, 1996 and 1997 the
aggregate amount of underwriting commission payable with respect
to shares of the Fund was $4,384,448, $6,878,583 and $9,018,289,
respectively. Of those amounts, the Principal Underwriter
received the amounts of $167,547, $237,477 and $291,260,
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respectively, representing that portion of the sales charges paid
on shares of the Fund sold during the year which was not reallowed
to selected dealers (and was, accordingly, retained by the
Principal Underwriter). During the Fund's fiscal years ended in
1995, 1996 and 1997, the Principal Underwriter received contingent
deferred sales charges of $-0-, $237,571 and $361, respectively,
on Class A shares, $3,776,823, $1,914,263 and $1,417,334,
respectively, on Class B shares and $-0-, $32,226 and $93,896,
respectively, on Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the net asset value
plus a sales charge, as set forth below.
SALES CHARGE
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 3.36 3.25 3.00
$250,000 but
less than
$500,000 2.30 2.25 2.00
$500,000 but
less than
$1,000,000* 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
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<PAGE>
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under
"--Class B Shares Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A Shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
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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 May 31, 1998.
Net Asset Value per Class A
Share at May 31, 1998 $7.87
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .35
Class A Per Share Offering Price
to the Public $8.22
=====
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
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<PAGE>
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
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Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the Fund held
by the investor and (b) all shares of any other Alliance
Mutual Fund held by the investor; and
(iii) the net asset value of all shares
described in paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that of the
investor into a single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
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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 the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
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under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present full-time employees
of selected dealers or agents; or the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
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Underwriter, Alliance Fund Services, Inc. and their affiliates;
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
CLASS B SHARES
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
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distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
Year Since Purchase of Dollar Amount Subject to Charge
First 3%
Second 2%
Third 1%
Fourth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
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purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
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CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
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deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares-- General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
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_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
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repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
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day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTION -- GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund nor
the Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
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dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
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representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
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Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
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(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
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INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
plan's request without any sales charge, for Class A shares of
the Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
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Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases shares of
the Fund having a current net asset value of at least $4,000 (for
quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
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Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares. Under
a systematic withdrawal plan, up to 1% monthly, 2% bi- monthly or
3% quarterly of the value at the time of redemption of the
Class B or Class C shares in a shareholder's account may be
redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
STATEMENTS AND REPORTS
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
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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 Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund and the Bank each reserve the
right to change or suspend the checkwriting service. There is no
charge to the shareholder for the initiation and maintenance of
this service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly change, due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
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_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
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valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
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Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
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________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
UNITED STATES FEDERAL INCOME TAXATION
OF DIVIDENDS AND DISTRIBUTIONS
General
The Fund intends for each taxable year to be qualified
as a "regulated investment company" under the Code. So long as
the Fund distributes 90% of its income, 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, derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currency. In addition, the Fund will qualify as a regulated
investment company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
The 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
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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 October 31 of
such year (or November 30 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
will qualify for the dividends-received deduction for
corporations.
Distributions of net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss)
are taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as
described above. If a shareholder has held shares in the Fund
for six months or less and during that period has received a
distribution of net capital gain, any loss recognized by the
shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent
of the distribution.
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 may be required to withhold federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
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taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is
not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
FOREIGN 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
election. However, there can be no assurance that the Fund will
be able to do so. Pursuant to this election, a shareholder will
be required to (i) include in gross income(in addition to taxable
dividends actually received) his pro rata share of 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
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 shareholder who does
not itemize deductions. In addition, certain shareholders may be
subject to rules which limit or reduce their ability to fully
deduct, or claim a credit for, their pro rata share of the
foreign income taxes paid by the Fund. A shareholder's foreign
tax credit with respect to a dividend received from the Fund will
be disallowed unless the shareholder holds shares in the Fund on
the ex-dividend date and for at least 15 other days during the
30-day period beginning 15 days prior to the ex-dividend date.
Each shareholder will be notified within 60 days after the close
of the Fund's taxable year whether the foreign 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
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portion of dividends that represents income derived from sources
within each such country.
The federal income tax status of each year's
distributions by the Fund will be reported to shareholders and to
the Internal Revenue Service. The foregoing is only a general
description of the treatment of foreign taxes under the United
States federal income tax laws. Because the availability of a
foreign tax credit or deduction will depend on the particular
circumstances of each shareholder, potential investors are
advised to consult their own tax advisers.
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his 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
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<PAGE>
and forward foreign currency contracts are considered "section
1256 contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts other than forward foreign currency contracts will
be considered 60% long-term and 40% short-term capital gain or
loss, although the Fund may elect to have the gain or loss it
realizes on certain contracts taxed as "section 988" gain or
loss. Gain or loss realized by the Fund on forward foreign
currency contracts generally will be treated as section 988 gain
or loss and will therefore be characterized as ordinary income or
loss and will increase or decrease the amount of the Fund's net
investment income available to be distributed to shareholders as
ordinary income, as described above. The Fund can elect to
exempt its section 1256 contracts which are part of a "mixed
straddle" (as described below) from the application of section
1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to over-the-counter put and call options,
gain or loss realized by the Fund upon the lapse or sale of such
options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period
with respect to such option. However, gain or loss realized upon
the lapse or closing out of such options that are written by the
Fund will be treated as short-term capital gain or loss. In
general, if the Fund exercises an option, or 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
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<PAGE>
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund. In
general, if the Fund exercises such an option on a foreign
currency, or if such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
TAX STRADDLES. Any option, futures contract, or forward
foreign currency contract, interest rate swap, cap or floor or
other position entered into or held by the Fund in conjunction
with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which
at least one, but not all, the positions are section 1256
contracts may constitute a "mixed straddle". In general,
straddles are subject to certain rules that may affect the
character and timing of the Fund's gains and losses with respect
to straddle positions by requiring, among other things, that
(i) loss realized on disposition of one position of a straddle
not be recognized to the extent that the Fund has unrealized
gains with respect to the other position in such straddle;
(ii) the Fund's holding period in straddle positions be suspended
while the straddle exists (possibly resulting in gain being
treated as short-term capital gain rather than long-term capital
gain); (iii) losses recognized with respect to certain straddle
positions which are part of a mixed straddle and which are non-
section 1256 positions be treated as 60% long-term and 40% short-
term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term
capital losses be treated as long-term capital losses; and
(v) the deduction of interest and carrying charges attributable
to certain straddle positions may be deferred. The Treasury
Department is authorized to issue regulations providing for the
proper treatment of a mixed straddle where at least one position
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.
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<PAGE>
ZERO COUPON 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 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.
_________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
_________________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
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<PAGE>
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Portfolio securities
will not be purchased from or sold to Donaldson, Lufkin &
Jenrette Securities Corporation, an affiliate of the Adviser, or
any other subsidiary or affiliate of Equitable.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
CAPITALIZATION
The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they choose to do so, and in such event the holders
of the remaining less than 50% of the shares voting for such
election of Directors will not be able to elect any person or
persons to the Board of Directors. The authorized capital stock
of the Fund currently consists of 3,000,000,000 shares of Class A
Common Stock, $.001 par value, 3,000,000,000 shares of Class B
Common Stock, .$001 par value, 3,000,000,000 shares of Class C
Common Stock, $.001 par value, and 3,000,000,000 shares of
Advisor Class Common Stock, $.001 par value. All shares of the
Fund, when issued, are fully paid and non-assessable. The Board
of Directors is authorized to reclassify and issue any unissued
shares to any number of additional series and classes without
shareholder approval. Accordingly, the Board in the future, for
reasons such as the desire to establish one or more additional
portfolios with different investment objectives, policies or
restrictions, may create additional classes or series of shares.
Any issuance of shares of another class or 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 on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
114
<PAGE>
the Advisory Agreement and changes in investment policy, shares
of each portfolio would vote as separate series.
The outstanding voting shares of the Fund as of
October 9, 1998 consisted of 301,290,104 shares of common stock
outstanding, of which 94,668,030 were Class A shares, 170,645,116
were Class B shares and 35,976,958 were Class C shares and -0-
were Advisor Class shares. To the knowledge of the Fund, the
following persons owned of record, and no person owned
beneficially, 5% or more of the outstanding shares of the Fund as
of October 9, 1998:
No. of % of % of % of
Name and Address Shares Class A Class B Class C
MLPF&S
For the Sole Benefit of
its Customers 33,284,542 35.16%
Attn: Fund Administration 36,227,501 21.22%
4800 Deer Lake Dr. East 12,454,177 34.56%
2nd Floor
Jacksonville, Florida
32246-6484
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109, will act as custodian for the assets of the
Fund but plays no part in deciding the purchase or sale of
portfolio securities. Subject to the supervision of the Fund's
Directors, Brown Brothers Harriman & Co. may enter into sub-
custodial agreements for the holding of the Fund's foreign
securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
COUNSEL
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, New
York, New York. Seward & Kissel has relied upon the opinion of
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<PAGE>
Venable, Baetjer and Howard LLP, Baltimore, Maryland, for matters
relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield",
"actual distribution rate" and "total return." Computed
separately for each class, the Fund's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Securities and Exchange Commission
which provides for compounding on a semi-annual basis. The
Fund's "actual distribution rate," which may be stated in sales
literature, is computed in the same manner as yield except that
actual income dividends declared per share during the period in
question are substituted for net investment income per share. The
actual distribution rate is computed separately for each class of
shares. Computed separately for each class, the Fund's total
return is its average annual compounded total return for its most
recently completed one-, five- and ten-year periods (or, if
shorter, the period since the Fund's inception). The Fund's total
return for each such period is computed by finding, through the
use of a formula prescribed by the Securities and Exchange
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 May 31, 1998 for
Class A shares was 9.15%, for Class B shares was 8.82% and for
Class C shares was 8.83%. The Fund's actual distribution rate
for such period for Class A shares was 11.80%, for Class B shares
was 11.42% and for Class C shares was 11.42%. The Fund's average
total returns from March 27, 1992 (commencement of operations for
Class A and Class B shares) through May 31, 1998 were 7.99% and
7.88% for Class A and Class B shares, respectively. The Fund's
average annual total return for the five-year period ended
May 31, 1998 was 7.24% and 7.24% for Class A and Class B shares,
respectively. The average annual total return for the period
from May 3, 1993 (commencement of distribution for Class C
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<PAGE>
shares) through May 31, 1998 was 7.21% for Class C shares. The
total return for the one-year period ended May 31, 1998 was 6.36%
for the Class A shares, 7.26% for the Class B shares and 9.24%
for the Class C shares. 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 of return.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc.,
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as The 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
Commission under the Securities Act of 1933. Copies of the
Registration Statement may be obtained at a reasonable charge
from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
117
<PAGE>
_________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_________________________________________________________________
118
<PAGE>
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
SEMI-ANNUAL REPORT
MAY 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
ARGENTINA-26.9%
GOVERNMENT OBLIGATIONS-26.9%
Republic of Argentinan Pensioner-Bocon
Pre III FRN
3.58%, 9/01/02 (a) ARS 212,093 $174,921,120
Supplier-Bocon
Pro 1 FRN
3.11%, 4/01/07 672,843 475,519,535
Total Argentinian Securities
(cost $616,648,804) 650,440,655
CANADA-13.4%
GOVERNMENT/AGENCY OBLIGATIONS-13.4%
Government of Canada
8.00%, 6/01/27 CA$ 64,500 59,522,458
Province of British Columbia
7.88%, 11/30/23 36,000 30,610,438
8.00%, 9/08/23 24,600 21,524,894
9.00%, 8/23/24 25,000 24,225,371
Province of Manitoba
7.75%, 12/22/25 60,200 51,827,815
Province of Ontario
7.75%, 12/08/03 20,000 15,248,945
Province of Quebec
9.375%, 1/16/23 53,600 52,251,862
Province of Saskatchewan
9.60%, 2/04/22 24,600 24,876,025
Quebec Hydro Zero Coupon,
8/15/20 (b) 250,000 44,077,480
Total Canadian Securities
(cost $268,568,475) 324,165,288
MEXICO-28.5%
GOVERNMENT/AGENCY OBLIGATIONS-28.5%
Bankers Acceptances Nacional
Financiera S.N.C. (c)
15.00%, 8/13/98 MXP 80,180 $8,702,732
16.50%, 12/26/03 414,125 11,581,607
16.95%, 12/24/03 81,401 2,278,154
17.50%, 12/11/03 55,253 1,553,820
Mexican Treasury Bills (c)
16.561%, 12/17/98 187,490 19,031,823
16.763%, 5/06/99 437,575 41,067,648
16.925%, 4/08/99 150,000 14,273,562
17.312%, 3/11/99 1,283,235 124,364,785
17.525%, 2/11/99 1,178,760 115,910,760
17.913%, 1/14/99 314,635 31,492,036
19.99%, 7/02/98 623,236 69,448,708
20.05%, 9/24/98 665,954 70,696,763
20.19%, 7/30/98 337,714 37,057,718
21.38%, 8/27/98 358,446 38,743,210
21.38%, 10/22/98 195,075 20,399,131
22.85%, 6/04/98 717,412 81,122,854
Total Mexican Securities
(cost $830,559,491) 687,725,311
UNITED STATES-46.6%
GOVERNMENT OBLIGATIONS-46.6%
U.S. Treasury Bonds
6.75%, 8/15/26 US$ 55,000 61,445,285
11.75%, 11/15/14 64,000 95,619,968
12.375%, 5/15/04 41,200 55,079,250
12.50%, 8/15/14 69,000 106,777,500
13.75%, 8/15/04 60,000 85,218,720
14.00%, 11/15/11 31,900 49,355,265
U.S. Treasury Notes
5.625%, 5/15/08 20,000 20,106,240
6.125%, 8/31/98 18,500 18,540,460
6.125%, 11/15/27 178,000 186,010,000
6.25%, 10/31/01 60,000 61,237,500
6.25%, 2/15/07 86,800 90,272,000
6.75%, 4/30/00 21,100 21,554,958
7.00%, 7/15/06 122,900 133,384,845
5
ALLIANCE NORTH AMERICAN
PORTFOLIO OF INVESTMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
U.S. Treasury Strips
Zero Coupon, 5/15/14 US$ 13,400 $ 5,266,696
Zero Coupon, 2/15/19 250,000 73,647,750
Zero Coupon, 5/15/20 224,000 61,178,880
Total United States Securities
(cost $1,110,149,362) 1,124,695,317
TOTAL INVESTMENTS-115.4%
(cost $2,825,926,132) $2,787,026,571
Other assets less liabilities-(15.4)% (372,287,147)
NET ASSETS-100% $2,414,739,424
(a) Interest is compounded monthly and capitalized until October 1, 1998,
after which the security holder will receive monthly paydowns of principal and
interest until maturity.
(b) Private Placement, valued at fair value. (see Note A.)
(c) Interest rate represents annualized yield to maturity at purchase date.
Glossary:
FRN - Floating Rate Note.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE NORTH AMERICAN
MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value
(cost $2,825,926,132) $2,787,026,571
Interest receivable 22,560,561
Receivable for capital stock sold 8,089,775
Receivable for investment securities sold 6,408,457
Other assets 113,942
Total assets 2,824,199,306
LIABILITIES
Due to custodian 2,481,306
Loan payable 250,000,000
Payable for investment securities purchased 139,392,205
Dividend payable 8,417,187
Payable for capital stock redeemed 4,941,061
Advisory fee payable 1,483,784
Distribution fee payable 314,432
Loan interest payable 253,333
Accrued expenses 2,176,574
Total liabilities 409,459,882
NET ASSETS $2,414,739,424
COMPOSITION OF NET ASSETS
Capital stock, at par $ 306,525
Additional paid-in capital 2,688,098,405
Distributions in excess of net investment income (20,852,309)
Accumulated net realized loss on investments and
foreign currency transactions (214,137,305)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (38,675,892)
$2,414,739,424
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($719,953,748/
91,470,084 shares of capital stock issued and outstanding) $7.87
Sales charge--4.25% of public offering price 0.35
Maximum offering price $8.22
CLASS B SHARES
Net asset value and offering price per share ($1,401,892,175/
177,889,194 shares of capital stock issued and outstanding) $7.88
CLASS C SHARES
Net asset value and offering price per share ($292,893,501/
37,165,356 shares of capital stock issued and outstanding) $7.88
See notes to financial statements.
7
STATEMENT OF OPERATIONS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes withheld of $130,061) $149,067,218
EXPENSES
Advisory fee $ 8,288,120
Distribution fee - Class A 912,951
Distribution fee - Class B 7,011,149
Distribution fee - Class C 1,450,059
Custodian 1,677,497
Transfer agency 1,306,534
Printing 153,525
Taxes 77,920
Administrative 76,230
Audit and legal 52,162
Registration 44,186
Directors' fees 11,407
Miscellaneous 18,079
Total expenses before interest 21,079,819
Interest expense 7,912,723
Total expenses 28,992,542
Net investment income 120,074,676
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 36,709,095
Net realized loss on foreign currency transactions (16,259,967)
Net change in unrealized appreciation of:
Investments (55,241,137)
Foreign currency denominated assets and liabilities 160,129
Net loss on investments (34,631,880)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 85,442,796
See notes to financial statements.
8
ALLIANCE NORTH AMERICAN
STATEMENT OF CHANGES IN NET ASSETS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
--------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 120,074,676 $ 253,796,693
Net realized gain on investments and
foreign currency transactions 20,449,128 46,788,566
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (55,081,008) (64,771,290)
Net increase in net assets from operations 85,442,796 235,813,969
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (36,795,420) (53,153,774)
Class B (78,768,243) (151,811,556)
Class C (16,297,674) (29,704,053)
CAPITAL STOCK TRANSACTIONS
Net increase 287,518,384 206,316,343
Total increase 241,099,843 207,460,929
NET ASSETS
Beginning of year 2,173,639,581 1,966,178,652
End of period $2,414,739,424 $2,173,639,581
See notes to financial statements.
9
STATEMENT OF CASH FLOWS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 57,408,048
Interest paid (10,674,519)
Operating expenses paid (21,017,917)
Net increase in cash from operating
activities $ 25,715,612
INVESTING ACTIVITIES:
Purchases of short-term portfolio
investments, net (98,441,979)
Purchases of long-term portfolio investments (1,491,144,761)
Proceeds from disposition of long-term
portfolio investments 1,403,760,371
Net decrease in cash from investing
activities (185,826,369)
FINANCING ACTIVITIES*:
Subscriptions of capital stock, net 246,940,981
Cash dividends paid (89,558,366)
Net increase in cash from financing activities 157,382,615
Effect of exchange rate on cash 203,024
Net decrease in cash (2,525,118)
Cash at beginning of year 43,812
Cash at end of period $ (2,481,306)
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from operations $ 85,442,796
ADJUSTMENTS:
Decrease in interest receivable $ 1,876,186
Net realized gain on investment transactions (36,709,095)
Net change in unrealized appreciation 55,081,008
Accretion of bond discount (93,535,356)
Decrease in accrued expenses and other
liabilities (2,699,894)
Net realized loss on foreign currency
transactions 16,259,967
(59,727,184)
Net increase in cash from operating activities $ 25,715,612
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance North American Government Income Trust, Inc. (the "Fund") was
incorporated in the State of Maryland on February 3, 1992 as a non-diversified,
open-end management investment company. The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.25% for purchases not exceeding $1,000,000. With respect to purchases of
$1,000,000 or more, Class A shares redeemed within one year of purchase will be
subject to a contingent deferred sales charge of 1%. Class B shares are sold
with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month of purchase. Class C shares are subject to a contingent deferred sales
charge of 1% on redemptions made within the first year after purchase. All
three classes of shares have identical voting, dividend, liquidation and other
rights with respect to its distribution plan. The financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or, if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the United
States over-the-counter market and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when earned or accrued.
Net realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of foreign securities and
forward exchange currency contracts, holding of foreign currencies, exchange
gains or losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest recorded on
the Fund's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net change in unrealized appreciation (depreciation) of
foreign currency denominated assets and liabilities represents net currency
gains and losses from valuing foreign currency denominated assets and
liabilities at period end exchange rates.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
11
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within capital accounts based on their
federal tax basis treatment; temporary differences do not require such
reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.65 of 1% of the average adjusted daily net assets of the Fund. Such fee is
accrued daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid the Adviser $76,230
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended May 31, 1998.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $807,276 for the six months ended May 31, 1998.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $136,047 from the sale of Class A shares and
$18,773, $745,026 and $99,558 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the six months ended May 31, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $36,928,665 and $4,379,114 for Class B and Class C shares
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs, incurred by the
Distributor, beyond the current year for Class A shares. The Agreement also
provides that the Adviser may use its own resources to finance the distribution
of the Fund's shares.
12
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $80,590,538 and $36,410,296,
respectively, for the six months ended May 31, 1998. There were purchases of
$1,301,989,913 and sales of $1,368,124,724 of U.S. government and government
agency obligations for the six months ended May 31, 1998.
At May 31, 1998, the cost of investments for federal income tax purposes was
$2,837,995,583. Accordingly, gross unrealized appreciation of investments was
$108,991,755 and gross unrealized depreciation of investments was $159,960,767
resulting in net unrealized depreciation of $50,969,012 excluding foreign
currency transactions. At November 30, 1997, the Fund had a capital loss
carryforward totaling $187,492,968, of which $13,614,389 expires in the year
2002, $134,381,470 expires in the year 2003, and $39,497,109 expires in the
year 2004.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure of the Fund in that particular currency
contract.
At May 31, 1998, the Fund had no outstanding forward exchange currency
contracts.
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Deutsche Bank AG, New
York Branch on June 25, 1996. The maximum credit available under the credit
facility is $250,000,000 and requires no collateralization. The loan
outstanding, under the Credit Agreement for the six months ended May 31, 1998
was $250,000,000 with a related weighted average interest rate at period end of
6.08% and a weighted average annualized interest rate of 6.13%. The
$250,000,000 balance will mature on June 9, 1998. Interest payments on current
borrowings are based on the Eurodollar margin plus the applicable Eurodollar
rate. The Fund is also obligated to pay Deutsche Bank AG, New York Branch a
facility fee computed at the rate of .10% per annum on the daily amount of the
total commitment as in effect.
13
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE F: CAPITAL STOCK
There are 9,000,000,000 shares of $0.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B, and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------------- -------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997 (UNAUDITED) 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 31,074,548 17,871,465 $ 251,047,737 $ 144,058,872
Shares issued in
reinvestment of dividends 1,645,987 2,269,271 13,238,800 18,311,581
Shares converted from Class B 2,090,485 8,014,844 16,801,640 64,154,628
Shares redeemed (7,124,908) (12,556,597) (57,363,710) (100,703,640)
Net increase 27,686,112 15,598,983 $ 223,724,467 $ 125,821,441
CLASS B
Shares sold 22,497,242 43,619,890 $ 181,365,910 $ 351,851,243
Shares issued in
reinvestment of dividends 2,770,707 5,419,148 22,309,326 43,709,426
Shares converted to Class A (2,090,485) (8,014,844) (16,801,640) (64,154,628)
Shares redeemed (17,085,880) (35,310,274) (137,864,125) (283,575,964)
Net increase 6,091,584 5,713,920 $ 49,009,471 $ 47,830,077
CLASS C
Shares sold 6,052,155 11,671,925 $ 48,763,917 $ 94,074,275
Shares issued in
reinvestment of dividends 648,481 1,158,939 5,221,469 9,352,065
Shares redeemed (4,867,398) (8,808,490) (39,200,940) (70,761,515)
Net increase 1,833,238 4,022,374 $ 14,784,446 $ 32,664,825
</TABLE>
NOTE G: LITIGATION
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint"), styled IN RE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC.
SECURITIES LITIGATION, was filed in the U.S. District Court for the Southern
District of New York against the Fund, the Adviser, Alliance Capital Management
Corporation ("ACMC"), Alliance Fund Distributors, Inc. ("AFD"), The Equitable
Companies Incorporated ("The Equitable"), a parent of the Adviser, and certain
current and former officers and directors of the Fund and ACMC, alleging
violations of the federal securities laws, fraud and breach of fiduciary duty
in connection with the Fund's investments in Mexican and Argentine securities.
The Complaint sought certification of a plaintiff class of all persons who
purchased or owned Class A, B or C shares of the Fund from March 27, 1992
through December 23, 1994.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of
the Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit issued an order granting defendants' motion to strike and
dismissing plaintiffs' appeal of the First Decision.
14
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
the Fund did not properly disclose that it planned to invest in mortgage-backed
derivative securities and that two advertisements used by the Fund
misrepresented the risks of investing in the Fund. Plaintiffs also alleged that
the Fund failed to hedge against the risks of investing in foreign securities
despite representations that it would do so. On July 15, 1997, the District
Court denied plaintiffs' motion for leave to file an amended complaint and
ordered that the case be dismissed ("Second Decision"). On October 29, 1997,
the United States Court of Appeals for the Second Circuit dismissed plaintiffs'
appeal of the Second Decision as premature on the grounds that the District
Court failed to enter the final judgment in respect of the Second Decision. The
Court of Appeals remanded the case back to the District Court with instructions
to enter a final judgment in respect of the Second Decision. On November 10,
1997, the District Court entered such a judgment, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment. The parties have filed
submissions with the Court of Appeals, the appeal has been argued, and the
parties are now awaiting a decision.
The Fund and the Adviser believe that the allegations in the complaint and the
amended complaint are without merit and intend to defend vigorously against
these claims.
NOTE H: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include revaluation of currencies and the possibility of future adverse
political and economic developments. Moreover, securities of many foreign
governments and their markets may be less liquid and their prices more volatile
than those of the United States government. The Fund may invest in the
sovereign debt obligations of countries that are considered emerging market
countries at the time of purchase. Therefore, the Fund is susceptible to
governmental factors and economic and debt restructuring developments adversely
affecting the economies of these emerging market countries. In addition, these
debt obligations may be less liquid and subject to greater volatility than debt
obligations of more developed countries.
15
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31,1998 -------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .44(a) 1.03(a) 1.09(a) 1.18(a) 1.02 1.09
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.11) (.05) 1.14 (1.59) (2.12) .66
Net increase (decrease) in net asset
value from operations .33 .98 2.23 (.41) (1.10) 1.75
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.97) (.75) -0- (.91) (1.09)
Tax return of capital -0- -0- (.22) (.97) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.01)
Total dividends and distributions (.48) (.97) (.97) (.97) (1.12) (1.10)
Net asset value, end of period $ 7.87 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on net
asset value (b) 4.20% 12.85% 35.22% (3.59)% (11.32)% 18.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $719,954 $511,749 $385,784 $252,608 $303,538 $268,233
Ratio of expenses to average net assets 1.99%(c) 2.15% 2.34% 2.62% 1.70% 1.61%
Ratio of expenses to average net assets
excluding interest expense (d) 1.31%(c) 1.38% 1.41% 1.51% 1.37% 1.33%
Ratio of net investment income to
average net assets 10.93%(c) 12.78% 14.82% 18.09% 11.22% 10.77%
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31,1998 -----------------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41(a) .98(a) 1.04(a) 1.13(a) .96 1.01
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.10) (.07) 1.12 (1.61) (2.13) .67
Net increase (decrease) in net asset
value from operations .31 .91 2.16 (.48) (1.17) 1.68
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.90) (.69) -0- (.84) (1.02)
Tax return of capital -0- -0- (.21) (.90) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.01)
Total dividends and distributions (.45) (.90) (.90) (.90) (1.05) (1.03)
Net asset value, end of period $ 7.88 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on net
asset value (b) 3.88% 11.88% 33.96% (4.63)% (11.89)% 18.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $1,401,892 $1,378,407 $1,329,719 $1,123,074 $1,639,602 $1,313,591
Ratio of expenses to average net assets 2.71%(c) 2.86% 3.05% 3.33% 2.41% 2.31%
Ratio of expenses to average net assets
excluding interest expense (d) 2.02%(c) 2.09% 2.12% 2.22% 2.07% 2.04%
Ratio of net investment income to
average net assets 10.26%(c) 12.15% 14.20% 17.31% 10.53% 10.01%
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
17
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS MAY 3,1993(E)
ENDED YEAR ENDED NOVEMBER 30, TO
MAY 31, 1998 -------------------------------------------------- NOVEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41(a) .98(a) 1.05(a) 1.13(a) .96 .58
Net realized and unrealized gain (loss)
on investments and foreign currency
transaction (.10) (.07) 1.11 (1.61) (2.12) .30
Net increase (decrease) in net asset
value from operations .31 .91 2.16 (.48) (1.16) .88
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.90) (.69) -0- (.84) (.58)
Tax return of capital -0- -0- (.21) (.90) (.21) -0-
Total dividends and distributions (.45) (.90) (.90) (.90) (1.05) (.58)
Net asset value, end of period $ 7.88 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34
TOTAL RETURN
Total investment return based on net
asset value (b) 3.88% 11.88% 33.96% (4.63)% (11.89)% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $292,894 $283,483 $250,676 $219,009 $369,714 $310,230
Ratio of expenses to average net assets 2.70%(c) 2.85% 3.04% 3.33% 2.39% 2.21%(e)
Ratio of expenses to average net assets
excluding interest expense (d) 2.01%(c) 2.08% 2.12% 2.21% 2.06% 2.04%(e)
Ratio of net investment income to
average net assets 10.27%(c) 12.14% 14.22% 17.32% 10.46% 9.74%(e)
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Annualized.
(d) Net of interest expense of .68%, .77%, .93%, 1.11%, .33% and .28%
respectively, since inception on loan agreement (see Note E).
(e) Commencement of distribution.
18
<PAGE>
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
ANNUAL REPORT
NOVEMBER 30, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS ALLIANCE NORTH AMERICAN
NOVEMBER 30, 1997 GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
ARGENTINA-27.4%
GOVERNMENT OBLIGATIONS-27.4%
Republic of Argentina
Pensioner-Bocon Pre III FRN
3.58%, 9/01/02 (a) ARS 190,443 $ 151,504,422
Supplier-Bocon Pro I FRN
3.24%, 4/01/07 625,366 444,661,828
Total Argentinian Securities
(cost $542,318,557) 596,166,250
CANADA-14.5%
GOVERNMENT/AGENCY OBLIGATIONS-14.5%
Government of Canada
8.00%, 6/01/27 CA$ 64,500 58,170,254
Province of British Columbia
7.88%, 11/30/23 36,000 30,272,813
8.00%, 9/08/23 24,600 21,325,585
9.00%, 8/23/24 25,000 24,024,788
Province of Manitoba
7.75%, 12/22/25 60,200 51,003,335
Province of Ontario
7.75%, 12/08/03 20,000 15,610,407
Province of Quebec
9.375%, 1/16/23 53,600 51,245,673
Province of Saskatchewan
9.60%, 2/04/22 24,600 24,495,488
Quebec Hydro
Zero Coupon, 8/15/20 (b) 250,000 38,692,462
Total Canadian Securities
(cost $265,404,384) 314,840,805
MEXICO-25.9%
GOVERNMENT/AGENCY OBLIGATIONS-25.9%
Bankers Acceptances Nacional
Financiera S.N.C. (c)
15.00%, 8/13/98 MXP 80,180 8,421,628
16.50%, 12/26/03 414,125 11,648,551
16.95%, 12/24/03 81,401 2,291,236
17.50%, 12/11/03 55,253 1,562,239
Mexican Treasury Bills (c)
19.99%, 7/02/98 623,236 67,153,316
20.05%, 9/24/98 665,954 68,756,239
20.19%, 7/30/98 337,714 35,874,488
21.38%, 8/27/98 358,446 37,531,311
21.38%, 10/22/98 195,075 19,867,320
22.85%, 6/04/98 717,412 78,479,951
23.16%, 5/07/98 874,729 97,180,316
23.50%, 3/05/98 254,792 29,330,473
23.86%, 4/02/98 690,547 78,189,387
23.90%, 2/04/98 66,126 7,736,946
25.47%, 12/31/97 157,216 18,796,642
Total Mexican Securities
(cost $674,975,440) 562,820,043
UNITED STATES-54.2%
U.S. GOVERNMENT/AGENCY OBLIGATIONS-53.7%
U.S. Treasury Bonds
6.375%, 8/15/27 US$ 75,000 77,859,375
6.625%, 2/15/27 78,000 83,362,500
6.75%, 8/15/26 55,000 59,640,625
12.00%, 8/15/13 66,200 96,734,750
12.375%, 5/15/04 41,200 55,323,854
12.50%, 8/15/14 19,000 29,087,803
14.00%, 11/15/11 31,900 49,325,375
U.S. Treasury Notes
6.125%, 8/31/98 18,500 18,557,813
6.125%, 11/15/27 48,000 48,464,976
6.25%, 10/31/01 60,000 60,750,000
6.25%, 2/15/07 58,400 59,732,221
6.625%, 3/31/02 88,900 91,316,924
6.625%, 4/30/02 37,500 38,554,688
6.75%, 4/30/00 21,100 21,535,188
7.00%, 7/15/06 122,900 131,656,625
U.S. Treasury Strips
Zero Coupon, 5/15/09 52,430 26,370,140
Zero Coupon, 5/15/10 384,970 181,470,623
Zero Coupon, 2/15/11 70,000 31,454,150
Zero Coupon, 5/15/14 13,400 4,913,981
---------------
1,166,111,611
5
ALLIANCE NORTH AMERICAN
PORTFOLIO OF INVESTMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
REPURCHASE AGREEMENT-0.5%
Brown Brothers Harriman & Co.
5.65%, dated 11/28/97, due 12/01/97,
(collateralized by $12,138,000 U.S.
Treasury Note 5.50%, 11/15/98) US$ 11,900 $ 11,900,000
Total United States Securities
(cost $1,152,798,751) 1,178,011,611
TOTAL INVESTMENTS-122.0%
(cost $2,635,497,132) $ 2,651,838,709
Other assets less liabilities-(22.0)% (478,199,128)
NET ASSETS-100% $ 2,173,639,581
(a) Interest is compounded monthly and capitalized until October 1, 1998,
after which the security holder will receive monthly paydowns of principal and
interest until maturity.
(b) Private Placement, valued at fair value. (see Note A.)
(c) Interest rate represents annualized yield to maturity at purchase date.
Glossary:
FRN - Floating Rate Note.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE NORTH AMERICAN
NOVEMBER 30, 1997 GOVERNMENT INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $2,635,497,132) $ 2,651,838,709
Cash 43,812
Interest receivable 24,436,747
Receivable for capital stock sold 12,085,765
Receivable for investment securities sold 5,633,808
Other assets 14,412
Total assets 2,694,053,253
LIABILITIES
Loan payable 250,000,000
Payable for investment securities purchased 247,956,515
Payable for capital stock redeemed 8,744,859
Dividend payable 6,883,811
Loan interest payable 3,015,129
Advisory fee payable 1,269,026
Distribution fee payable 347,088
Accrued expenses 2,197,244
Total liabilities 520,413,672
NET ASSETS $ 2,173,639,581
COMPOSITION OF NET ASSETS
Capital stock, at par $ 270,914
Additional paid-in capital 2,400,615,632
Distributions in excess of net investment income (9,065,648)
Accumulated net realized loss on investments and
foreign currency transactions (234,586,433)
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 16,405,116
$ 2,173,639,581
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($511,748,639/63,783,972 shares of capital stock
issued and outstanding) $8.02
Sales charge--4.25% of public offering price .36
Maximum offering price $8.38
CLASS B SHARES
Net asset value and offering price per share
($1,378,407,497/171,797,610 shares of capital stock
issued and outstanding) $8.02
CLASS C SHARES
Net asset value and offering price per share ($283,483,445/
35,332,118 shares of capital stock issued and outstanding) $8.02
See notes to financial statements.
7
STATEMENT OF OPERATIONS ALLIANCE NORTH AMERICAN
YEAR ENDED NOVEMBER 30, 1997 GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes
withheld of $277,751) $ 309,800,728
EXPENSES
Advisory fee $15,056,849
Distribution fee - Class A 1,323,985
Distribution fee - Class B 13,592,258
Distribution fee - Class C 2,658,842
Custodian 3,500,404
Transfer agency 2,844,422
Printing 372,609
Audit and legal 148,113
Administrative 141,895
Taxes 138,063
Registration 89,658
Directors' fees 24,240
Amortization of organization expenses 21,187
Miscellaneous 33,800
Total expenses before interest 39,946,325
Interest expense 16,057,710
Total expenses 56,004,035
Net investment income 253,796,693
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 44,207,583
Net realized gain on foreign currency transactions 2,580,983
Net change in unrealized appreciation of:
Investments (59,723,200)
Foreign currency denominated assets and liabilities (5,048,090)
Net loss on investments (17,982,724)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 235,813,969
See notes to financial statements.
8
ALLIANCE NORTH AMERICAN
STATEMENT OF CHANGES IN NET ASSETS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 253,796,693 $ 253,011,440
Net realized gain (loss) on investments
and foreign currency transactions 46,788,566 (166,940,464)
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (64,771,290) 435,674,111
Net increase in net assets from operations 235,813,969 521,745,087
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (53,153,774) (31,636,818)
Class B (151,811,556) (115,651,793)
Class C (29,704,053) (22,209,685)
Tax return of capital
Class A -0- (9,263,080)
Class B -0- (33,862,188)
Class C -0- (6,502,870)
CAPITAL STOCK TRANSACTIONS
Net increase 206,316,343 68,868,628
Total increase 207,460,929 371,487,281
NET ASSETS
Beginning of year 1,966,178,652 1,594,691,371
End of year $2,173,639,581 $1,966,178,652
See notes to financial statements.
9
STATEMENT OF CASH FLOWS ALLIANCE NORTH AMERICAN
YEAR ENDED NOVEMBER 30, 1997 GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 104,359,368
Interest paid (15,618,485)
Operating expenses paid (39,540,730)
Net increase in cash from operating activities $ 49,200,153
INVESTING ACTIVITIES:
Proceeds from disposition of short-term
portfolio investments, net 95,227,304
Purchases of long-term portfolio investments (2,482,075,749)
Proceeds from disposition of long-term
portfolio investments 2,340,269,638
Net decrease in cash from investing activities (46,578,807)
FINANCING ACTIVITIES*:
Subscriptions of capital stock, net 202,107,720
Cash dividends paid (234,015,941)
Net decrease in cash from financing activities (31,908,221)
Effect of exchange rate on cash 22,132,510
Net decrease in cash (7,154,365)
Cash at beginning of year 7,198,177
Cash at end of year $ 43,812
_______________________________________________________________________________
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from operations $ 235,813,969
ADJUSTMENTS:
Decrease in interest receivable $ 202,766
Net realized gain on investment transactions (44,207,583)
Net change in unrealized depreciation 64,771,290
Accretion of bond discount (205,644,125)
Increase in accrued expenses and
other liabilities 844,819
Net realized gain on foreign
currency transactions (2,580,983)
(186,613,816)
Net increase in cash from operating activities $ 49,200,153
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS ALLIANCE NORTH AMERICAN
NOVEMBER 30, 1997 GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance North American Government Income Trust, Inc. (the "Fund"), was
incorporated in the State of Maryland on February 3, 1992 as a non-diversified,
open-end management investment company. The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.25% for purchases not exceeding $1,000,000. With respect to purchases of
$1,000,000 or more, Class A shares redeemed within one year of purchase will be
subject to a contingent deferred sales charge of 1%. Class B shares are sold
with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month of purchase. Class C shares are subject to a contingent deferred sales
charge of 1% on redemptions made within the first year after purchase. All
three classes of shares have identical voting, dividend, liquidation and other
rights with respect to its distribution plan. The following is a summary of
significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or, if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities market whose operations are similar to the United
States over-the-counter market and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair value of such securities.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when earned or accrued.
Net realized gains and losses on foreign currency transactions represent
foreign exchange gains and losses from sales and maturities of foreign
securities and forward exchange currency contracts, holding of foreign
currencies, exchange gains or losses realized between the trade and settlement
dates on investment transactions, and the difference between the amounts of
interest recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net change in unrealized appreciation
(depreciation) of foreign currency denominated assets and liabilities
represents net currency gains and losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $331,965 have been deferred and were
amortized on a straight-line basis through March 1997.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
11
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within capital accounts based on their
federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency gains, resulted in a net increase in
undistributed net investment income and a corresponding increase in accumulated
net realized loss on investments and foreign currency transactions. This
reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.65 of 1% of the average adjusted daily net assets of the Fund. Such fee is
accrued daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid the Adviser $141,895
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended November 30, 1997.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $1,861,636 for the year ended November 30, 1997.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $291,260 from the sale of Class A shares and $361,
$1,417,334 and $93,896 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the year ended November 30, 1997.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $36,319,865 and $4,072,381 for Class B and Class C shares
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs, incurred by the
Distributor, beyond the current year for Class A shares. The Agreement also
provides that the Adviser may use its own resources to finance the distribution
of the Fund's shares.
12
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $241,635,118 and $446,906,551,
respectively, for the year ended November 30, 1997. There were purchases of
$2,214,841,459 and sales of $1,844,671,650 of U.S. government and government
agency obligations for the year ended November 30, 1997.
At November 30, 1997, the cost of investments for federal income tax purposes
was $2,682,590,605. Accordingly, gross unrealized appreciation of investments
was $132,422,155 and gross unrealized depreciation of investments was
$163,174,051 resulting in net unrealized depreciation of $30,751,896 excluding
foreign currency transactions. At November 30, 1997, the Fund had a capital
loss carryforward totaling $187,492,968, of which $13,614,389 expires in the
year 2002, $134,381,470 expires in the year 2003, and $39,497,109 expires in
the year 2004.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure of the Fund in that particular currency
contract.
At November 30, 1997, the Fund had no outstanding forward exchange currency
contracts.
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Deutsche Bank AG, New
York Branch on June 25, 1996. The maximum credit available under the credit
facility is $250,000,000 and requires no collateralization. The loan
outstanding, under the Credit Agreement for the year ended November 30, 1997
was $250,000,000 with a related weighted average interest rate at year end of
6.28% and a weighted average annualized interest rate of 6.17%. The
$250,000,000 balance will mature on December 24, 1997. Interest payments on
current borrowings are based on the Eurodollar margin plus the applicable
Eurodollar rate. The Fund is also obligated to pay Deutsche Bank AG, New York
Branch a facility fee computed at the rate of .10% per annum on the daily
amount of the total commitment as in effect.
13
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE F: CAPITAL STOCK
There are 9,000,000,000 shares of $0.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B, and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 17,871,465 18,944,431 $144,058,872 $140,393,513
Shares issued in
reinvestment of
dividends and
distributions 2,269,271 2,057,846 18,311,581 15,163,942
Shares converted
from Class B 8,014,844 2,279,998 64,154,628 16,873,171
Shares redeemed (12,556,597) (12,520,904) (100,703,640) (93,408,830)
Net increase 15,598,983 10,761,371 $125,821,441 $ 79,021,796
CLASS B
Shares sold 43,619,890 35,540,009 $351,851,243 $262,230,157
Shares issued in
reinvestment of
dividends and
distributions 5,419,148 6,054,943 43,709,426 44,586,197
Shares converted
to Class A (8,014,844) (2,279,998) (64,154,628) (16,873,171)
Shares redeemed (35,310,274) (39,607,584) (283,575,964) (291,766,451)
Net increase
(decrease) 5,713,920 (292,630) $ 47,830,077 $ (1,823,268)
CLASS C
Shares sold 11,671,925 8,095,161 $ 94,074,275 $ 59,728,484
Shares issued in
reinvestment of
dividends and
distributions 1,158,939 1,232,338 9,352,065 9,077,697
Shares redeemed (8,808,490) (10,461,384) (70,761,515) (77,136,081)
Net increase
(decrease) 4,022,374 (1,133,885) $ 32,664,825 $ (8,329,900)
NOTE G: LITIGATION
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint"), styled IN RE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC.
SECURITIES LITIGATION, was filed in the U.S. District Court for the Southern
District of New York against the Fund, the Adviser, Alliance Capital Management
Corporation ("ACMC"), Alliance Fund Distributors, Inc. ("AFD"), The Equitable
Companies Incorporated ("The Equitable"), a parent of the Adviser, and certain
current and former officers and directors of the Fund and ACMC, alleging
violations of the federal securities laws, fraud and breach of fiduciary duty
in connection with the Fund's investments in Mexican and Argentine securities.
The Complaint sought certification of a plaintiff class of all persons who
purchased or owned Class A, B or C shares of the Fund from March 27, 1992
through December 23, 1994.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of
the Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit issued an order granting defendants' motion to strike and
dismissing plaintiffs' appeal of the First Decision.
14
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
the Fund did not properly disclose that it planned to invest in mortgage-backed
derivative securities and that two advertisements used by the Fund
misrepresented the risks of investing in the Fund. Plaintiffs also alleged that
the Fund failed to hedge against the risks of investing in foreign securities
despite representations that it would do so. On July 15, 1997, the District
Court denied plaintiffs' motion for leave to file an amended complaint and
ordered that the case be dismissed ("Second Decision"). On October 29, 1997,
the United States Court of Appeals for the Second Circuit dismissed plaintiffs'
appeal of the Second Decision as premature on the grounds that the District
Court failed to enter the final judgment in respect of the Second Decision. The
Court of Appeals remanded the case back to the District Court with instructions
to enter a final judgment in respect of the Second Decision. On November 10,
1997, the District Court entered such a judgment, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment.
The Fund and the Adviser believe that the allegations in the complaint and the
amended complaint are without merit and intend to defend vigorously against
these claims.
NOTE H: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include revaluation of currencies and the possibility of future adverse
political and economic developments. Moreover, securities of many foreign
governments and their markets may be less liquid and their prices more volatile
than those of the United States government. The Fund may invest in the
sovereign debt obligations of countries that are considered emerging market
countries at the time of purchase. Therefore, the Fund is susceptible to
governmental factors and economic and debt restructuring developments adversely
affecting the economies of these emerging market countries. In addition, these
debt obligations may be less liquid and subject to greater volatility than debt
obligations of more developed countries.
15
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.03(a) 1.09(a) 1.18(a) 1.02 1.09
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.05) 1.14 (1.59) (2.12) .66
Net increase (decrease) in net asset
value from operations .98 2.23 (.41) (1.10) 1.75
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.97) (.75) -0- (.91) (1.09)
Tax return of capital -0- (.22) (.97) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- (.01)
Total dividends and distributions (.97) (.97) (.97) (1.12) (1.10)
Net asset value, end of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on
net asset value (b) 12.85% 35.22% (3.59)% (11.32)% 18.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $511,749 $385,784 $252,608 $303,538 $268,233
Ratio of expenses to average net assets 2.15% 2.34% 2.62% 1.70% 1.61%
Ratio of expenses to average net assets
excluding interest expense (c) 1.38% 1.41% 1.51% 1.37% 1.33%
Ratio of net investment income to
average net assets 12.78% 14.82% 18.09% 11.22% 10.77%
Portfolio turnover rate 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .98(a) 1.04(a) 1.13(a) .96 1.01
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions (.07) 1.12 (1.61) (2.13) .67
Net increase (decrease) in net asset
value from operations .91 2.16 (.48) (1.17) 1.68
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.90) (.69) -0- (.84) (1.02)
Tax return of capital -0- (.21) (.90) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- (.01)
Total dividends and distributions (.90) (.90) (.90) (1.05) (1.03)
Net asset value, end of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on
net asset value (b) 11.88% 33.96% (4.63)% (11.89)% 18.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $1,378,407 $1,329,719 $1,123,074 $1,639,602 $1,313,591
Ratio of expenses to average net assets 2.86% 3.05% 3.33% 2.41% 2.31%
Ratio of expenses to average net assets
excluding interest expense (c) 2.09% 2.12% 2.22% 2.07% 2.04%
Ratio of net investment income to
average net assets 12.15% 14.20% 17.31% 10.53% 10.01%
Portfolio turnover rate 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------
MAY 3, 1993(D)
YEAR ENDED NOVEMBER 30, TO
-------------------------------------------------------- NOVEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.01 $ 6.75 $ 8.13 $10.34 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income .98(a) 1.05(a) 1.13(a) .96 .58
Net realized and unrealized gain
(loss) on investments and foreign
currency transaction (.07) 1.11 (1.61) (2.12) .30
Net increase (decrease) in net
asset value from operations .91 2.16 (.48) (1.16) .88
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.90) (.69) -0- (.84) (.58)
Tax return of capital -0- (.21) (.90) (.21) -0-
Total dividends and distributions (.90) (.90) (.90) (1.05) (.58)
Net asset value, end of period $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34
TOTAL RETURN
Total investment return based on
net asset value(b) 11.88% 33.96% (4.63)% (11.89)% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $283,483 $250,676 $219,009 $369,714 $310,230
Ratio of expenses to average net assets 2.85% 3.04% 3.33% 2.39% 2.21%(e)
Ratio of expenses to average net assets
excluding interest expense (c) 2.08% 2.12% 2.21% 2.06% 2.04%(e)
Ratio of net investment income to
average net assets 12.14% 14.22% 17.32% 10.46% 9.74%(e)
Portfolio turnover rate 118% 166% 180% 131% 254%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Net of interest expense of .77%, .93%, 1.11%, .33% and .28% respectively,
on loan agreement (see Note E).
(d) Commencement of distribution.
(e) Annualized.
18
REPORT OF ERNST & YOUNG LLP ALLIANCE NORTH AMERICAN
INDEPENDENT AUDITORS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE NORTH AMERICAN GOVERNMENT
INCOME TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance North American Government Income Trust, Inc. (the "Fund"), including
the portfolio of investments, as of November 30, 1997, and the related
statements of operations and cash flows for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance North American Government Income Trust, Inc. at November 30, 1997, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
New York, New York
January 7, 1998
19
<PAGE>
APPENDIX A
BOND RATINGS
STANDARD & POOR's BOND RATINGS
A Standard & Poor's Ratings Services ("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 a 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
some speculative elements while Ca represents a high degree of
A-1
<PAGE>
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.
A-2
<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.
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.
B-1
<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
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<PAGE>
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
C-2
<PAGE>
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 the 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 it 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.
C-3
<PAGE>
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
contract without having to make or take delivery of the
C-4
<PAGE>
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
respect to such futures contracts.
C-5
<PAGE>
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although
the Fund believes that use of such contracts will benefit the
Fund, if the Adviser's investment judgment about the general
direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any
such contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
As with the purchase of futures contracts, when the Fund is not
C-6
<PAGE>
fully invested it may purchase a call option on a futures
contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which
provides 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
value of portfolio securities, the Fund may purchase put options
C-7
<PAGE>
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 Fund is "covered" if the Fund owns the underlying foreign
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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.
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<PAGE>
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 period.
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____________________________________________________________
APPENDIX D:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
D-1
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by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
D-2
<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:
Portfolio of Investments, November 30, 1997.
Statement of Assets and Liabilities,
November 30, 1997.
Statement of Operations, year ended November 30,
1997.
Statement of Changes in Net Assets, years ended
November 30, 1997 and November 30, 1996
Statement of Cash Flows, year ended November 30,
1997.
Notes to Financial Statements, November 30, 1997.
Financial Highlights for Class A and Class B shares
for years ended November 30, 1997, November 30,
1996, November 30, 1995, November 30, 1994 and
November 30, 1993; for Class C shares for the
years ended November 30, 1997, November 30, 1996,
November 30, 1995, November 30, 1994 and the
period May 3, 1993 (commencement of distribution)
through November 30, 1993.
Report of Independent Auditors.
Portfolio of Investments, May 31, 1998 (unaudited)
Statement of Assets and Liabilities May 31, 1998
(unaudited)
Statement of Operations for the six months ended
May 31, 1998 (unaudited)
Statement of Changes in Net Assets for the year
ended November 30, 1997 and the six months ended
May 31, 1998 (unaudited)
Statement of Cash Flows for the six months ended
May 31, 1998 (unaudited)
Notes to Financial Statement - May 31, 1998
(unaudited)
Financial Highlights for Class A and Class B
shares for the six months ended May 31, 1998
(unaudited) and for the years ended November 30,
1997, November 30, 1996, November 30, 1995,
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November 30, 1994 and November 30, 1993; for
Class C shares for the six months ended May 31,
1998 (unaudited) for the years ended November 30,
1997, November 30, 1996, November 30, 1995,
November 30, 1994 and the period May 3, 1993
(commencement of distribution) through November
30, 1993.
(b) Exhibits
(1)(a) Articles of Incorporation of the Registrant -
Incorporated by reference to Exhibit No. 1(a) to
Post-Effective Amendment No. 16 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-
45328 and 811-06554) filed with the Securities and
Exchange Commission on October 31, 1997.
(b) Articles Supplementary to the Articles of
Incorporation of Registrant dated April 29, 1997
and filed April 30, 1997 - Incorporated by
reference to Exhibit No. 1(b) to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(c) Articles Supplementary to the Articles of
Incorporation of Registrant dated September 30,
1996 and filed October 2, 1996 - Incorporated by
reference to Exhibit No. 1 to Post-Effective
Amendment No. 14 of Registrant's Registration
Statement on Form N-1a (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1996.
(d) Articles Supplementary to the Articles of
Incorporation of Registrant dated April 29, 1993
and filed April 30, 1993 - Filed herewith.
(2) By-Laws of the Registrant - Incorporated by
reference to Exhibit No. 2 to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and
811-06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(3) Not applicable.
(4) Not applicable.
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<PAGE>
(5) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference to Exhibit No. 5 to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. -
Incorporated by reference to Exhibit No. 6(a) to
Post-Effective Amendment No. 16 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-
45328 and 811-06554) filed with the Securities and
Exchange Commission on October 31, 1997.
(b) Amendment to Distribution Services Agreement dated
June 4, 1996 - Incorporated by reference to Exhibit
6 to Post-Effective Amendment No. 14 of
Registrant's Registration Statement on Form N-1A
(File Nos. 33-45328 and 811-06554), filed with the
Securities and Exchange Commission on October 31,
1996.
(c) Selected Dealer Agreement between Alliance Fund
Distributors, Inc. and selected dealers offering
shares of Registrant - Incorporated by reference to
Exhibit No. 6(c) to Post-Effective Amendment No. 16
of Registrant's Registration Statement on Form N-1A
(File Nos. 33-45328 and 811-06554) filed with the
Securities and Exchange Commission on October 31,
1997.
(d) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated by
reference to Exhibit No. 6(d) to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(7) Not applicable.
(8) Custodian Agreement between the Registrant and
Brown Brothers Harriman & Co. - Incorporated by
reference to Exhibit No. 8 to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
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<PAGE>
(9) Transfer Agency Agreement between the Registrant
and Alliance Fund Services, Inc. - Incorporated by
reference to Exhibit No. 9 to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(10) (a) Opinion of Seward & Kissel - Incorporated by
reference to Exhibit No. 10(a) to Post-Effective
Amendment No. 16 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-
06554) filed with the Securities and Exchange
Commission on October 31, 1997.
(b) Opinion and Consent of Venable, Baetjer and Howard,
LLP - Incorporated by reference to Exhibit No.
10(b) to Post-Effective Amendment No. 16 of
Registrant's Registration Statement on Form N-1A
(File Nos. 33-45328 and 811-06554) filed with the
Securities and Exchange Commission on October 31,
1997.
(11) Consent of Independent Auditors - Filed herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Not applicable.
(17) Financial Data Schedule - Filed herewith.
(18)(a) Rule 18f-3 Plan - Incorporated by reference to
Exhibit No. 18 to Post-Effective Amendment No. 11
of Registrant's Registration Statement on Form N-1A
(File Nos. 33-45328 and 811-06554), filed with the
Securities and Exchange Commission on February 29,
1996.
(b) Amended and Restated Rule 18f-3 Plan dated
September 30, 1996 - Incorporated by reference to
Exhibit No. 18 to Post-Effective Amendment No. 14
of Registrant's Registration Statement on Form N-1A
(File Nos. 33-45328 and 811-06554) filed with the
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<PAGE>
Securities and Exchange Commission on October 31,
1996.
Other Exhibits: Powers of Attorney of Ms. Block
and Messrs. Carifa, Dievler, Dobkin, Foulk, Hester,
Michel and Robinson - Filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
Not applicable.
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
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,
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<PAGE>
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,
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
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<PAGE>
(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
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:
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<PAGE>
(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.
(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
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<PAGE>
(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
(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.
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<PAGE>
(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 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
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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.
(3) The insurance or similar protection may be
provided by a subsidiary or an affiliate of the
corporation.
(1) 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
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and agents to the full extent permitted by the Maryland
General Corporation Law.
(3) No provision of this Article shall be effective
to protect or purport to protect any director or officer
of the Corporation against any liability to the
Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
(4) References to the Maryland General Corporation
Law in this Article are to 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
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to the benefit of the heirs, executors and
administrators of such a person. This Article
shall not protect any such person against any
liability to the Corporation or any stockholder
thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office
("disabling conduct").
Section 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 required by this Article have been met.
C-13
<PAGE>
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 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
C-14
<PAGE>
for any mistake of judgment or in any event whatsoever
except for lack of good faith and that nothing therein
shall be deemed to protect Alliance Capital Management
L.P. against any liability to Registrant or its security
holders to which it would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in
the performance of its duties thereunder, or by reason
of reckless disregard of its duties and obligations
thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. provides
that the Registrant will indemnify, defend and hold
Alliance Fund Distributors, Inc., and any person who
controls it within the meaning of Section 15 of the
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 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
C-15
<PAGE>
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.
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.
C-16
<PAGE>
The information as to the directors and executive officers of
Alliance Capital Management Corporation, the general partner of
Alliance Capital Management 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:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance 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 Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
C-17
<PAGE>
(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 Positions and
Offices With Offices With
Name Underwriter Registrant
- ---- --------------- -------------
Michael J. Laughlin Director and Chairman
John D. Carifa Director
Robert L. Errico Director and
President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David C. Conine Executive Vice
President
Richard K. Saccullo Executive Vice
President
Edmund P. Bergan, Jr. Senior Vice Secretary
President, General
Counsel, and
Secretary
Richard A. Davies Senior Vice President
and Managing Director
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial
Officer
Anne S. Drennan Senior Vice President
and Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
C-18
<PAGE>
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President &
Controller
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir Bolanowski Vice President
Michael. E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
C-19
<PAGE>
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President Assistant
& Assistant General Secretary
Counsel
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
John Grambone Vice President
George C. Grant Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
C-20
<PAGE>
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole M. Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President & Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Elizabeth M. Smith Vice President
C-21
<PAGE>
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
William C. White Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President & Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice
President &
Assistant Treasurer
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Russell R. Corby Assistant Vice
President
C-22
<PAGE>
Jean A. Cronin Assistant Vice
President
John W. Cronin Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
John E. English Assistant Vice
President
Duff C. Ferguson Assistant Vice
President
James J. Hill Assistant Vice
President
Theresa Iosca Assistant Vice
President
Erik A. Jorgensen Assistant Vice
President
Eric G. Kalender Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Michael Laino Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
C-23
<PAGE>
Richard F. Meier Assistant Vice
President
Richard J. Oleszewski Assistant Vice
President
Mary K. Moore Assistant Vice
President
Catherine N. Peterson Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Clara Sierra Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Vincent T. Strangio Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
C-24
<PAGE>
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.
C-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all of the requirements
for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and the State of New York, on
the 23rd day of October, 1998.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME
TRUST, INC.
By: /s/ 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:
/s/ John D. Carifa Chairman and
_____________________ President October 23, 1998
John D. Carifa
2. Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer and October 23, 1998
______________________ Chief Financial
Mark D. Gersten Officer
C-26
<PAGE>
3. All of the Directors:
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
By: /s/ Edmund P. Bergan, Jr. October 23, 1998
_________________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-27
<PAGE>
INDEX TO EXHIBITS
(1)(d) Articles Supplementary to the Articles of Incorporation
of the Registrant dated April 30, 1993
(11) Consent of Independent Auditors
(17) Financial Data Schedule
Other Exhibit - Powers of Attorney of Ms. Block and Messrs.
Carifa, Dievler, Dobkin, Foulk, Hester, Michel and Robinson.
C-28
00250117.AX1
<PAGE>
Exhibit 1(d)
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC.
ARTICLES SUPPLEMENTARY
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC., a
Maryland corporation having its principal office in the City of
Baltimore (hereinafter called the "Corporation"), certifies that:
FIRST: The Board of Directors of the Corporation hereby
increases the aggregate number of shares of capital stock that
the Corporation has authority to issue by 3,000,000,000 shares
and hereby classifies such shares as 3,000,000,000 shares of
Class C Common Stock.
SECOND: The shares of the Class C Common Stock as so
classified by the Corporation's Board of Directors shall have the
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption set forth in Article FIFTH of
the Corporation's Articles of Amendment and Restatement (other
than those provisions of Article FIFTH which by their terms are
applicable solely to the Class A Common Stock or the Class B
Common Stock of the Corporation) and shall be subject to all
provisions of the Articles of Amendment and Restatement relating
to stock of the Corporation generally, and those set forth as
follows:
(1) The assets belonging to the Class C Common Stock
shall be invested in the same investment portfolio of the
Corporation as the assets belonging to the Class A Common
Stock and the Class B Common Stock.
(2) The dividends and distributions of investment
income and capital gains with respect to the Class C Common
Stock shall be in such amount as may be declared from time to
time by the Board of Directors, and such dividends and
distributions may vary from dividends and distributions of
investment income and capital gains with respect to the Class
A Common Stock and Class B Common Stock to reflect differing
allocations of the expenses of the Corporation among the
holders of the three classes and any resultant differences
among the net asset values per share of the three classes, to
such extent and for such purposes as the Board of Directors
may deem appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the Corporation
among the Class A Common Stock, the Class B Common Stock, and
the Class C Common Stock shall be determined by the Board of
Directors in a manner that is consistent with the order dated
January 8, 1990 (Investment Company Act of 1940 Release No.
17295) issued by the Securities and Exchange Commission in
<PAGE>
connection with the application for exemption filed by
Alliance Capital Management L.P., et al., and any existing or
future amendment to such order or any rule or interpretation
under the Investment Company Act of 1940 that modifies or
supersedes such order.
(3) Except as may otherwise be required by law pursuant
to any applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of the Class C Common Stock shall have (i) exclusive voting
rights with respect to any matter submitted to a vote of
stockholders that affects only holders of the Class C Common
Stock, including without limitation, the provisions of any
distribution plan adopted by the Corporation pursuant to Rule
12b-1 under the Investment Company Act of 1940 (a "Plan")
applicable to the Class C Common Stock and (ii) no voting
rights with respect to the provisions of any Plan applicable
to the Class A Common Stock or Class B Common Stock or with
regard to any other matter submitted to a vote of
stockholders which does not affect holders of the Class C
Common Stock.
(4) The proceeds of the redemption of a share
(including a fractional share) of Class C Common Stock shall
be reduced by the amount of any contingent deferred sales
charge payable on such redemption pursuant to the terms of
issuance of such share.
THIRD: A. Immediately before the increase in authorized
capital stock provided for herein, the total number of shares of
stock of all classes which the Corporation had authority to issue
was 6,000,000,000 shares, the par value of each class of stock
being $.001 per share, with an aggregate par value of $6,000,000,
of which 3,000,000,000 shares were classified as shares of Class
A Common Stock and 3,000,000,000 shares were classified as shares
of Class B Common Stock.
B. Immediately after the increase in authorized
capital stock provided for herein, the total number of shares of
stock of all classes which the Corporation has authority to issue
is 9,000,000,000 shares, the par value of each class of stock
being $.001 per share, with an aggregate par value of $9,000,000,
of which 3,000,000,000 shares are classified as shares of Class A
Common Stock, 3,000,000,000 shares are classified as shares of
Class B Common Stock, and 3,000,000,000 shares are classified as
shares of Class C Common Stock.
FOURTH: The Corporation is registered as an open-end company
under the Investment Company Act of 1940.
2
<PAGE>
FIFTH: The total number of shares that the Corporation has
authority to issue has been increased by the Board of Directors
in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
SIXTH: The shares aforesaid have been duly classified by the
Corporation's Board of Directors pursuant to authority and power
contained in the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, Alliance North American Government Income
Trust, Inc. has caused these Articles Supplementary to be
executed by its Chairman of the Board and attested by its
Secretary and its corporate seal to be affixed on this 29th day
of April, 1993. The Chairman of the Board of the Corporation who
signed these Articles Supplementary acknowledges them to be the
act of the Corporation and states under the penalties of perjury
that, to the best of his knowledge, information and belief, the
matters and facts set forth herein relating to authorization and
approval hereof are true in all material respects.
ALLIANCE NORTH AMERICAN GOVERNMENT
INCOME TRUST, INC.
[CORPORATE SEAL] By:/s/David H. Dievler
____________________
David H. Dievler,
Chairman of the Board
Attested:/s/Edmund P. Bergan, Jr.
________________________
Edmund P. Bergan, Jr.,
Secretary
3
00250117.AT7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholders Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated January 7, 1998 included in this
Registration Statement (Form N-1A Nos. 33-45328 and 811-06554) of
Alliance North American Government Income Trust.
/s/ERNST & YOUNG LLP
New York, New York
October 27, 1998
00250117.AX3
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 001
[NAME] Class A
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Semi
[FISCAL-YEAR-END] Nov-30-1998
[PERIOD-START] Dec-01-1997
[PERIOD-END] May-31-1998
[INVESTMENTS-AT-COST] 2825926132
[INVESTMENTS-AT-VALUE] 2787026571
[RECEIVABLES] 37058793
[ASSETS-OTHER] 113942
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2824199306
[PAYABLE-FOR-SECURITIES] 139392205
[SENIOR-LONG-TERM-DEBT] 250000000
[OTHER-ITEMS-LIABILITIES] 20067677
[TOTAL-LIABILITIES] 409459882
[SENIOR-EQUITY] 306525
[PAID-IN-CAPITAL-COMMON] 2688098405
[SHARES-COMMON-STOCK] 91470084
[SHARES-COMMON-PRIOR] 63783972
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (20852309)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (214137305)
[ACCUM-APPREC-OR-DEPREC] (38675892)
[NET-ASSETS] 2414739424
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 149067218
[OTHER-INCOME] 0
[EXPENSES-NET] 28992542
[NET-INVESTMENT-INCOME] 120074676
[REALIZED-GAINS-CURRENT] 20449128
[APPREC-INCREASE-CURRENT] (55081008)
[NET-CHANGE-FROM-OPS] 85442796
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (36795420)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 267849377
[NUMBER-OF-SHARES-REDEEMED] (57363710)
[SHARES-REINVESTED] 13238800
[NET-CHANGE-IN-ASSETS] 241099843
[ACCUMULATED-NII-PRIOR] (9065648)
[ACCUMULATED-GAINS-PRIOR] (234586433)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 8288120
[INTEREST-EXPENSE] 7912723
[GROSS-EXPENSE] 28992542
[AVERAGE-NET-ASSETS] 2307196852
[PER-SHARE-NAV-BEGIN] 8.02
[PER-SHARE-NII] .44
[PER-SHARE-GAIN-APPREC] (.11)
[PER-SHARE-DIVIDEND] (.48)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.87
[EXPENSE-RATIO] 1.99
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250117.AW8
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 001
[NAME] Class B
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Semi
[FISCAL-YEAR-END] Nov-30-1998
[PERIOD-START] Dec-01-1997
[PERIOD-END] May-31-1998
[INVESTMENTS-AT-COST] 2825926132
[INVESTMENTS-AT-VALUE] 2787026571
[RECEIVABLES] 37058793
[ASSETS-OTHER] 113942
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2824199306
[PAYABLE-FOR-SECURITIES] 139392205
[SENIOR-LONG-TERM-DEBT] 250000000
[OTHER-ITEMS-LIABILITIES] 20067677
[TOTAL-LIABILITIES] 409459882
[SENIOR-EQUITY] 306525
[PAID-IN-CAPITAL-COMMON] 2688098405
[SHARES-COMMON-STOCK] 177889194
[SHARES-COMMON-PRIOR] 171797610
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (20852309)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (214137305)
[ACCUM-APPREC-OR-DEPREC] (38675892)
[NET-ASSETS] 2414739424
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 149067218
[OTHER-INCOME] 0
[EXPENSES-NET] 28992542
[NET-INVESTMENT-INCOME] 120074676
[REALIZED-GAINS-CURRENT] 20449128
[APPREC-INCREASE-CURRENT] (55081008)
[NET-CHANGE-FROM-OPS] 85442796
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (78768243)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 181365910
[NUMBER-OF-SHARES-REDEEMED] (154665765)
[SHARES-REINVESTED] 22309326
[NET-CHANGE-IN-ASSETS] 241099843
[ACCUMULATED-NII-PRIOR] (9065648)
[ACCUMULATED-GAINS-PRIOR] (234586433)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 8288120
[INTEREST-EXPENSE] 7912723
[GROSS-EXPENSE] 28992542
[AVERAGE-NET-ASSETS] 2307196852
[PER-SHARE-NAV-BEGIN] 8.02
[PER-SHARE-NII] .41
[PER-SHARE-GAIN-APPREC] (.10)
[PER-SHARE-DIVIDEND] (.45)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.88
[EXPENSE-RATIO] 2.71
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250117.AW9
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 001
[NAME] Class C
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Semi
[FISCAL-YEAR-END] Nov-30-1998
[PERIOD-START] Dec-01-1997
[PERIOD-END] May-31-1998
[INVESTMENTS-AT-COST] 2825926132
[INVESTMENTS-AT-VALUE] 2787026571
[RECEIVABLES] 37058793
[ASSETS-OTHER] 113942
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2824199306
[PAYABLE-FOR-SECURITIES] 139392205
[SENIOR-LONG-TERM-DEBT] 250000000
[OTHER-ITEMS-LIABILITIES] 20067677
[TOTAL-LIABILITIES] 409459882
[SENIOR-EQUITY] 306525
[PAID-IN-CAPITAL-COMMON] 2688098405
[SHARES-COMMON-STOCK] 37165356
[SHARES-COMMON-PRIOR] 35332118
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (20852309)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (214137305)
[ACCUM-APPREC-OR-DEPREC] (38675892)
[NET-ASSETS] 2414739424
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 149067218
[OTHER-INCOME] 0
[EXPENSES-NET] 28992542
[NET-INVESTMENT-INCOME] 120074676
[REALIZED-GAINS-CURRENT] 20449128
[APPREC-INCREASE-CURRENT] (55081008)
[NET-CHANGE-FROM-OPS] 85442796
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (16297674)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 94074275
[NUMBER-OF-SHARES-REDEEMED] (70761515)
[SHARES-REINVESTED] 9352065
[NET-CHANGE-IN-ASSETS] 241099843
[ACCUMULATED-NII-PRIOR] (9065648)
[ACCUMULATED-GAINS-PRIOR] (234586433)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
<PAGE>
[GROSS-ADVISORY-FEES] 8288120
[INTEREST-EXPENSE] 7912723
[GROSS-EXPENSE] 28992542
[AVERAGE-NET-ASSETS] 2307196852
[PER-SHARE-NAV-BEGIN] 8.02
[PER-SHARE-NII] .41
[PER-SHARE-GAIN-APPREC] (.10)
[PER-SHARE-DIVIDEND] (.45)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.88
[EXPENSE-RATIO] 2.70
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250117.AX0
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc. Alliance
Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance
New Europe Fund, Inc., Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Fund,
Inc., The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc. and The Alliance Portfolios, and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc. Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc. and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ David H. Dievler
___________________________
David H. Dievler
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Growth and Income Fund, Inc.,
Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance International Fund, Alliance Limited
Maturity Government Fund, Inc., Alliance Mortgage Securites
Incoem Fund, Inc., Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ John H. Dobkin
___________________________
John H. Dobkin
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance Limited Maturity Government Fund, Inc., Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., The Alliance Portfolios and the
Hudson River Trust, and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc., and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Utility Income Fund, Inc., Alliance Variable Products Series
Fund, Inc., Alliance World Income Trust, Inc., Alliance
Worldwide Privatization Fund, Inc., Fiduciary Management
Associates, The Alliance Fund, Inc. and The Hudson River
Trust, and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ Clifford L. Michel
___________________________
Clifford L. Michel
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust,
Inc., Alliance Worldwide Privatization Fund, Inc., Fiduciary
Management Associates, The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, and filing the same,
with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: October 8, 1998
00250050.AQ8
