As filed with the Securities and Exchange
Commission on April 23, 1996
File Nos. 33-47031
811-06627
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. 14
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14
Alliance Limited Maturity Government Fund, 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: (212) 969-1000
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
It is proposed that this filing will become effective
(check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of
<PAGE>
_____ Rule 485.
If appropriate, check the following box:
_____ This post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.
Registrant has registered an indefinite number of shares
of Common Stock pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed a notice pursuant to
such Rule for its fiscal year ended November 30, 1994 on
January 24, 1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A ITEM NO. LOCATION IN PROSPECTUS (CAPTION)
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis The Fund At a Glance
Item 3. Condensed Financial Financial Highlights
Information
Item 4. General Description Description of the Fund;
of Registrant General Information
Item 5. Management of the Fund Management of the Fund;
General Information
Item 6. Capital Stock and Other
Securities Dividends, Distributions
and Taxes; General
Information
Item 7. Purchase of Securities Being
Offered Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase Purchase and Sale of
Shares; General
Information
Item 9. Pending Legal Proceedings Not Applicable
PART B Location in Statement of
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
Item 13. Investment Objectives and
Policies Investment Objective,
Policies and Restrictions
<PAGE>
Item 14. Management of the Management of the Fund
Registrant
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 Redemption and Repurchase
of Shares; Net Asset Value
Item 20. Tax Status Investment Objective,
Policies and Restrictions;
Dividends, Distributions
and Taxes
Item 21. Underwriters General Information
Item 22. Calculation of General Information
Performance Data
Item 23. Financial Statements Financial Statements;
Report of Independent
Auditors
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
(ADVISOR CLASS)
JUNE [ ], 1996
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 FUND
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND
MULTI-MARKET FUNDS
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
The Funds at a Glance 2
Expense Information 4
Glossary 7
Description of the Funds 8
Investment Objectives and Policies 8
Additional Investment Practices 15
Certain Fundamental Investment Policies 26
Risk Considerations 27
Purchase and Sale of Shares 32
Management of the Funds 33
Dividends, Distributions and Taxes 34
General Information. 35
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.
Each fund or portfolio (each a 'Fund') is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A 'Statement of Additional Information' for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the 'For Literature' telephone number shown above.
This Prospectus offers the Advisor Class shares of each Fund which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., each Fund's
principal underwriter, and (ii) participants in self-directed defined
contribution employee benefit plans (e.g., 401(k) plans) that meet certain
minimum standards. 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
MUTUAL FUNDS WITHOUT THE MYSTERY.
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 107 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $156 billion in
assets under management as of March 1, 1996. Alliance provides investment
management services to 34 of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . U.S. Government securities, including
mortgage-related securities, and repurchase agreements relating to U.S.
Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
SHORT-TERM MULTI-MARKET TRUST
SEEKS . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso, 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 in Argentina.
2
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . a non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
CORPORATE BOND FUND
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.
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Funds and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See 'Description of the Funds-Additional
Investment Practices' and '-Risk Considerations.'
GETTING STARTED . . .
Shares of the Funds are available through your financial representative. Each
Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares may be purchased at net asset
value without any initial or contingent deferred sales charges and without
ongoing distribution fees. Advisor Class shares may be purchased solely by
investors (i) through accounts established under a fee-based program, sponsored
and maintained by a registered broker-dealer or other financial intermediary
and approved by Alliance Fund Distributors, Inc., each Fund's principal
underwriter, pursuant to which each investor pays an asset-based fee at an
annual rate of at least .50% of the assets in the investor's account, to the
broker-dealer or financial intermediary, or its affiliate or agent, for
investment advisory or administrative services, or (ii) through 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. 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. Fee-based programs through which Advisor
Class shares may be purchased may impose different requirements with respect to
minimum initial and subsequent investment levels than described above. For
detailed information about purchasing and selling shares, see 'Purchase and
Sale of Shares.' 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
TELEPHONE TRANSACTIONS
24 HOUR INFORMATION
Alliance
Mutual funds without the Mystery.
R/SM 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 the Advisor Class shares each Fund and estimated annual
expenses for Advisor 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 Advisor Class shares for the
periods specified.
ADVISOR CLASS SHARES
--------------------
Maximum sales charge imposed on purchases None
Sales charge imposed on dividend reinvestments None
Deferred sales charge None
Exchange fee None
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------- ------------------------------
SHORT-TERM U.S.
GOVERNMENT ADVISOR CLASS ADVISOR CLASS
- --------------- ------------- -------------
Management fees(b)(after waiver) None After 1 year $11
Other expenses(a) 1.10% After 3 years $36
Total fund operating expenses 1.10%
U.S. GOVERNMENT ADVISOR CLASS ADVISOR CLASS
- --------------- ------------- -------------
Management fees .53% After 1 year $ 7
Other expenses(a) .18% After 3 years $23
Total fund operating expenses .71%
LIMITED MATURITY
GOVERNMENT ADVISOR CLASS ADVISOR CLASS
- --------------- ------------- -------------
Management fees .65% After 1 year $19
Other expenses After 3 years $58
Interest expense .73%
Other operating expenses(a) .46%
Total other expenses 1.19%
Total fund operating expenses 1.84%
MORTGAGE SECURITIES
INCOME ADVISOR CLASS ADVISOR CLASS
- -------------------- ------------- -------------
Management fees .51% After 1 year $14
Other expenses After 3 years $43
Interest expense .63%
Other operating expenses(a) .22%
Total other expenses .85%
Total fund operating expenses 1.36%
SHORT-TERM
MULTI-MARKET ADVISOR CLASS ADVISOR CLASS
- --------------- ------------- -------------
Management fees .55% After 1 year $ 9
Other expenses(a) .38% After 3 years $30
Total fund operating expenses .93%
PLEASE REFER TO THE FOOTNOTES ON PAGE [ ] AND THE DISCUSSION FOLLOWING THESE
TABLES ON PAGE [ ].
4
ANNUAL OPERATING EXPENSES EXAMPLES
- ------------------------------------------------ ----------------------------
MULTI-MARKET STRATEGY ADVISOR CLASS ADVISOR CLASS
- ----------------- ------------- -------------
Management fees .60% After 1 year $13
Other expenses After 3 years $41
Interest expense .05%
Other operating expenses(a) .65%
Total other expenses .70%
Total fund operating expenses 1.30%
NORTH AMERICAN
GOVERNMENT INCOME ADVISOR CLASS ADVISOR CLASS
- ----------------- ------------- -------------
Management fees(c) .65% After 1 year $24
Other expenses After 3 years $72
Interest expense 1.11%
Other operating expenses(a) .56%
Total other expenses 1.67%
Total fund operating expenses 2.32%
GLOBAL DOLLAR GOVERNMENT ADVISOR CLASS ADVISOR CLASS
- ------------------------ ------------- -------------
Management fees .75% After 1 year $15
Other expenses(a) .73% After 3 years $47
Total fund operating expenses 1.48%
GLOBAL STRATEGIC INCOME ADVISOR CLASS ADVISOR CLASS
- ----------------------- ------------- -------------
Management fees .75% After 1 year $14
Other expenses(a) .64% After 3 years $44
Total fund operating expenses 1.39%
CORPORATE BOND ADVISOR CLASS ADVISOR CLASS
- --------------- ------------- -------------
Management fees .63% After 1 year $ 9
Other expenses(a) .27% After 3 years $29
Total fund operating expenses .90%
(A) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE, BASED ON A FIXED DOLLAR AMOUNT
CHARGED TO THE FUND FOR EACH SHAREHOLDER'S ACCOUNT.
(B) NET OF VOLUNTARY FEE WAIVER AND EXPENSE REIMBURSEMENT. IN THE ABSENCE
OF SUCH WAIVER AND EXPENSE REIMBURSEMENT, THE MANAGEMENT FEE WOULD BE
.55%, OTHER EXPENSES WOULD BE 2.33% AND TOTAL FUND OPERATING EXPENSES
WOULD BE 2.88%.
(C) REPRESENTS .65 OF 1% OF THE AVERAGE DAILY VALUE OF THE FUND'S ADJUSTED
TOTAL NET ASSETS.
5
The purpose of the tables on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. The examples do not reflect any charges or
expenses imposed by your financial representative or your employee benefit
plan. The management fee rate of GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME TRUST are higher than that paid by most other investment
companies, but Alliance believes the fee is comparable to those paid by
investment companies of similar investment orientation. 'Other Expenses'
are based on estimated amounts for that Fund's current fiscal year. 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 FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
6
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under 'Description of the Funds-Additional
Investment Practices' and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of 'split-rated' fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba and BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as 'junk bonds.'
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities,
SMRS, which are stripped mortgage-related securities,
CMOS, which are collateralized mortgage obligations,
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association,
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association, and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities 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 another 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.
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 Investors Service, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. 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.
7
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are 'fundamental' and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ('Short-Term U.S. Government') seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. The Fund's investment objective is not
fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales 'against the
box,' (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see 'Additional Investment Practices.'
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ('U.S. Government') seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see 'Additional Investment Practices.' The Fund's investment
objective is not fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the
Fund are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United
States, (ii) savings and loan associations chartered under the laws of Arizona,
Arkansas, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas,
Louisiana, Maine, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee,
Texas, Utah and Washington, (iii) credit unions chartered under the laws of
California, Florida*, Kentucky, Maine, Maryland*, Minnesota, Nevada, New York,
Ohio*, Pennsylvania*, Rhode Island, Tennessee, Utah and West Virginia, and (iv)
commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Delaware, Florida, Hawaii*, Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York,
North Carolina*, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island,
Tennessee, Texas, Vermont, Washington, West Virginia and Wyoming. Institutions
in the asterisked(*) states should obtain prior state regulatory approval
before investing in shares of the Fund. In addition, the Fund believes that it
is currently a legal investment for savings and loan associations, credit
unions and commercial banks chartered under the laws of certain other states.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ('Limited Maturity Government')
seeks the highest level of current income, consistent with low volatility of
net asset value. As a matter of fundamental policy, the Fund normally has at
least 65% of the value of its total assets invested in U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government 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
8
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
final maturity of not more than 10 years or a duration not exceeding that of a
10-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 outstanding high quality debt issues and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see 'Additional Investment Practices.'
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See 'Risk Considerations-Foreign Investment.'
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ('Mortgage Securities Income')
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See 'Risk Considerations-Securities Ratings' and '-Investment in
Lower-Rated Fixed-Income Securities.' The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
'Additional Investment Practices.'
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Short-Term Multi- Market Trust, Inc. ('Short-Term Multi-Market') and
Alliance Multi-Market Strategy Trust, Inc. ('Multi-Market Strategy') each seek
the highest level of current income, consistent with what Alliance considers to
be prudent investment risk, that is available from a portfolio of high quality
debt securities having remaining maturities of not more than, with respect to
SHORT-TERM MULTI-MARKET, three years, and with respect to MULTI-MARKET
STRATEGY, five years. Each Fund seeks
9
high current yields by investing in a portfolio of debt securities denominated
in the U.S. Dollar and selected foreign currencies. The Multi-Market Funds seek
investment opportunities in foreign, as well as domestic, securities markets.
SHORT-TERM MULTI-MARKET will normally maintain a substantial portion of its
assets in debt securities denominated in foreign currencies but will invest at
least 25% of its net assets in U.S. Dollar-denominated securities. MULTI-MARKET
STRATEGY normally expects to maintain at least 70% of its assets in debt
securities denominated in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages the
Multi-Market Funds' portfolios in accordance with a multi-market investment
strategy, allocating a Fund's investments among securities denominated in the
U.S. Dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. Alliance adjusts
each Multi-Market Fund's exposure to each currency such that the percentage of
assets invested in securities of a particular country or denominated in a
particular currency varies in accordance with Alliance's assessment of the
relative yield and appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by Alliance in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within the Fund's investment
portfolio. Neither of the Multi-Market Funds invests more than 25% of its net
assets in debt securities denominated in a single currency other than the U.S.
Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
'cross-hedges' (see 'Additional Investment Practices-Forward Foreign Currency
Exchange Contracts'), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to a Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, a Fund could be in a less advantageous
position than if such a hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition
to the U.S. Dollar, such currencies include, among others, the Australian
Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish
Krone, Dutch Guilder, European Currency Unit ('ECU'), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as 'linked' securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such securities
are determined with reference to another currency. In this regard, as of the
date of this Prospectus each Fund has invested in U.S. Dollar denominated
securities issued by Mexican issuers and/or Peso-linked securities. The value
of these investments may fluctuate inversely in correlation with changes in the
Peso-Dollar exchange rate and with the general level of interest rates in
Mexico. For a general description of Mexico, see Appendix B and each
Multi-Market Fund's Statement of Additional Information.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a 'basket' consisting of specified amounts of the currencies of
certain of the member states of the European Union, a fifteen-nation
organization engaged in cooperative economic activities. The specific amounts
of currencies comprising the ECU may be adjusted by the Council of Ministers of
the European Union to reflect changes in relative values of the underlying
currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality. Accordingly, the
Multi-Market Funds' portfolio securities will consist of (i) U.S. Government
securities, (ii) high quality foreign government securities, (iii) obligations
issued by supranational entities and corporate debt securities having a 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
10
determined by Alliance to be of high quality, and (v) prime commercial paper
or, if not rated, determined by Alliance to be of equivalent quality and issued
by U.S. or foreign companies having outstanding: in the case of MULTI-MARKET
STRATEGY, high quality debt securities; and in the case of SHORT-TERM
MULTI-MARKET, high grade debt securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in 'Additional
Investment Practices-Repurchase Agreements.' See 'Risk
Considerations-Investment in the Banking Industry.'
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) enter
into interest rate swaps, caps and floors, (vi) invest in variable, floating
and inverse floating rate instruments, (vii) make secured loans of its
portfolio securities, and (viii) enter into repurchase agreements. A
Multi-Market Fund will not invest in illiquid securities if, as a result, more
than 10% of its assets would be so invested. For additional information on the
use, risks and costs of these practices, see 'Additional Investment Practices.'
MULTI-MARKET STRATEGY maintains borrowings of approximately 25% of its total
assets less liabilities (other than the amount borrowed). See 'Risk
Considerations-Effects of Borrowing.'
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ('North American
Government Income') seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ('Government securities'). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ('Argentine Government securities'). The Fund expects that it will
not retain a debt security which is down-graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the 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. 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.
11
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ('BIC'),
which are investment and growth bonds issued directly by the Argentine
Government with maturities of up to ten years, (ii) Bono de Consolidacion
Economica ('BOCON'), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years and (iii) Bono de
Credito a la Exportacion ('BOCREX'), which are export credit bonds issued
directly by the Argentine government with maturities of up to four years. To
date, Argentine Government securities are not rated by either S&P, Moody's,
Duff & Phelps or Fitch. Alliance, however, believes, that there are Argentine
Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.' The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other than
the amount borrowed). See 'Risk Considerations-Effects of Borrowing.'
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ('Global Dollar Government') seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as 'Brady Bonds' that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ('collateralized Brady Bonds'). See 'Additional
Investment Practices-Brady Bonds.' The Fund may also invest up to 35% of its
total assets in U.S. and non-U.S. corporate fixed-income securities. See 'Risk
Considerations-U.S. Corporate Fixed-Income Securities.' The Fund will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
that, based upon current market conditions, the Fund's portfolio of U.S.
fixed-income securities will have an average maturity range of approximately
nine to 15 years and the Fund's portfolio of non-U.S. fixed-income securities
will have an average maturity range of approximately 15 to 25 years. Alliance
anticipates that the Fund's portfolio of sovereign debt obligations will have a
longer average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are
12
consistent with the Fund's investment objectives and policies. As of August 31,
1995, 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 3% in A and above, 57% in Ba or BB, 34% in B,
4% in Caa or CCC, and 2% 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
initial investment focus is expected to be in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. See Appendix A to the Fund's
Statement of Additional Information for information about those six countries.
Alliance anticipates that other countries that will provide initial investment
opportunities for the Fund include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. See 'Additional Investment Practices-Brady Bonds.'
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of which
is an emerging market country, and the Fund will limit investments in the
sovereign debt obligations of each such country (or of any other single foreign
country) to less than 25% of its total assets. The Fund expects that it will
not invest more than 10% of its total assets in the sovereign debt obligations
and corporate fixed-income securities of issuers in any other single foreign
country and is not required to invest any minimum amount of its assets in the
securities or obligations of issuers located in any particular country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ('Discount
Obligations') and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of 'original issue discount'
previously accrued thereon, i.e., purchased at a 'market discount.'
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund 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 ('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 5 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
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 that 35% of the value of
its total assets in lower-rated securities. See 'Additional Risk
Considerations-Securities Ratings' and '-Investment in Lower-Rated Fixed-Income
13
Securities.' Unrated securities will be considered for investment by the Fund
when Alliance believes that the financial condition of the issuers of such
obligations and the protection afforded by the terms of the obligations
themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. Lower-rated securities in which the Fund may invest include Brady
Bonds and fixed-income securities of issuers located in emerging markets. There
is no minimum rating requirement applicable to the Fund's investments in
lower-rated fixed-income securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make short sales of securities or
maintain a short position. For additional information on the use, risks and
costs of these policies and practices see 'Additional Investment Practices and
Risks.' The Fund currently intends to limit its ability to borrow to an amount
not to exceed 25% of its total assets. See 'Additional Risk
Considerations-Effect of Borrowing.'
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ('Corporate Bond') is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as somewhat 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, 1995, 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 23% in A and above, 44% in Baa or BBB, 25% in
Ba or BB, and 8% in B. The Fund did not invest in securities rated below B by
each of Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by
Alliance to be of equivalent quality to securities so rated.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in these other sovereign debt obligations, which may be lower
rated and considered to be predominantly speculative as regards the issuer's
capacity to pay interest and repay principal. 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
14
private negotiations between an issuer of sovereign debt obligations and one or
more financial institutions and in participations in and assignments of these
type of loans, (iii) for hedging purposes, purchase put and call options
written by others and write covered put and call options on the types of
securities in which the Fund may invest, (iv) for hedging purposes, enter into
various hedging transactions, such as interest rate swaps, caps and floors, (v)
invest in variable, floating and inverse floating rate instruments, (vi) invest
in zero coupon and pay-in-kind securities, and (vii) invest in CMOs and
multi-class pass-through. As a matter of fundamental policy, the Fund will not
purchase illiquid securities. For additional information on the use, risks and
costs of these practices, see 'Additional Investment Practices.'
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. Alliance is not an aggressive user of
derivatives with respect to any of the Funds. However, a Fund may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions. The MULTI-MARKET FUNDS
and GLOBAL STRATEGIC INCOME in particular generally make extensive use of
carefully selected forwards and other derivatives to achieve the currency
hedging that is an integral part of their investment strategy. Alliance's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments-options, futures,
forwards and swaps-from which virtually any type of derivative transaction can
be created.
. OPTIONS-An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, while a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
would be obligated to sell (in the case of a call option) or to purchase (in
the case of a put option) the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
. 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'
15
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.'
While the judicious use of derivatives by highly experienced investment
managers such as Alliance can be quite beneficial, derivatives also involve
risks different from, and, in certain cases, greater than, the risks presented
by more traditional investments. Following is a general discussion of important
risk factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.
. MARKET RISK-This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
. MANAGEMENT RISK-Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio and
the ability to forecast price, interest rate or currency exchange rate
movements correctly.
. CREDIT RISK-This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a 'counterparty') to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
. LIQUIDITY RISK-Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
. LEVERAGE RISK-Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
. OTHER RISKS-Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write
16
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 and
CORPORATE BOND generally purchase or write privately negotiated options on
securities. A Fund that purchases or writes privately negotiated options on
securities will effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by Alliance, and Alliance has adopted
procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See 'Illiquid Securities' below. Neither MORTGAGE SECURITIES
INCOME nor CORPORATE BOND will purchase an option on a security if, immediately
thereafter, the aggregate cost of all outstanding options purchased by such
Fund would exceed 2% of the Fund's total assets. Nor will either such Fund
write an option if, immediately thereafter, the aggregate value of the Fund's
portfolio securities subject to outstanding options would exceed 15% of the
Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
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
warrant does not necessarily change with the value of the underlying
securities, and a right or 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 upon
exercise of futures contracts. Options on futures contracts written or
purchased by a Fund will be traded on U.S. or foreign exchanges and, except
with respect to SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be
used only for hedging purposes.
LIMITED MATURITY GOVERNMENT, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will not enter
into a futures contract or option on a futures contract if immediately
thereafter the market values of the outstanding futures contracts of the Fund
and the currencies and futures contracts subject to outstanding options written
by the Fund would exceed 50% of its total assets. Nor will LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET
17
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME do so if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into (i) any futures contract other than one on
fixed-income securities or based on interest rates, (ii) any futures contract
if immediately thereafter the sum of the then aggregate futures market prices
of financial instruments required to be delivered under open futures contract
sales and the aggregate futures market prices of instruments required to be
delivered under open futures contract purchases would exceed 30% of the value
of the Fund's total assets, or (iii) options on futures contracts.
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 intends to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which the Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward contracts on foreign currencies ('forward contracts') attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to 'lock in' the U.S. Dollar price
of the security ('transaction hedge'). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount ('position hedge'). Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund believes that
the U.S. Dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. Dollar value of the
currency in which portfolio securities of the Fund are denominated
('cross-hedge').
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a 'when-issued' basis or
purchases or sales on a 'delayed delivery' basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a 'when, as and if issued' trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
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 incur a gain
or loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed
18
rate payments) computed based on a contractually-based principal (or
'notional') amount. Interest rate swaps are entered into on a net basis (i.e.,
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments). Interest rate caps
and floors are similar to options in that the purchase of an interest rate cap
or floor entitles the purchaser, to the extent that a specified index exceeds
(in the case of a cap) or falls below (in the case of a floor) a predetermined
interest rate, to receive payments of interest on a notional amount from the
party selling the interest rate cap or floor. A Fund may enter into interest
rate swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME may enter into interest rate swaps involving
payments to 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 nationally recognized
rating organization. Each of SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will enter into
interest rate swap, cap or floor transactions with its respective custodian,
and with other counterparties, but only if: (i) for transactions with
maturities under one year, such other counterparty has outstanding prime
commercial paper; or (ii) for transactions with maturities greater than one
year, the counterparty has outstanding high quality debt securities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. 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%, 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
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(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' below and 'Zero Coupon and
Principal-Only Securities' below. Although these stripped securities are
purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet developed and,
accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
Although the market for mortgage-related securities is becoming increasingly
liquid, those of certain private organizations may not be readily marketable.
One type of mortgage-related security is of the 'pass-through' variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, 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 it to be retired substantially earlier than the
stated maturities or final distribution dates. 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
20
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 adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets, while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayment of the underlying mortgages. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event a Fund may
be unable to invest the proceeds from the early payment of the mortgage-related
securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment associated with
mortgage-related securities causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, a Fund may not be able to realize the rate of return it
expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rate of
mortgage prepayments and early payment of mortgage-related securities generally
tends to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as much
as the value of fixed-rate mortgage
21
securities is affected by rising interest rates, ARMS may still decline in
value as a result of rising interest rates. Although, as described above, the
yield on ARMS varies with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome to perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and 'lock in' a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Currently the only U.S. Treasury security issued without coupons is
the Treasury bill. Although the U.S. Treasury does not itself issue Treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS program
interest and principal payments on certain long-term Treasury securities may be
maintained separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years a number of
banks and brokerage firms have separated ('stripped') the principal portions
from the coupon portions of U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Commission has indicated
that, in its view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and, therefore, should
not be included in a Fund's categorization of U.S. Government securities. The
Funds disagree with the staff's position but will not treat such securities as
U.S. Government securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see 'Dividends, Distributions and Taxes-Zero Coupon
Treasury Securities' in the Statement of Additional Information of each Fund
that is permitted to invest in such securities.
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
22
specified formula. A 'variable' interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a 'floating' interest rate
adjusts whenever a specified benchmark rate (such as the bank prime lending
rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or 'cap.' The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities. GLOBAL DOLLAR GOVERNMENT may invest
up to 25% of its total assets, and GLOBAL STRATEGIC INCOME and CORPORATE BOND
may invest without limit, in these types of structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender. The
assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND, is restricted by the governing
documentation as to the nature of the assignee such that the only way in which
the Fund may acquire an interest in a loan is through a participation and not
an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there is no liquid market for such securities, such
securities can probably be sold only to a limited number of institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the value of such securities and a Fund's ability to dispose of particular
assignments or participations when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
assignments and participations also may make it more difficult for the Fund to
assign a value to these securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT 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
23
generally collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations that have the same maturity as the Brady
Bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to 'value recovery payments' in certain
circumstances, which in effect constitute supplemental interest payments but
generally are not collateralized. Brady Bonds are often viewed as having up to
four valuation components: (i) collateralized repayment of principal at final
maturity, (ii) collateralized interest payments, (iii) uncollateralized
interest payments, and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the 'residual risk'). In
the event of a default with respect to collateralized Brady Bonds as a result
of which the payment obligations of the issuer are accelerated, the U.S.
Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the
collateral agent to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In addition, in light of the residual
risk of Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds are to be viewed as speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a convertible security will
normally vary with changes in the price of the underlying stock, although the
higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. For a description of these risks, see 'Risk
Considerations-Investment in Lower-Rated Fixed-Income Securities.'
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is 'against the box' if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time a Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. 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 and will consist of
cash or highly liquid securities similar to those borrowed. Depending on the
arrangements the Fund makes with the broker-dealer from which it borrowed the
security regarding remittance of any payments received by the Fund on such
security, the Fund may not receive any payments (including interest) on its
collateral deposited with the broker-dealer.
If the price of the security sold short increases between the time of the short
sale and the time GLOBAL STRATEGIC INCOME 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 the Fund's gain
is limited to the price at which it sold the security short, its potential loss
is theoretically unlimited.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales 'against the box.'
The Fund may not make a short sale if, as a result, more than 25% of its total
assets would be held as collateral for short sales.
Certain special federal income tax considerations may apply to short sales
entered into by a Fund. See 'Dividends, Distributions and Taxes' in the
relevant Fund's Statement of Additional Information.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such
24
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, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT currently enter into repurchase agreements only with their
custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the 'drop')
as well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. See 'Risk Considerations-Effects of Borrowing.'
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high-grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other 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 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, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a
Fund lend portfolio securities to any officer, director, employee or affiliate
of the Fund or Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
25
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 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. Alliance anticipates that the annual turnover rate will not
exceed 300% for SHORT-TERM U.S. GOVERNMENT, SHORT-TERM MULTI-MARKET, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT; 400% for U.S.
GOVERNMENT; 500% for LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME;
and 600% for MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY and CORPORATE
BOND. A 300%, 400%, 500% and 600% annual turnover rate would occur, for
example, when all of the securities in a Fund's portfolio are replaced three,
four, five and six times, respectively, in a period of one year. 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
26
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.
SHORT-TERM MULTI-MARKET may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings, or (v)
purchase a security if, as a result (unless the security is acquired pursuant
to a plan of reorganization or an offer of exchange), the Fund would own more
than 3% of the total outstanding voting stock of any investment company or more
than 5% of the value of the Fund's net assets would be invested in securities
of any one or more investment companies.
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, 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 (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.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities generally rise. Conversely,
during periods of rising interest rates, the values of a Fund's securities
generally decline. Changes in interest rates have a greater effect on
securities with longer maturities and durations than those with shorter
maturities and durations.
27
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium-and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Fund may also invest in
U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Fund's
rights with respect to defaults on such securities will be subject to
applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities settlements may in
some instances be subject to delays and related administrative uncertainties.
Furthermore, foreign investment in the securities markets of certain foreign
countries is restricted or controlled to varying degrees. These restrictions or
controls may at times limit or preclude investment in certain securities and
may increase the cost and expenses of a Fund. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investment. Investing in local markets may require a Fund
to adopt special procedures or seek local governmental approvals or other
actions, any of which may involve additional costs to a Fund. The liquidity of
a Fund's investments in any country in which any of these factors exists could
be affected and Alliance will monitor the effect of any such factor or factors
on a Fund's investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection
to security holders such as the Fund than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian issuers or investments denominated in Canadian Dollars. The factors
described above are more likely to have a material adverse effect on the Fund's
investments in the securities of Mexican and other non-Canadian foreign
issuers, including investments in securities denominated in Mexican Pesos or
other non-Canadian foreign currencies. If not hedged, however, currency
fluctuations could affect the unrealized appreciation and depreciation of
Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
28
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 the Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for the Fund to
obtain accurate market quotations for the purpose of valuing its portfolio.
Market quotations are generally available on many sovereign debt obligations
only from a limited number of dealers and may not necessarily represent firm
bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Fund will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives.
The Fund may have limited legal recourse in the event of a default with respect
to certain sovereign debt obligations it holds. For example, remedies from
defaults on certain sovereign debt obligations, unlike those on private debt,
must, in some cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a
29
Fund's shareholders. These include a higher volatility of the net asset value
of a Fund's shares of common stock and the relatively greater effect on the net
asset value of the shares. So long as a Fund is able to realize a net return on
its investment portfolio that is higher than the interest expense paid on
borrowings, the effect of leverage will be to cause the Fund's shareholders to
realize a higher current net investment income than if the Fund were not
leveraged. On the other hand, interest rates on U.S. Dollar-denominated and
foreign currency-denominated obligations change from time to time as does their
relationship to each other, depending upon such factors as supply and demand
forces, monetary and tax policies within each country and investor
expectations. Changes in such factors could cause the relationship between such
rates to change so that rates on U.S. Dollar-denominated obligations may
substantially increase relative to the foreign currency-denominated obligations
in which the Fund may be invested. To the extent that the interest expense on
borrowings approaches the net return on a Fund's investment portfolio, the
benefit of leverage to the Fund's shareholders will be reduced, and if the
interest expense on borrowings were to exceed the net return to shareholders, a
Fund's use of leverage would result in a lower rate of return than if a Fund
were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case if a Fund's current investment income were
not sufficient to meet the interest expense on borrowings, it could be
necessary for the Fund to liquidate certain of its investments, thereby
reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either MULTI-MARKET
STRATEGY or NORTH AMERICAN GOVERNMENT INCOME could adversely affect the Funds'
shareholders, as noted above, or in anticipation of such changes, either Fund
may increase the percentage of its investment portfolio invested in U.S.
Government securities, which would tend to offset the negative impact of
leverage on Fund shareholders. Either Fund may also reduce the degree to which
it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is 'asset coverage,' as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance. In
the event that a Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See 'Dividends, Distributions and Taxes.'
GLOBAL STRATEGIC INCOME may borrow in order to purchase securities or make
other investments. Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may also borrow to
repurchase its shares or to meet redemption requests. In addition, each Fund
may borrow for temporary purposes (including the purposes mentioned in the
preceding sentence) in an amount not exceeding 5% of the value of the assets of
the Fund. Borrowings for temporary purposes are not subject to the 300% asset
average limit described above. See 'Certain Fundamental Investment Policies.'
SHORT-TERM U.S. 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
also through the use of dollar rolls to the extent permitted by the 1940 Act.
See 'Investment Objectives and Policies-Reverse Repurchase Agreements and
Dollar Rolls.'
INVESTMENT IN THE BANKING INDUSTRY. Due to the investment policies of
MULTI-MARKET STRATEGY and SHORT-TERM MULTI-MARKET with respect to investments
in the banking industry, those Funds will have greater exposure to the risk
factors which are characteristic of such investments. In particular, the value
of and investment return on each Fund's shares will be affected by economic or
regulatory developments in or related to the banking industry. Sustained
increases in interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry
is also subject to the effects of: the concentration of loan portfolios in
particular business such as real estate, energy, agriculture or high
technology-related companies; national and local regulation; and competition
within those industries as well as with other types of financial institutions.
In addition, each Fund's investments in commercial banks located in several
foreign countries are subject to additional risks due to the combination in
such banks of commercial banking and diversified securities
30
activities. As discussed above, however, the Funds will seek to minimize their
exposure to such risks by investing only in debt securities which are
determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Securities rated Ba or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B are judged to have highly speculative
elements or to be predominantly speculative. Such securities may have small
assurance of interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
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 and
CORPORATE BOND when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
NON-DIVERSIFIED STATUS. Each of SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME is a 'non-diversified' investment company, which means the Fund is not
limited in the proportion of its assets that may be invested in the securities
of a single issuer. However, each Fund intends to conduct its operations so as
to qualify to be taxed as a 'regulated investment company' for purposes of the
Code, which will relieve the Fund of any liability for federal income tax to
the extent its earnings are distributed to shareholders. See 'Dividends,
Distributions and Taxes' in 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 SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT 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
31
and loan participations may be treated as separate issuers for the purposes of
these tests. Accordingly, in order to meet the diversification tests and
thereby maintain its status as a regulated investment company, NORTH AMERICAN
GOVERNMENT INCOME will be required to diversify its portfolio of foreign
government securities in a manner which would not be necessary if the Fund had
made similar investments in U.S. Government securities.
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
Each Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares of each Fund may be purchased
through your financial representative at net asset value without any initial or
contingent deferred sales charges and without ongoing distribution expenses.
Advisor Class shares may be purchased soley by investors (i) through accounts
established under a fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by Alliance Fund
Distributors, Inc. ('AFD'), each Fund's principal underwriter, pursuant to
which each investor pays an asset-based fee at an annual rate of at least .50%
of the assets in the investor's account to the broker-dealer or financial
intermediary, or its affiliate or agent, for investment advisory or
administrative services, or (ii) through 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. The minimum initial investment in each
Fund is $250. The minimum for subsequent investments in each Fund is $50.
Investments of $25 or more are allowed under the automatic investment program
of each Fund and under a 403(b)(7) retirement plan. Share certificates are
issued only upon request. See the Subscription Application and Statements of
Additional Information for more information.
The Funds may refuse any order to purchase Advisor Class shares. In this
regard, the Funds reserve the right to restrict purchases of Advisor Class
shares (including exchanges) when there appears to be evidence of a pattern
of frequent purchases and sales made in response to short-term fluctuations in
share price.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of Advisor Class shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to the Advisor Class by the
outstanding shares of the Advisor Class. Shares are valued each day the New
York Stock Exchange (the 'Exchange') is open as of the close of regular trading
(currently 4:00 p.m. Eastern time). The securities in a Fund are valued at
their current market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as the Fund's
Directors and Trustees believe would accurately reflect fair market value.
HOW TO SELL SHARES
You may 'redeem', i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial representative. The
price you will receive is the net asset value 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). If you are in doubt what documents are required by
your fee-based program or employee benefit plan, you should contact your
financial representative.
SELLING SHARES THROUGH YOUR FINANCIAL REPRESENTATIVE
Your financial representative must receive your request before 4:00 p.m.
Eastern time, and your financial representative must transmit your request to
the Fund by 5:00 p.m. Eastern time, for you to receive that day's net asset
value. Your financial representative 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 Alliance Fund
Services, Inc. ('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
representative, AFS, and many commercial banks. Additional documentation is
required for the sale of shares by corporations, intermediaries, fiduciaries
and surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
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 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 in any 30 day period. A
shareholder who has completed the Telephone Transactions section of the
Subscription Application, or the Shareholder Options form obtained from AFS,
can elect to have the proceeds of their redemption sent to their bank via an
electronic funds transfer. Proceeds of telephone redemptions also may be sent
by check to a shareholder's address of record. Except for certain omnibus
accounts, 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.
32
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672.
HOW TO EXCHANGE SHARES
You may exchange your Advisor Class shares of any other Fund for Advisor Class
shares 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.
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.
GENERAL
If you are a Fund 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 a Fund that are different
from those described in this Prospectus. 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.
Each Fund offers three classes of shares other than the Advisor Class, which
are Class A, Class B and Class C. All classes of shares of a Fund have a common
investment objective and investment portfolio. Class A shares are offered with
an initial sales charge and pay a distribution services fee. Class B shares
have a contingent deferred sales charge (a 'CDSC') and also pay a distribution
services fee. Class C shares have no initial sales charge or CDSC but pay a
distribution services fee. Because Advisor Class shares have no initial sales
charge or CDSC and pay no distribution services fee, Advisor Class shares are
expected to have different performance from Class A, Class B or Class C
shares. You may obtain more information about Class A, Class B and Class C
shares, which are not offered by this Prospectus, by contacting AFS by
telephone at 1-800-221-5672 or by contacting your financial representative.
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 March 1, 1996 totaling more than $156 billion
(of which more than $48 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 50 registered investment companies managed by Alliance
comprising 107 separate investment portfolios currently have over two million
shareholders. As of March 1, 1996, Alliance was retained as an investment
manager for 34 of the Fortune 100 companies.
Alliance Capital Management Corporation ('ACMC'), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ('Equitable'), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and control of Equitable
by AXA is set forth in each Fund's Statement of Additional Information under
'Management of the Fund.'
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been 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 since
March 1992; prior
thereto, a managing
director and portfolio
manager for Hyperion
Capital since March 1991
and a managing director
with Fischer, Francis,
Trees & Watts
33
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Paul A. Ullman Associated with
since 1995-Vice President Alliance since
March 1992; prior
thereto, a director and
portfolio manager for
Hyperion Capital since
July 1990 and a
Vice President at
Salomon Brothers Inc.
U.S. Government Wayne D. Lyski since 1983 Associated with Alliance
-Executive Vice President
Paul J. DeNoon since Associated with Alliance
January 1992- since January 1992;
Vice President prior thereto, a
Vice President at
Manufacturers
Hanover Trust
Limited Maturity Patricia J. Young (see above)
Government since inception -(see above)
Paul A. Ullman (see above)
since inception-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income March 1992-(see above)
Paul A. Ullman since (see above)
March 1992-(see above)
Short-Term Douglas J. Peebles since Associated with
Multi-Market 1995-Vice President Alliance
Multi-Market Douglas J. Peebles since (see above)
Strategy inception-(see above)
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
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 (see above)
January 1992-(see above)
DISTRIBUTION SERVICES AGREEMENTS
Each Fund has entered into a Distribution Services Agreement (the 'Agreement')
with AFD with respect to Advisor Class shares. 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.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes
34
withheld at the source. To the extent that any Fund is liable for foreign
income taxes withheld at the source, each Fund intends, if possible, to operate
so as to meet the requirements of the Code to 'pass through' to the Fund's
shareholders credits for foreign income taxes paid, but there can be no
assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a 'regulated investment company'
under the Code. To the extent that a Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends from certain
Funds may be eligible for the dividends-received deduction, except that the
amount eligible for the deduction is limited to the amount of qualifying
dividends received by the Fund. A corporation's dividends-received deduction
will be disallowed unless the corporation holds shares in the Fund at least 46
days. Furthermore, the dividends-received deduction will be disallowed to the
extent a corporation's investment in shares of a Fund is financed with
indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by each Fund to its shareholders as capital
gains distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her
stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. If a shareholder held shares six months or less and
during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during
such six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
CORPORATE BOND are qualified to do business in the Commonwealth of Pennsylvania
and, therefore, are subject to the Pennsylvania foreign franchise and corporate
net income tax in respect of their business activities in Pennsylvania.
Accordingly, shares of such Funds are exempt from Pennsylvania personal
property taxes. These Funds anticipate continuing such business activities but
reserve the right to suspend them at any time, resulting in the termination of
the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers
to enter into portfolio transactions with the Fund.
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 SHORT-TERM MULTI-MARKET TRUST, INC. (1989), ALLIANCE
MULTI-MARKET STRATEGY TRUST, INC. (1991), ALLIANCE NORTH AMERICAN GOVERNMENT
INCOME TRUST, INC. (1992) and ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND, INC.
(1993). Prior to 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.
35
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal, or in the case
of the Funds organized as Maryland corporations, state law. Shareholders have
available certain procedures for the removal of Directors or Trustees.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented
by the redeemed shares. The Funds are empowered to establish, without
shareholder approval, additional portfolios, which may have different
investment objectives, and additional classes of shares. If an additional
portfolio or class were established in a Fund, each share of the portfolio or
class would normally be entitled to one vote for all purposes. Generally,
shares of each portfolio and class would vote together as a single class on
matters, such as the election of Directors or Trustees, that affect each
portfolio and class in substantially the same manner. Advisor Class, Class A,
Class B and Class C shares have identical voting, dividend, liquidation and
other rights, except that each class bears its own transfer agency expenses and
each of Class A, Class B and Class C shares bears its own distribution
expenses. Each class of shares votes separately with respect to 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 United States District Court for
the Southern District of New York against the Fund, Alliance, ACMC, AFD, The
Equitable Companies Incorporated, a parent of Alliance, certain officers of the
Fund, certain current and former directors of the Fund, certain current and
former officers of ACMC and certain directors of ACMC, alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Complaint seeks
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. The
Complaint alleges that as of the date of the Complaint, the Fund's losses
exceeded $750,000,000. The Complaint seeks as relief unspecified damages, costs
and attorneys' fees.
The principal allegations of the Complaint are that upon the advice of Alliance
the Fund purchased debt securities issued by the Mexican and Argentine
governments in amounts that were not permitted by the Fund's investment
objective, and that there was no shareholder vote to change the investment
objective to permit purchases in such amounts. The Complaint further alleges
that the decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1995, defendants jointly filed a motion to dismiss the
Complaint in its entirety. The Fund and Alliance believe that the allegations
in the Complaint are without merit and intend to vigorously defend against
these 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.
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 each class of shares, including Advisor Class
shares. A Fund's yield for any 30-day (or one-month) period is computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semi-annual
basis. A Fund may also state in sales literature an 'actual distribution rate'
for each class which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question are
substituted for net investment income per share. The actual distribution rate
is computed separately for each class of shares, including Advisor Class
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
36
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.'
37
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S 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 is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
CCC the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
A-1
CI-The rating CI is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest 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 or interest. 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.
FITCH INVESTORS SERVICE, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)-Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR-Indicates that Fitch does not rate the specific issue.
A-2
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 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
February 15, 1996, the Canadian Dollar increased in value by approximately 3.4%
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.
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 recent adoption by Canada, the
United States and Mexico of the North American Free Trade Agreement could also
contribute to the growth of the Mexican economy.
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
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 still in a recession and
suffers from high inflation and high interest rates. 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
B-1
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 February 15, 1996, the Mexican Peso decreased in
value compared to the U.S. Dollar by approximately 60%.
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 President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most
recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.
Shortly after taking office in 1989, the country's current President 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 Economy Minister's plan represented a pronounced
departure from its predecessors in calling for raised revenues, reduced
expenditures and a reduced public deficit. The extensive privatization program
commenced in 1989 was accelerated, the domestic economy deregulated and opened
up to foreign trade and the frame-work for foreign investment reformed. As a
result of the economic stabilization reforms, gross domestic product has
increased and inflation has decreased.
Significant progress was also made in 1992 in rescheduling Argentina's debt
with both external and domestic creditors, which improved fiscal cash flows in
the medium terms and allowed a return to voluntary credit markets. Further
reforms are currently being implemented in order to sustain and continue the
progress to date. 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.
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.
B-2
<PAGE>
ALLIANCE LIMITED MATURITY
(LOGO)(R) GOVERNMENT FUND, INC.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
(Advisor Class)
June [ ], 1996
_________________________________________________________________
This Statement of Additional Information relating to Advisor
Class shares of the Fund is not a prospectus and should be read
in conjunction with the Fund's current Prospectus relating to
Advisor Class share. A copy of the Prospectus relating to
Advisor Class shares may be obtained by contacting Alliance Fund
Services, Inc. at the address or telephone numbers shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund . . . . . . . . . . . . . . . .
Management of the Fund. . . . . . . . . . . . . . . . .
Expenses of the Fund. . . . . . . . . . . . . . . . . .
Purchase of Shares. . . . . . . . . . . . . . . . . . .
Redemption and Repurchase of Shares . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes. . . . . . . . . . .
Portfolio Transactions. . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . .
Report of Independent Auditors and Financial
Statements. . . . . . . . . . . . . . . . . . . . . . .
Appendix A (Bond and Commercial Paper Ratings). . . . . A-1
<PAGE>
Appendix B (Futures Contracts and Options on
Futures Contracts and Foreign Currencies) . . . . . . . B-1
_____________________
(R): This registered service mark under license from the owner,
Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
Incorporated by reference from the section "Description of
the Fund" contained in the Statement of Additional Information of
Alliance Limited Maturity Government Fund, Inc. (the "Fund")
dated March 1, 1996 relating to the Class A, Class B and Class C
shares of the Fund, as filed with the Securities and Exchange
Commission (the "Commission") pursuant to Rule 497(c) on March
13, 1996 (file nos. 33-47031 and 811-06627) (the "Rule 497 SAI").
Capitalized terms used herein that are not otherwise defined
herein are used as defined in the Rule 497 SAI.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Incorporated by reference from the section "Management of the
Fund" contained in the Rule 497 SAI, except that the second,
third and fourth paragraphs of the sub-section "Adviser" and the
Officer biographies and the last paragraph of the sub-section
"Officers" are restated as set forth below:
The Adviser is a leading international investment manager
supervising client accounts with assets as of March 1, 1996 of
more than $156 billion (of which more than $48 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 and included, as of March 1,
1996, 34 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 50
registered investment companies comprising 107 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest
in, the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of March 1, 1996,
2
<PAGE>
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 57.6% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of March 1, 1996, approximately 32.4% and
10.0% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA and its subsidiaries own approximately 63.9% of the
issued and outstanding shares of capital stock of ECI. AXA is
the 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 in France, the United States,
Australia, the United Kingdom, Canada and other countries,
principally in Europe and the Asia Pacific area. AXA is also
engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services
activities in the United States, Europe and the Asia Pacific
area. Based on information provided by AXA, as of March 1, 1996,
42.1% of the issued ordinary shares (representing 53.4% of the
voting power) of AXA were owned by Midi Participations, a French
holding company ("Midi"). The shares of Midi were, in turn,
owned 61.4% (representing 62.5% of the voting power) by Finaxa, a
French holding company, and 38.6% (representing 37.5% of the
voting power) by subsidiaries of Assicurazioni Generali S.p.A.,
an Italian corporation (one of which, Belgica Insurance Holding
S.A., a Belgian corporation, owned 30.8%, representing 33.1% of
the voting power). As of March 1, 1996, 61.1% of the voting
shares (representing 73.4% of the voting power) of Finaxa were
owned by five French mutual insurance companies (the "Mutuelles
AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle, owned
34.7% of the voting shares representing 40.4% of the voting
power), and 25.5% of the voting shares (representing 16% of the
voting power) of Finaxa were owned by Banque Paribas, a French
bank. Including the ordinary shares owned by Midi, as of
March 1, 1996, the Mutuelles AXA directly or indirectly owned 51%
of the issued ordinary shares (representing 64.7% of the voting
power) of AXA. Acting as a group, the Mutuelles AXA control AXA,
Midi and Finaxa.
Officers
JOHN D. CARIFA, Chairman and President, (see biography
above).
3
<PAGE>
WAYNE D. LYSKI, 54, Senior Vice President, is an Executive
Vice President of ACMC with which he has been associated since
prior to 1991.
KATHLEEN A. CORBET, 35, Senior Vice President, has been a
Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1991.
PATRICIA J. YOUNG, 41, Senior Vice President, is a Senior
Vice President of ACMC, with which she has been associated since
March 1992. Previously, she was a Managing Director and
Portfolio Manager for Hyperion Capital since March 1991. Prior
thereto, she was a Managing Director with Fischer, Francis, Trees
& Watts since prior to 1991.
PAUL A. ULLMAN, 37, Senior Vice President, is a Vice
President of ACMC with which he has been associated since March
1992. Previously, he was a Director and Portfolio Manager at
Hyperion Capital since July 1991. Prior thereto, he was a Vice
President at Salomon Brothers since prior to 1991.
EDMUND P. BERGAN, JR., 45, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. and Alliance Fund Services, Inc. and Vice President and
Associate General Counsel of ACMC, with which he has been
associated since prior to 1991.
ANDREW GANGOLF, 41, Assistant Secretary, has been a Vice
President and Assistant General Counsel of Alliance Fund
Services, Inc. since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc. since October 1992 and a Vice President and Counsel to
Equitable Life Assurance Society of the United States since prior
to 1991
MARK D. GERSTEN, 44, Treasurer and Chief Financial Officer,
is a Vice President of Alliance Fund Distributors, Inc. and
Senior Vice President of Alliance Fund Services, Inc., with which
he has been associated since prior to 1991.
JUAN J. RODRIGUEZ, 38, Controller, is an Assistant Vice
President of Alliance Fund Services, Inc., with which he has been
associated since prior to 1991.
CARLA LAROSE, 32, Assistant Controller, is a Manager of
Alliance Fund Services, Inc. with which she has been associated
since prior to 1991.
4
<PAGE>
JOSEPH J. MANTINEO, 36, Assistant Controller, has been a Vice
President of Alliance Fund Services, Inc. since July 1989; prior
thereto he was Manager of Fixed Income Mutual Fund Accounting for
Alliance Fund Services, Inc. since prior to 1991.
VINCENT S. NOTO, 31, Assistant Controller, is an Assistant
Vice President of Alliance Fund Services, Inc., with which he has
been associated since prior to 1991.
As of April 5, 1996, 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 Alliance Fund Distributor, Inc., the
Fund's principal underwriter (the "Principal Underwriter"), to
permit the Principal Underwriter to distribute the Fund's Advisor
Class shares.
The Agreement became effective on July 22, 1992, and was
amended as of [ ], 1996 to permit the distribution of the
Advisor Class shares. The amendment to the Agreement was
approved by a vote of the Directors on [ ], 1996.
The Agreement will continue in effect for successive twelve-
month periods with respect to Advisor Class shares (computed from
each July 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). All amendments to the Agreement must be
approved by a vote of the Directors of the Fund.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each Class A, Class B, Class C and Advisor
Class share of the Fund, plus reimbursement for out-of-pocket
expenses. For the fiscal year ended November 30, 1995, the Fund
paid Alliance Fund Services, Inc. $218,090 for transfer agency
services.
5
<PAGE>
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares
- -- How To Buy Shares; -- How to Sell Shares; -- and Shareholder
Services."
GENERAL
If you are a Fund 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 in the Prospectus and this Statement of Additional
Information. 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.
Advisor Class shares of the Fund are offered on a continuous
basis at a price equal to their net asset value. The minimum for
initial investments is $250; subsequent investments (other than
reinvestments of dividends and capital gains distributions in
shares) must be in the minimum amount of $50. As described under
"Shareholder Services," the Fund offers an automatic investment
program and a 403(b)(7) retirement plan which permit investments
of $25 or more.
Investors may purchase Advisor Class shares of the Fund
solely through (i) accounts established under a fee-based
program, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by Alliance Fund
Distributors, Inc. ("AFD"), pursuant to which each investor pays
an asset-based fee at an annual rate of at least .50% of the
assets in the investor's account, to the broker-dealer or
financial intermediary, or its affiliate or agent, for investment
advisory or administrative services, or (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.
The Fund may refuse any order for the purchase of Advisor Class
shares. The Fund reserves the right to suspend the sale of its
Advisor Class shares to the public in response to conditions in
the securities markets or for other reasons.
The public offering price of Advisor Class shares of the Fund
is their net asset value. On each Fund business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Advisor Class shares, the per
6
<PAGE>
share net asset value is computed in accordance with the Fund's
Articles of Incorporation and By-Laws as of the next close of
regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time) by dividing the value of the
Fund's total assets, less its liabilities, by the total number of
its shares then outstanding. A Fund business day is any weekday,
exclusive of days which the Exchange is closed (most national
holidays and Good Friday). For purposes of this computation,
Exchange-listed securities and over-the-counter securities
admitted to trading on the NASDAQ National List are valued at the
last quoted sale or, if there is no such sale, at the mean of
closing bid and asked prices and portfolio bonds are presently
valued by a recognized pricing service. If accurate quotations
are not available, securities will be valued at fair value
determined in good faith by the Board of Directors.
The Fund will accept unconditional orders for its Advisor
Class shares to be executed at the public offering price equal to
their net asset value next determined, as described below.
Orders received by the Principal Underwriter prior to the close
of regular trading on the Exchange on each day the Exchange is
open for trading are priced at the net asset value computed as of
the close of regular trading on the Exchange on that day. In the
case of orders for purchase of Advisor Class shares placed
through a shareholder's financial representative, the applicable
public offering price will be the net asset value as so
determined, but only if the financial representative receives the
order prior to the close of regular trading on the Exchange and
transmits it to the Principal Underwriter prior to 5:00 p.m.
Eastern time. The financial representative is responsible for
transmitting such orders by 5:00 p.m. If the financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
financial representative. If the financial representative
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 Advisor Class shares, a
shareholder may place orders to purchase additional Advisor Class
shares by telephone if the shareholder has completed the
appropriate portion of the Subscription Application. Except with
respect to certain omnibus accounts, a telephone purchase order
may not exceed $500,000. Payment for Advisor Class shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. Eastern time on a Fund
business day, the order to purchase Advisor Class shares is
7
<PAGE>
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 Advisor Class 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 Advisor
Class shares of the Fund are not issued except upon written
request to the Fund by the shareholder or his or her authorized
financial representative. 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 Advisor Class shares, although such
Advisor Class shares remain in the shareholder's account on the
books of the Fund.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares."
REDEMPTION
Subject only to the limitations described below, the Fund's
Articles of Incorporation require that the Fund redeem the
Advisor Class shares tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of Advisor Class shares tendered for
redemption in proper form. 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
Advisor Class 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 Securities and
Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as
determined by the Securities and Exchange Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
8
<PAGE>
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Securities
and Exchange Commission may by order permit for the protection of
security holders of the Fund.
Payment of the redemption price will be made in cash. The
value of a shareholder's Advisor Class shares on redemption or
repurchase may be more or less than the cost of such Advisor
Class shares to the shareholder, depending upon the market value
of the Fund's portfolio securities at the time of such redemption
or repurchase. Payment received by a shareholder upon redemption
or repurchase of his or her Advisor Class shares, assuming the
Advisor Class shares constitute capital assets in his or her
hands, will result in long-term or short-term capital gains (or
loss) depending upon the shareholder's holding period and basis
in respect of the Advisor Class shares redeemed.
To redeem Advisor Class 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 Advisor Class 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 Advisor Class 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, once in any 30-day period (except for certain omnibus
accounts) of Advisor Class 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. A telephone redemption request 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
9
<PAGE>
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Except for certain omnibus
accounts or as otherwise noted below, each Fund shareholder is
eligible to request redemption, by check, once in any 30-day
period, of Advisor Class shares for which no stock certificates
have been issued by telephone at (800) 221-5672 before 4:00 p.m.
Eastern time on a Fund business day in an amount not exceeding
$50,000. Proceeds of such redemptions are remitted by check to
the shareholder's address of record. Telephone redemption by
check is not available with respect to Advisor Class 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. 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.
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. 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.
A shareholder's financial representative may charge a fee for
handling telephone requests for redemptions.
REPURCHASE
The Fund may repurchase Advisor Class shares through the
Principal Underwriter or selected financial intermediaries. The
repurchase price will be the net asset value next determined
after the Principal Underwriter receives the request, except that
10
<PAGE>
requests placed through selected financial intermediaries 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 is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. If the financial intermediary fails to
do so, the shareholder's right to receive that day's closing
price must be settled between the shareholder and the financial
intermediary. A shareholder may offer Advisor Class shares of
the Fund to the Principal Underwriter either directly or through
a financial intermediary. Neither the Fund nor the Principal
Underwriter charges a fee or commission in connection with the
repurchase of Advisor Class shares. Normally, if Advisor Class
shares of the Fund are offered through a financial intermediary,
the repurchase is settled by the shareholder as an ordinary
transaction with or through the financial intermediary who may
charge the shareholder for this service. The repurchase of
Advisor Class 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. In the case of a
redemption or repurchase of Advisor Class shares of the Fund
recently purchased by check, redemption proceeds will not be made
available until the Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase
date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares-
Shareholder Services."
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase Advisor Class shares of the Fund
through an automatic investment program utilizing "pre-authorized
check" drafts drawn on the investor's own bank account. Under
such a program, pre-authorized monthly drafts for a fixed amount
(at least $25) are used to purchase Advisor Class shares through
11
<PAGE>
the financial intermediary designated by the investor at the
public offering price next determined after the Principal
Underwriter receives the proceeds from the investor's bank.
Drafts may be made in paper form or, if the investor's bank is a
member of the NACHA, in electronic form. If made in paper form,
the draft is normally made on the 20th day of each month, or the
next business day thereafter. If made in electronic form, drafts
can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application. 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
Advisor Class shareholders of the Fund can exchange their
Advisor Class shares for Advisor Class shares of any other
Alliance Mutual Fund that offers Advisor Class shares.
Exchanges are subject to the minimum investment requirements
and any other applicable terms set forth in the Prospectus for
the Alliance Mutual Fund whose Advisor Class shares are being
acquired. An exchange is effected through the redemption of the
Advisor Class shares tendered for exchange and the purchase of
Advisor Class shares being acquired at their respective net asset
values as next determined following receipt by the Alliance
Mutual Fund whose Advisor Class 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
Advisor Class shares recently purchased by check will be
permitted only after the Alliance Mutual Fund whose Advisor Class
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 Advisor Class 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 financial
representative, 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. Such telephone requests
cannot be accepted with respect to Advisor Class shares then
represented by stock certificates. Advisor Class shares acquired
pursuant to a telephone request for exchange will be held under
12
<PAGE>
the same account registration as the Advisor Class shares
redeemed through such exchange.
Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 between 9:00
a.m. and 4:00 p.m., Eastern time, on a Fund business day as
defined above. Telephone requests for exchange received before
4:00 p.m. Eastern time on a Fund business day will be processed
as of the close of business on that day. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
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 Advisor
Class Fund shares (minimum $25) is automatically exchanged for
Advisor Class shares of another Alliance Mutual Fund. Auto
Exchange transactions normally occur on the 12th day of each
month, or the following Fund business day.
Neither the Alliance Mutual Funds nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. A shareholder's financial
representative may charge a fee for handling telephone requests
for exchanges.
The exchange privilege is available only in states where
Advisor Class 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 Advisor Class shares through
exchange or otherwise to modify, restrict or terminate the
exchange privilege.
13
<PAGE>
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part or all
of the assets held in various types of retirement plans, such as
those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact Alliance Fund Services, Inc. at the
"Literature" telephone number on the cover of this Statement of
Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
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, under which annual tax- deductible
contributions are made within prescribed limits based on
compensation paid to participating individuals.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole proprietors,
partnerships and corporations may sponsor a SEP under which they
make annual tax-deductible contributions to an IRA established by
each eligible employee within prescribed limits based on employee
compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt organizations
and public educational institutions may sponsor retirements plans
under which an employee may agree that monies deducted from his
or her compensation (minimum $25 per pay period) may be
contributed by the employer to a custodial account established
for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to certain
Code requirements in addition to normal redemption procedures.
For additional information please contact Alliance Fund Services,
Inc.
14
<PAGE>
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his or
her Advisor Class Fund account, an Advisor Class account with one
or more other Alliance Mutual Funds may direct that income
dividends and/or capital gains paid on his or her Advisor Class
Fund shares be automatically reinvested, in any amount, without
the payment of any service charges, in Advisor Class 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 "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. Current shareholders should
contact Alliance Fund Services, Inc. to establish a dividend
direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases Advisor Class
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.
Advisor Class shares of the Fund owned by a participant in
the Fund's systematic withdrawal plan will be redeemed as
necessary to meet withdrawal payments and such withdrawal
payments will be subject to any taxes applicable to redemptions.
Advisor Class shares acquired with reinvested dividends and
distributions will be liquidated first to provide such withdrawal
payments and thereafter other Advisor Class shares will be
liquidated to the extent necessary, and depending upon the amount
withdrawn, the investor's principal may be depleted. A
systematic withdrawal plan may be terminated at any time by the
shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of Advisor Class 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."
15
<PAGE>
Payments under a systematic withdrawal plan may be made by
check or electronically via the Automated Clearing House network.
Investors wishing to establish a systematic withdrawal plan in
conjunction with their initial investment in Advisor Class shares
of the Fund should complete the appropriate portion of the
Subscription Application, while current Fund shareholders
desiring to do so can obtain an application form by contacting
Alliance Fund Services, Inc. at the address or the "Literature"
telephone number shown on the cover of this Statement of
Additional Information.
STATEMENTS AND REPORTS
Each shareholder of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
CHECKWRITING
An Advisor Class investor may fill out the Signature Card to
authorize the Fund to arrange for a checkwriting service through
State Street Bank and Trust Company (the "Bank") to draw against
Advisor Class 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 Advisor Class shares in the investor's
account (excluding for this purpose the current month's
accumulated dividends and shares for which certificates have been
issued). An Advisor Class 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 Advisor Class shares of the Fund in the shareholder's
account to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
16
<PAGE>
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 Advisor Class shares to be redeemed until the day that the
check is presented to the Bank for payment.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
Incorporated by reference from the section "Net Asset
Value" contained in the Rule 497 SAI, except that the third
paragraph is restated as set forth below:
The assets belonging to the Class A, Class B, Class C 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 accrued expenses and liabilities
allocated to that class from the assets belonging to that class.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
Incorporated by reference from the section entitled
"Dividends, Distributions and Taxes" contained in the Rule 497
SAI.
_________________________________________________________________
PORTFOLIO TRANSACTIONS
_________________________________________________________________
Incorporated by reference from the section "Portfolio
Transactions" contained in the Rule 497 SAI.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Incorporated by reference from the section "General
Information" contained in the Rule 497 SAI, except that the sub-
sections entitled "Capitalization" and "Yield and Total Return
Quotations" are restated as set forth below:
17
<PAGE>
CAPITALIZATION
The Fund's shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they
choose to do so, and in such event the holders of the remaining
less than 50% of the shares voting for such election of Directors
will not be able to elect any person or persons to the Board of
Directors.
The Board of Directors is authorized to reclassify and issue
any unissued shares to any number of additional series without
shareholder approval. Accordingly, the Board may create
additional series of shares in the future, for reasons such as
the desire to establish one or more additional portfolios of the
Fund with different investment objectives, policies or
restrictions. Any issuance of shares of another series would be
governed by the 1940 Act and the laws of the State of Maryland.
If shares of another series were issued in connection with the
creation of a second portfolio, each share of either portfolio
would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single
series for the election of directors and on any other matter that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Advisory Agreement and changes in investment policy, shares
of each portfolio would vote as separate series.
Procedures for calling a shareholders meeting for the removal
of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund.
To the knowledge of the Fund, the following persons owned of
record or beneficially 5% or more of the outstanding shares of
the Fund as of April 5, 1996:
18
<PAGE>
No. of % of % of % of
Name and Address Shares Class A Class B Class C
________________ ______ _______ _______ _______
Cornell University 366,485 15.32
Short Term Fund
Terrace Hill
Ithaca, NY 14850
Merrill Lynch 183,688 7.68
Mutual Fund Operations
4800 Deer Lake Dr. East 1,781,893 23.86
3rd Floor
Jacksonville, Florida 106,439 46.16
32246-6484
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield," "actual
distribution rate" and "total return". The Fund's yield for any
30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the
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 advertised in items of sales literature, is computed in the
same manner as yield except that actual income dividends declared
per share during the period in question is substituted for net
investment income per share. The actual distribution rate is
computed separately for Class A, Class B, Class C and Advisor
Class shares. Advertisements of the Fund's total return disclose
the Fund's average annual compounded total return for its most
recently completed one, five and ten year periods (or the period
since the Fund's inception). The Fund's total return for 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 November 30, 1995 was
5.35% for Class A shares, 4.88% for Class B shares and 4.89% for
Class C shares. The Fund's distribution rates for such period
for Class A, Class B and Class C shares were 5.41%, 4.94% and
19
<PAGE>
4.95%, respectively. The Fund's average annual total returns for
the the period June 1, 1992 (commencement of operations) through
November 30, 1995, were 3.21% and 3.76% for Class A shares and
Class B shares, respectively, and, for the period May 3, 1993
(commencement of distribution for Class C shares) through
November 30, 1995, was 3.03% for Class C shares. The Fund's
average annual total returns for the one-year period ended
November 30, 1995 were 1.43%, 2.05% and 5.06% for Class A,
Class B and Class C shares, respectively.
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
latter 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. ("Lipper")
and Morningstar, Inc., and advertisements presenting the
historical record of payments of income dividends by the Fund may
also from time to time be sent to investors or placed in
newspapers, magazines such as THE 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 "U.S. Mortgage Bond Funds."
20
00250110.AQ7
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- ---------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-93.4%
FEDERAL HOME LOAN MORTGAGE CORP.-44.1%
7.00%, 8/01/09-1/01/11 (GOLD) $188,861 $192,460,332
7.50%, 2/01/23-8/01/25 (GOLD) 165,496 169,685,137
8.00%, 11/01/22-10/01/25 (GOLD) 169,984 176,145,943
10.50%, 9/01/19-10/01/20 9,084 10,031,951
11.50%, 10/01/10-6/01/20 4,830 5,446,259
12.25%, 8/01/13-7/01/14 993 1,132,352
12.50%, 6/01/19-6/15/19 6,061 7,015,289
12.75%, 6/01/12-2/01/14 341 394,070
13.00%, 5/01/14-12/15/18 2,416 2,827,658
13.50%, 1/01/12-10/01/16 597 707,269
14.75%, 3/01/10 85 101,237
Total Federal Home Loan Mortgage Corp.
(cost $557,978,233) 565,947,497
FEDERAL NATIONAL MORTGAGE ASSOCIATION-17.0%
8.00%, 3/01/23-11/01/25 102,326 105,971,046
8.50%, 6/01/24-9/01/25 102,383 106,862,462
11.50%, 1/01/99 5,093 5,806,144
12.00%, 2/01/98-7/01/00 70 73,977
Total Federal National Mortgage Association
(cost $214,166,513) 218,713,629
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-15.2%
7.00%, 7/20/25-8/20/25 (a) 47,751 48,765,708
8.00%, 4/15/17-10/15/24 (a) 42,543 44,328,366
8.50%, 9/15/24-12/15/24 93,767 98,455,407
9.00%, 12/15/19 5 5,737
10.00%, 10/15/17-6/15/20 1,694 1,864,916
11.00%, 1/20/01 16 16,853
11.50%, 3/15/10-11/15/15 1,217 1,392,624
12.00%, 2/15/14 336 390,063
12.50%, 3/15/11-5/15/15 343 404,565
13.00%, 11/15/99-1/15/00 34 35,764
15.00%, 2/15/12 1 620
Total Government National Mortgage Association
(cost $186,051,378) 195,660,623
COLLATERALIZED MORTGAGE OBLIGATIONS-14.5%
Countrywide Funding Corp.
Series 1995-2 Cl.A4
8.50%, 6/25/25 15,809 16,191,894
Donaldson, Lufkin & Jenrette
Series 1994-Q12
7.787%, 9/25/24 (c) 46,072 47,252,905
Series 1994-QE1 Cl.A1
7.907%, 4/25/24 (c)(d) 12,019 12,101,720
Series 1994-QE2 Cl.A1
8.017%, 7/25/24 (c)(d) 21,101 21,299,215
Federal Home Loan Mortgage Corp.
Series 1664 Cl.A (P/O)
Zero coupon, 12/15/23 13,893 13,146,440
Independent National Mortgage Corp.
Series 1995-E Cl.A1
7.744%, 4/25/25 (b) 40,104 40,630,501
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C3 Cl.A3
7.089%, 12/26/25 35,598 36,737,137
Total Collateralized Mortgage Obligations
(cost $186,261,047) 187,359,812
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- ---------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED SECURITIES-2.6%
Donaldson, Lufkin & Jenrette
Series 1995-CF2 Cl.A3
6.85%, 11/17/05(d) $ 26,300 $ 26,891,750
Federal Home Loan Bank
Series 20-1
7.61%, 4/25/02 6,547 6,647,932
Total Commercial Mortgage Backed Securities
(cost $33,342,424) 33,539,682
Total Mortgage-Related Securities
(cost $1,177,799,595) 1,201,221,243
U.S. TREASURY SECURITIES-12.3%
U.S. Treasury Note
5.875%, 11/15/05 (e)
(cost $154,037,909) 154,310 157,781,975
ASSET BACKED SECURITIES-1.3%
Brazos Student Finance Corporation
Series 1995-A4 FRN 6.20%, 12/01/25
(cost $16,900,000) 16,900 16,905,240
SHORT TERM INVESTMENTS-5.1%
REPURCHASE AGREEMENT-5.1%
Prudential Securities
5.95%, dated 12/29/95, due 1/02/96,
collateralized by $50,000,000 FHLMC 1008F
6.95% (c), 10/15/20 and $28,756,000 FNMA
1991-34F 6.74% (c), 4/25/21
(amortized cost $65,026,000) $ 65,026 $ 65,026,000
TOTAL INVESTMENTS-112.1%
(cost $1,413,763,504) 1,440,934,458
Other assets less liabilities-(12.1%) (155,393,645)
NET ASSETS-100% $1,285,540,813
(a) Adjustable rate mortgages; stated interest rate in effect at December 31,
1995.
(b) Interest rate is indexed to a one year constant maturity treasury plus a
premium; stated interest rate in effect at December 31, 1995.
(c) Interest rate is indexed to London Interbank Offered Rate plus a premium;
stated interest rate in effect at December 31, 1995.
(d) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31, 1995,
these securities amounted to $60,292,685 or 4.7% of net assets.
(e) Securities, or a portion thereof, loaned at December 31, 1995 with an
aggregate market value of $157,781,975 and cash collateral received from the
counterparty of Bear Stearns in the amount of $157,203,313.
Glossary of Terms:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
P/O - Principal Only.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,413,763,504) $1,440,934,458
Cash 1,657,874
Interest receivable 9,514,609
Receivable for investment securities sold 6,646,333
Receivable for capital stock sold 205,326
Other assets 15,326
Total assets 1,458,973,926
LIABILITIES
Deposit for securities loaned 157,338,887
Payable for investment securities purchased 6,658,995
Dividends payable 4,360,957
Payable for capital stock redeemed 2,908,970
Advisory fee payable 1,669,816
Distribution fee payable 152,004
Accrued expenses and other liabilities 343,484
Total liabilities 173,433,113
NET ASSETS $1,285,540,813
COMPOSITION OF NET ASSETS
Capital stock, at par $ 1,469,610
Additional paid-in capital 1,460,031,465
Distributions in excess of net investment income (4,360,957)
Accumulated net realized loss on investments (198,770,259)
Net unrealized appreciation of investments 27,170,954
$1,285,540,813
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($502,390,341/
57,432,532 shares of capital stock issued and outstanding) $8.75
Sales charge-4.25% of public offering price .39
Maximum offering price $9.14
CLASS B SHARES
Net asset value and offering price per share($737,592,512/
84,320,400 shares of capital stock issued and outstanding) $8.75
CLASS C SHARES
Net asset value, redemption and offering price per share($45,557,960/
5,208,111 shares of capital stock issued and outstanding) $8.75
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $119,489,457
EXPENSES
Advisory fee $ 7,177,437
Distribution fee - Class A 1,586,741
Distribution fee - Class B 8,376,517
Distribution fee - Class C 513,701
Transfer agency 1,942,545
Custodian 362,869
Administrative 290,012
Printing 206,144
Audit and legal 170,003
Registration 131,488
Taxes 124,200
Directors' fees 23,530
Miscellaneous 50,802
Total expenses before interest 20,955,989
Interest expense 8,880,561
Total expenses 29,836,550
Net investment income 89,652,907
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 16,064,347
Net change in unrealized appreciation of investments 92,126,997
Net gain on investments 108,191,344
NET INCREASE IN NET ASSETS FROM OPERATIONS $197,844,251
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
DEC. 31,1995 DEC. 31,1994
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 89,652,907 $ 125,266,296
Net realized gain (loss) on investments 16,064,347 (211,057,813)
Net change in unrealized appreciation
(depreciation) of investments 92,126,997 (66,518,327)
Net increase (decrease) in net assets from
operations 197,844,251 (152,309,844)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (35,713,261) (47,603,015)
Class B (50,484,743) (71,792,708)
Class C (3,099,100) (5,089,134)
Tax return of capital
Class A (1,057,774) (1,891,214)
Class B (1,495,283) (2,852,244)
Class C (91,791) (202,186)
CAPITAL STOCK TRANSACTIONS
Net decrease (354,006,980) (578,709,664)
Total decrease (248,104,681) (860,450,009)
NET ASSETS
Beginning of year 1,533,645,494 2,394,095,503
End of year $1,285,540,813 $1,533,645,494
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Mortgage Securities Income Fund, Inc. (the 'Fund') is registered under
the Investment Company Act of 1940 as a diversified open-end 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%. Class B shares are sold
with a contingent deferred sales charge which declines from 3.00% 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 sold without an initial or contingent
deferred sales charge. All three classes of shares have identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Fixed-income securities are valued on the basis of prices provided by a pricing
service and brokers. However, securities which are traded over-the-counter and
on a national securities exchange may be valued according to the broadest and
most representative market. It is expected that, for the fixed-income
securities and options in which the Fund invests, this ordinarily will be the
over-the-counter market. Securities not priced in this manner are valued at the
latest quoted bid price, or when exchange valuations are used, at the latest
quoted sale price on the day of valuation.
If there is no such reported sale, the latest quoted bid price will be used.
Other securities for which quotations are not readily available or illiquid
securities will be valued in good faith at fair value using methods determined
by the Board of Directors. In determining fair value, consideration is given to
cost, operations and other financial data. Securities which mature in 60 days
or less are valued at amortized cost, which approximates market value.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Security transactions are accounted for on the date the securities are
purchased or sold. The Fund accretes discounts and premiums as adjustments to
interest income. Security gains and losses are determined on the identified
cost basis.
4. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
5. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year, the Fund reclassified certain components of net assets. The
reclassification was the result of a tax return of capital. The
reclassification resulted in a net decrease to distributions in excess of net
investment income and a corresponding decrease to additional paid-in capital of
$2,644,848. Net assets were not affected by the 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 a quarterly rate
equal to .1375 of 1% (approximately .55 of 1% on an annual basis) of the first
$500 million of the Fund's net assets and .125 of 1% (approximately .50 of 1%
on an annual basis) of its net assets over $500 million, valued on the last
business day of the previous quarter. The Adviser has agreed, under the terms
of the investment advisory agreement, to reimburse the Fund to the extent that
its aggregate expenses (exclusive of interest, taxes, brokerage, distribution
fees, and extraordinary expenses) in any year exceed 1% of its average daily
net assets for such year. No such reimbursement was required for the year ended
December 31, 1995. Pursuant to the advisory agreement, the Fund paid $290,012
to the Adviser representing the cost of certain legal and accounting services
provided to the Fund by the Adviser for the year ended December 31, 1995.
10
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
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 $1,210,760 for the year ended December 31, 1995.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's capital stock. The Distributor received
front-end sales charges of $15,075 from the sales of Class A shares and
$1,596,882 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B shares for the year ended December 31, 1995.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to 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 $15,837,781 and $2,076,306 for Class B and C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs incurred by the
Distributor beyond the current fiscal year for Class A shares. The Agreement
also provides that the Adviser may use its own resources to finance the
distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $4,361,691,189 and $4,798,480,399, respectively, for the year ended
December 31, 1995.
At December 31, 1995 the cost of securities for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $27,759,927 and
gross unrealized depreciation of investments was $588,973 resulting in net
unrealized appreciation of $27,170,954. For federal income tax purposes, the
Fund had a capital loss carryforward at December 31, 1995 of $198,735,479 which
expires in 2002.
1. FINANCIAL FUTURES CONTRACTS
The Fund may buy or sell interest rate futures contracts for the purpose of
hedging its portfolio against adverse effects of anticipated movements in the
market. Upon entering into a contract, the Fund deposits and maintains as
collateral an initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 1,800,000,000 shares of $.01 par value capital stock authorized
designated Class A, Class B and Class C shares.
Each class consists of 600,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,304,239 4,590,689 $ 19,703,528 $ 40,889,085
Shares issued in
reinvestment of
dividends 2,406,345 3,056,141 20,433,219 26,209,764
Shares redeemed (15,434,077) (30,797,504) (131,032,865) (261,551,480)
Net decrease (10,723,493) (23,150,674) $ (90,896,118) $(194,452,631)
CLASS B
Shares sold 2,932,891 10,395,450 $ 24,859,068 $ 93,124,118
Shares issued in
reinvestment of
dividends 2,762,632 4,486,737 23,430,516 38,565,381
Shares redeemed (34,701,182) (58,134,672) (294,722,980) (495,029,365)
Net decrease (29,005,659) (43,252,485) $(246,433,396) $(363,339,866)
CLASS C
Shares sold 946,878 6,008,369 $ 8,056,839 $ 53,836,318
Shares issued in
reinvestment of
dividends 195,729 433,318 1,654,570 3,731,183
Shares redeemed (3,110,655) (9,142,915) (26,388,875) (78,484,668)
Net decrease (1,968,048) (2,701,228) $(16,677,466) $(20,917,167)
NOTE F: SECURITY LENDING
The 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. As
of December 31, 1995 the Fund had entered into security lending agreements in
the amounts of $135,990,770 with J.P. Morgan, with an interest rate of 5.3%
maturing on January 2, 1996 and $21,338,887 with Bear Sterns & Co., with an
interest rate of 5.2% maturing on January 3, 1996. For the year ended December
31, 1995, the maximum amount of security lending agreements outstanding was
$405,958,875, the average amount outstanding was $172,756,497, and the daily
weighted average interest rate was 5.14%. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Fund any
income earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon amount
of income from a borrower who has delivered equivalent collateral. When such
securities are borrowed against cash the Fund agrees to pay the borrower of
such securities a 'rebate rate' for the use of the cash the borrower has
pledged as collateral. The rebate rate is the spread between the interest rate
received and interest rate paid in the repurchase agreement market by the
securities borrower.
12
FINANCIAL HIGHLIGHTS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $8.13 $9.29 $9.08 $9.21 $8.79
INCOME FROM INVESTMENT OPERATIONS
Net investment income .57(a) .57 .67 .77 .88
Net realized and unrealized gain (loss)
on investments .64 (1.13) .23 (.09) .41
Net increase (decrease) in net asset
value from operations 1.21 (.56) .90 .68 1.29
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.58) (.67) (.81) (.87)
Dividends in excess of net investment
income -0- -0- (.02) -0- -0-
Tax return of capital (.02) (.02) -0- -0- -0-
Total dividends and distributions (.59) (.60) (.69) (.81) (.87)
Net asset value, end of year $8.75 $8.13 $9.29 $9.08 $9.21
TOTAL RETURN
Total investment return based on net
asset value (b) 15.34% (6.14)% 10.14% 7.73% 15.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $502,390 $553,889 $848,069 $789,898 $544,171
Ratio of expenses to average net assets 1.66% 1.29% 1.00% 1.18% 1.16%
Ratio of expenses to average net assets
excluding interest expense 1.03% .97% 1.00% 1.18% 1.16%
Ratio of net investment income to
average net assets 6.77% 6.77% 7.20% 8.56% 9.92%
Portfolio turnover rate 285% 438% 622% 555% 439%
</TABLE>
See footnotes page 15.
13
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
JANUARY 30,
1992 (C)
YEAR ENDED DECEMBER 31, TO
------------------------------------ DECEMBER 31,
1995 1994 1993 1992
----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.13 $9.29 $ 9.08 $ 9.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .51 .61 .68
Net realized and unrealized gain (loss)
on investments .64 (1.14) .22 (.08)
Net increase (decrease) in net asset
value from operations 1.15 (.63) .83 .60
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.60) (.68)
Dividends in excess of net investment
income -0- -0- (.02) -0-
Tax return of capital (.02) (.02) -0- -0-
Total dividends and distributions (.53) (.53) (.62) (.68)
Net asset value, end of period $8.75 $8.13 $ 9.29 $ 9.08
TOTAL RETURN
Total investment return based on net
asset value (b) 14.48% (6.84)% 9.38% 7.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $737,593 $921,418 $1,454,303 $1,153,957
Ratio of expenses to average net assets 2.37% 2.00% 1.70% 1.67%(d)
Ratio expenses to average net assets
excluding interest expense 1.74% 1.68% 1.70% 1.67%(d)
Ratio of net investment income to
average net assets 6.06% 6.05% 6.47% 5.92%(d)
Portfolio turnover rate 285% 438% 622% 555%
</TABLE>
See footnotes page 15.
14
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
------------------------------------
MAY 3,1993(C)
YEAR ENDED DECEMBER 31, TO
---------------------- DECEMBER 31,
1995 1994 1993
----------- --------- ------------
Net asset value, beginning of period $8.13 $ 9.29 $ 9.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .51 .40
Net realized and unrealized gain(loss)
on investments .64 (1.14) -0-
Net increase (decrease) in net asset
value from operations 1.15 (.63) .40
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.40)
Dividends in excess of net investment
income -0- -0- (.01)
Tax return of capital (.02) (.02) -0-
Total dividends and distributions (.53) (.53) (.41)
Net asset value, end of period $8.75 $ 8.13 $ 9.29
TOTAL RETURN
Total investment return based on net
asset value (b) 14.46% (6.84)% 4.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $45,558 $58,338 $91,724
Ratio of expenses to average net assets 2.35% 1.97% 1.67%(d)
Ratio expense to average net assets
excluding interest expense 1.73% 1.69% 1.67%(d)
Ratio of net investment income to
average net assets 6.07% 6.06% 5.92%(d)
Portfolio turnover rate 285% 438% 622%
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Commencement of distribution.
(d) Annualized.
15
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Mortgage Securities Income Fund, Inc. (the 'Fund'), including the
portfolio of investments, as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, 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 Mortgage Securities Income Fund, Inc. at December 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
January 31, 1996
16
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
Incorporated by reference from "Appendix A" contained in
the Rule 497 SAI.
A-22
00250110.AQ7
<PAGE>
APPENDIX B
FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCIES
Incorporated by reference from "Appendix B" contained in
the Rule 497 SAI.
B-23
00250110.AQ7
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
Included in the Prospectus:
Included in the Statement of Additional Information:
Portfolio of Investments, November 30, 1995.
Statement of Assets and Liabilities, November 30, 1995.
Statement of Operations, year ended November 30, 1995.
Statement of Changes in Net Assets, years ended
November 30, 1995, November 30, 1994 and November 30,
1993.
Notes to Financial Statements, November 30, 1995.
Financial Highlights, for Class A and Class B shares for
years ended November 30, 1995, November 30, 1994,
November 30, 1993 and the period June 1, 1992
(commencement of operations) to November 30, 1992; for
Class C shares for year ended November 30, 1994 and for
the period May 3, 1993 (commencement of operations)
through November 30, 1993.
Report of Independent Auditors.
Included in Part C of the Registration Statement:
All other schedules are either inapplicable or the required
information is contained in the Financial Statement.
(b) EXHIBITS
(1) Copy of Articles of Incorporation of the Registrant
- Incorporated by reference from Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on April 8, 1992.
(1) (a) Articles of Amendment to Articles of Incorporation
- Incorporated by reference from Pre-Effective
Amendment No. 2 of Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(2) Copy of Amended By-Laws of the Registrant -
Incorporated by reference from Post-Effective
Amendment No. 1 of Registrant's Registration
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<PAGE>
Statement on Form N-1A, filed with the Securities
and Exchange Commission on October 30, 1992.
(3) Not applicable.
(4) (a) Form of Stock Certificate for Class A Shares -
Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(b) Form of Stock Certificate for Class B Shares -
Incorporated by reference from Pre-Effective
Amendment No. 2 of Registrant's Registration
Statement on Form N- 1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(5) Copy of Advisory Agreement between the Registrant
and Alliance Capital Management L.P. - Incorporated
by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A,
filed with the Securities and Exchange Commission
on October 30, 1992.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. -
Incorporated by reference from Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on January 31, 1994.
(b) Selected Dealer Agreement between Alliance Fund
Distributors, Inc. and selected dealers offering
shares of Registrant - Incorporated by reference
from Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on March 2,
1993.
(c) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated by
reference from Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A,
filed with the Securities and Exchange Commission
on March 2, 1993.
(7) Not applicable.
C-2
<PAGE>
(8) Copy of Custodian Contract between the Registrant
and State Street Bank and Trust Company -
Incorporated by reference from Post-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on October 30, 1992.
(9) Copy of Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc. -
Incorporated by reference from Post-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on October 30, 1992.
(10) (a) Opinion and Consent of Seward & Kissel -
Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(b) Opinion and Consent of Venable, Baetjer and Howard,
LLP Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(11) Consent of Independent Auditors - Filed herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. - Incorporated by reference
from Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on April 30,
1992.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a).
(16) Schedule for computation of performance quotations
- Incorporated by reference from Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
(18) Rule 18f-3 Plan - Incorporated by reference from
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A, filed with the
C-3
<PAGE>
Securities and Exchange Commission on February 29,
1996.
(27) Financial Data Schedule - filed herewith.
Other Exhibit: Powers of Attorney of Ms. Block and
Messrs. Carifa, Dievler, Hester, Michel and White - Incorporated
by reference from Pre-Effective Amendment No. 2 of Registrant's
Registration Statement on Form N-1A, filed with the Securities
and Exchange Commission on April 30, 1992.
Power of Attorney of William H. Foulk, Jr. - Incorporated by
reference from Post-Effective Amendment No. 1 of Registrant's
Registration Statement on Form N-1A, filed with the Securities
and Exchange Commission on October 30, 1992.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
As of April 5, 1996, the Registrant had 1,051
record holders of Class A shares of common stock, 3,340 record
holders of Class B shares of common stock and 2,018 record
holders of Class C shares of common stock.
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its directors and
officers, employees and other agents to the maximum extent
permitted by Section 2-418 of the General Corporation Law of the
State of Maryland and as set forth in Article EIGHTH of
Registrant's Articles of Incorporation, filed as Exhibit 1,
Article VII and Article VIII of the Registrant's By-Laws filed as
Exhibit 2 and Section 10 of the Distribution Services Agreement
filed as Exhibit 6(a), all as set forth below. The liability of
the Registrant's directors and officers is dealt with in
Article EIGHTH of Registrant's Articles of Incorporation, and
Article VII, Section 7 and Article VIII, Section 1 through
Section 6 of the Registrant's By-Laws, as set forth below. The
Adviser's 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:
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<PAGE>
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS.--(a) In this section the following words have the
meaning indicated.
(1) "Director" means any person who is or was a
director of a corporation and any person who, while a director of
a corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger, consolidation,
or other transaction in which the predecessor's existence ceased
upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other than
a director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or the
employment or agency relationship undertaken by the employee or
agent in behalf of the corporation.
(iii) "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a
proceeding.
(6) "Proceeding" means any threatened, 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
C-5
<PAGE>
2. Was the result of active and deliberate
dishonesty; or
(ii) The director actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or omission
was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses actually
incurred by the director in connection with the proceeding.
(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not be made in
respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment,
order or settlement does not create a presumption that the
director did not meet the requisite standard of conduct set forth
in this subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an
entry of an order of probation prior to judgment, creates a
rebuttable presumption that the director did not meet that
standard of conduct.
(c) A director may not be indemnified under subsection
(b) of this section in respect of any proceeding charging
improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which
the director was 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:
C-6
<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
(iii) By the stockholders.
(3) Authorization of indemnification and determination
as to reasonableness of expenses shall be made in the same manner
C-7
<PAGE>
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.
(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:
C-8
<PAGE>
(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 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.
C-9
<PAGE>
(3) The insurance or similar protection may be provided
by a subsidiary or an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to,
a director in accordance with this section, if arising out of a
proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the
next stockholders' meeting or prior to the meeting."
ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF INCORPORATION
READS AS FOLLOWS:
"(1) To the full extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer
of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This
limitation on liability applies to events occurring at
the time a person serves as a director or officer of the
Corporation whether or not such person is a director or
officer at the time of any proceeding in which liability
is asserted.
"(2) The Corporation shall indemnify and advance
expenses to its currently acting and its former
directors to the full extent that indemnification of
directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as
its directors and to such further extent as is
consistent with law. The Board of Directors may by By-
Law, resolution or agreement make further provisions for
indemnification of directors, officers, employees and
agents to the full extent permitted by the Maryland
General Corporation Law.
"(3) No provision of this Article shall be effective to
protect or purport to protect any director or officer of
the Corporation against any liability to the Corporation
or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his office.
"(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."
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<PAGE>
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 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall indemnify its directors to the
full extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify its officers to the same
extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify
its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan to the full extent consistent with
law. The indemnification and other rights provided by
this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators
of such a person. This Article shall not protect any
such person against any liability to the Corporation or
any stockholder thereof to which such person 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 2. 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
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<PAGE>
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 3. 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. 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 4. 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 5. 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
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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 6. 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 to be between the Registrant and Alliance
Capital Management L.P. provides that Alliance Capital Management
L.P. will not be liable under such agreements for any mistake of
judgment or in any event whatsoever except for lack of good faith
and that nothing therein shall be deemed to protect Alliance
Capital Management L.P. against any liability to the 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 the
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 were 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.
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Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers 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
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 of 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.
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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.
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. Alliance Fund Distributors,
Inc. also acts as Principal Underwriter or Distributor
for the following investment companies:
ACM Institutional Reserves Inc.
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Fund
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
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 Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
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Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Portfolios
(b) The following are the Directors and officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel, and
Secretary
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Kimberly A. Gardner Senior Vice President
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumseik Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis 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
Warren C. Babcock, III Vice President
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Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
William P. Beanblossom Vice President
Jack C. Bixler Vice President
Casimir Bolanowski Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President Secretary
& Assistant General
Counsel
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Daniel M. Hazard Vice President
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George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Robert H. Joseph, Jr. Vice President & Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Donna M. Lamback Vice President
Thomas Leavitt, III Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Mark R. Manley Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President &
Associate General
Counsel
Bruce W. Reitz Vice President
Dennis A Sanford Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
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<PAGE>
Richard E. Tambourine Vice President
Joseph T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President &
Special Counsel
Maria L. Carreras Assistant Vice President
Sarah A. Chodera Assistant Vice President
John W. Cronin Assistant Vice President
Leon M. Fern Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Patrick Look Assistant Vice President &
Assistant Treasurer
Shawn P. McClain Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Joanna D. Murray Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Carol H. Rappa Assistant Vice President
Lisa Robinson-Cronin Assistant Vice President
Karen C. Satterberg Assistant Vice President
Robert M. Smith Assistant Vice President
Wesley S. Williams Assistant Vice President
Mark R. Manley Assistant Vice President
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(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094-1520 and at the offices of State Street Bank and
Trust Company, the Registrant's custodian, 225 Franklin
Street, Boston, MA 02110. 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 annual
report to shareholders upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 22nd day of April, 1996.
ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, 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 Amendment to the 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 April 22, 1996
_________________ President
John D. Carifa
2. Principal Financial and
Accounting Officer:
/s/ Mark D. Gersten Treasurer and April 22, 1996
__________________ Chief Financial
Mark D. Gersten Officer
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3. All of the Directors:
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James Hester
Clifford L. Michel
Robert C. White
By: /s/ Edmund P. Bergan, Jr. April 22, 1996
________________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-22
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INDEX TO EXHIBITS
(11) Consent of Independent Auditors
C-23
00250110.AQ7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Shareholder Services - Statements and Reports" and to the use of
our report dated January 15, 1995 included in this Amendment to
the Registration Statement (Form N-1A No. 33-47031) of Alliance
Limited Maturity Government Fund, Inc. (formerly known as
Alliance Mortgage Strategy Trust, Inc.).
We also consent to the reference to our firm under the caption
"General Information - Independent Auditors" included in the
Statement of Additional Information of Alliance Limited Maturity
Government Fund, Inc. (formerly known as Alliance Mortgage
Strategy Trust, Inc.) filed pursuant to Rule 497(c) on March 13,
1996 which is incorporated by reference in this Registration
Statement.
ERNST & YOUNG LLP
New York, New York
April 19, 1996
00250110.AR0
