<PAGE>
As filed with the Securities and Exchange
Commission on February 27, 1998
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. 19
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
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)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective
(check appropriate box)
X immediately upon filing pursuant to paragraph (b)
<PAGE>
_____ on (date) pursuant to paragraph (b)
_____ 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 Rule 485.
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A ITEM NO. LOCATION IN PROSPECTUS (CAPTION)
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis The Funds At a
Glance
Item 3. Condensed Financial Information Financial
Highlights
Item 4. General Description of Registrant Description of
the Funds;
General
Information
Item 5. Management of the Fund Management of
the Funds;
General
Information
Item 6. Capital Stock and Other Securities Dividends,
Distributions
and Taxes;
General
Information
Item 7. Purchase of Securities Being Offered Purchase and
Sale of Shares;
General
Information
Item 8. Redemption or Repurchase Purchase and
Sale of Shares;
General
Information
Item 9. Pending Legal Proceedings Not Applicable
PART B Location in
Statement of
Additional
Information
ITEM 10. Cover Page Cover Page
<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
ITEM 14. Management of the Registrant Management of
the Fund
Item 15. Control Persons and Principal
Holders of Securities Management of
the Fund;
General
Information
Item 16. Investment Advisory and
Other Services Management of
the Fund
Item 17. Brokerage Allocation and
Other Practices General
Information
Item 18. Capital Stock and Other
Securities General
Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Purchase of
Shares;
Redemption and
Repurchase of
Shares; Net
Asset Value
ITEM 20. Tax Status Investment
Objective,
Policies and
Restrictions;
Dividends,
Distributions
and Taxes
<PAGE>
ITEM 21. Underwriters General
Information
ITEM 22. Calculation of Performance Data General
Information
ITEM 23. Financial Statements Financial
Statements;
Report of
Independent
Auditors
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
MARCH 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUNDS
- -ALLIANCE WORLD INCOME TRUST
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 24
Certain Fundamental Investment Policies 35
Risk Considerations 37
Purchase and Sale of Shares 41
Management of the Funds 44
Dividends, Distributions and Taxes 47
General Information. 48
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 Funds invest primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund (except Alliance World Income Trust) offers three classes of shares
through this Prospectus. These shares may be purchased, at the investor's
choice, at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (four years of purchase for Alliance Global Strategic Income
Trust and Alliance High Yield Fund) (the "Class B shares"), or (iii) without
any initial or contingent deferred sales charge, as long as the shares are held
for one year or more (the "Class C shares"). Alliance World Income Trust offers
only one class of shares, which may be purchased at a price equal to its net
asset value without any initial or contingent deferred sales charge. See
"Purchase and Sale of Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Alliance Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $218
billion in assets under management as of December 31, 1997. Alliance provides
investment management services to employee benefit plans for 31 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 . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
WORLD INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.
SHORT-TERM MULTI-MARKET TRUST
SEEKS . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. The
Fund expects to maintain at least 25% of its assets in securities denominated
in the U.S. Dollar. 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 FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market 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 and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund (except WORLD INCOME) can be purchased for a minimum initial investment of
$250, and subsequent investments can be made for as little as $50. For detailed
information about purchasing and selling shares, see "Purchase and Sale of
Shares." In addition, the Funds offer several time and money saving services to
investors. Be sure to ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
Alliance Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund, other than WORLD INCOME, and annual operating
expenses for each class of shares of each Fund. WORLD INCOME, which has only
one class of shares, has no sales charge on purchases or reinvested dividends,
no deferred sales charge, and no redemption fee or exchange fee. For each Fund,
the "Examples" below show the cumulative expenses attributable to a
hypothetical $1,000 investment, assuming a 5% annual return, in each class for
the periods specified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES-HOW TO BUY SHARES" -PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES-HOW TO BUY SHARES" -PAGE 42.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES-HOW TO BUY
SHARES"-PAGE 42.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 31 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66 $ 66
Other expenses After 5 years $116 $113 $113 $113 $113
Interest expense .01% .01% .01% After 10 years $204 $210 $210 $244 $244
Other operating expenses (a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.11% 1.11% 1.10%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.41% 2.11% 2.11%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .53% .53% .53% After 1 year $ 52 $ 48 $ 18 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54 $ 54
Other expenses(b) .19% .20% .19% After 5 years $ 96 $ 94 $ 94 $ 93 $ 93
Total fund operating expenses 1.02% 1.73% 1.72% After 10 years $162 $168 $168 $203 $203
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
LIMITED MATURITY GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MORTGAGE SECURITIES INCOME ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
WORLD INCOME
Management fees(f)(after waiver) .49% After 1 year $ 23
12b-1 fees(f)(after waiver) .68% After 3 years $ 70
Other expenses(b) 1.08% After 5 years $120
Total fund operating After 10 years $258
expenses(b)(f)(after waiver) 2.25%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM MULTI-MARKET ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .55% .55% .55% After 1 year $ 55 $ 50 $ 20 $ 30 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 81 $ 72 $ 62 $ 62 $ 62
Other expenses(b) .43% .44% .44% After 5 years $110 $107 $107 $107 $107
Total fund operating expenses 1.28% 1.99% 1.99% After 10 years $190 $197 $197 $232 $232
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MULTI-MARKET STRATEGY ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
NORTH AMERICAN GOVERNMENT INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(g) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(h) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL DOLLAR GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .75% .75% .75% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 89 $ 81 $ 71 $ 70 $ 70
Other expenses(b) .50% .51% .50% After 5 years $123 $121 $121 $120 $120
Total fund operatingexpenses 1.55% 2.26% 2.25% After 10 years $219 $225 $225 $258 $258
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL STRATEGIC INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(i)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(i) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(i)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
CORPORATE BOND ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .57% .57% .57% After 1 year $ 53 $ 48 $ 18 $ 29 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 77 $ 67 $ 57 $ 57 $ 57
Other expenses(b) .25% .25% .25% After 5 years $102 $ 99 $ 99 $ 99 $ 99
Total fund operating expenses 1.12% 1.82% 1.82% After 10 years $173 $179 $179 $214 $214
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
HIGH YIELD ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(j)(after waiver) None None None After 1 year $ 59 $ 64 $ 24 $ 34 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 95 $ 75 $ 75 $ 75
Other expenses(b)(j) After 5 years $131 $128 $128 $128 $128
(after reimbursement) 1.40% 1.40% 1.40% After 10 years $235 $256 $256 $274 $274
Total fund operating expenses(j)
(after waiver/reimbursement) 1.70% 2.40% 2.40%
</TABLE>
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.57% FOR CLASS A, 1.55% FOR CLASS B AND 1.54% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.42% FOR CLASS A,
3.10% FOR CLASS B AND 3.09% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN DO NOT REFLECT
THE APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C,
2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C,
1.77%.
(F) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED
MANAGEMENT FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE
BEEN .90% AND ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
2.63%.
(G) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL
NET ASSETS.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C,
2.08%.
(I) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B,
AND 3.02% FOR CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN
4.06% FOR CLASS A, 4.76% FOR CLASS B, AND 4.77% FOR
CLASS C.
(J) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 2.10% (ANNUALIZED) FOR
CLASS B, AND 2.09% (ANNUALIZED) FOR CLASS C; AND TOTAL OPERATING EXPENSES WOULD
HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 3.85% (ANNUALIZED) FOR CLASS B, AND
3.84% (ANNUALIZED) FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. See "Management of the Funds-Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "interest expense"
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See "Description of Funds-Risk
Considerations-Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (d), (f), (g), (h)
and (j) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. "Other Expenses" are based on
estimated amounts for HIGH YIELD'S current fiscal year. THE EXAMPLES SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
FINANCIAL HIGHLIGHTS
_______________________________________________________________________________
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables relating to SHORT-TERM U.S. GOVERNMENT has been
audited by Price Waterhouse LLP, the independent accountants for the Fund, and
the information in the tables relating to U.S. GOVERNMENT, LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD has been
audited by Ernst & Young LLP, the independent auditors for these Funds. A
report of Price Waterhouse LLP or Ernst & Young LLP, as the case may be, on the
information with respect to each Fund appears in the Fund's Statement of
Additional Information. The following information for each Fund should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/97 $9.66 $.47(h) $ .03 $.50 $(.46) $0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/97 $9.77 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/97 $9.76 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/97 $7.52 $.57(h) $(.10) $.47 $(.57) $0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88 8.90 .93 (.39) .54 (.93) 0.00
CLASS B
Year Ended 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
Year Ended 11/30/97 $9.45 $.51(h) $ .02 $.53 $(.52) $0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
Year Ended 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
Year Ended 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ (.07) $(.53) $9.63 5.29% $ 3,901 1.41%(d)(e) 4.90% 65%
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40(d) 3.98 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $ (.07) $(.46) $9.74 4.45% $ 6,458 2.11%(d)(e) 4.13% 65%
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $ (.07) $(.46) $9.73 4.45% $ 5,012 2.11%(d)(e) 4.15% 65%
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $ (.01) $(.58) $7.41 6.49% $354,782 1.02% 7.66% 330%
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
$0.00 $ (.01) $(.53) $7.41 5.69% $471,889 1.73% 6.95% 330%
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $ (.01) $(.53) $7.41 5.69% $115,607 1.72% 6.96% 330%
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $(.02) $(.54) $9.44 5.79% $ 16,197 2.41%(e) 5.52% 249%
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $(.02) $(.47) $9.44 5.04% $ 33,613 3.14%(e) 4.80% 249%
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $(.02) $(.47) $9.44 5.05% $ 28,738 3.13%(e) 4.82% 249%
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
CLASS A
Year Ended 12/31/97 $8.51 $.54(h) $ .15 $ .69 $(.54) $0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87 9.74 1.00 (.68) .32 (1.00) (.03)
CLASS B
Year Ended 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
Year Ended 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
WORLD INCOME
Year Ended 10/31/97 $1.67 $.07(h) $(.01) $ .06 $(.06) $0.00
Year Ended 10/31/96 1.66 .09(h) .02 .11 (.10) 0.00
Year Ended 10/31/95 1.88 .11(h) (.23) (.12) 0.00 0.00
Year Ended 10/31/94 1.90 .18 (.12) .06 (.05) 0.00
Year Ended 10/31/93 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91 2.00 .14 (.03) .11 (.13) 0.00
SHORT-TERM MULTI-MARKET
CLASS A
Year Ended 10/31/97 $7.73 $.51(h) $(.04) $ .47 $(.56) $0.00
Year Ended 10/31/96 7.47 .60(h) .35 .95 (.69) 0.00
Year Ended 10/31/95 8.71 .46(h) (.98) (.52) 0.00 0.00
Year Ended 10/31/94 9.25 .93 (.86) .07 0.00 0.00
Year Ended 10/31/93 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89 9.70 .53 (.01) .52 (.53) 0.00
CLASS B
Year Ended 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .54(h) .35 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .41(h) (.99) (.58) 0.00 0.00
Year Ended 10/31/94 9.25 .94 (.93) .01 0.00 0.00
Year Ended 10/31/93 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90 9.77 .74 .12 .86 (.74) 0.00
CLASS C
Year Ended 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .51(h) .38 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .39(h) (.97) (.58) 0.00 0.00
Year Ended 10/31/94 9.25 .58 (.57) .01 0.00 0.00
5/3/93++ to 10/31/93 9.18 .28 .05 .33 (.26) 0.00
MULTI-MARKET STRATEGY
CLASS A
Year Ended 10/31/97 $7.23 $.47(h) $ .08 $ .55 $(.47) $0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
Year Ended 10/31/97 $7.23 $.42(h) $ .06 $ .48 $(.42) $0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
Year Ended 10/31/97 $7.23 $.42(h) $ .07 $ .49 $(.42) $0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.03) $0.00 $(.57) $8.63 8.04% $372,494 1.41%(e) 6.30% 184%
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
$(.03) $0.00 $(.51) $8.63 7.60% $323,916 2.14%(e) 5.60% 184%
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$(.03) $0.00 $(.51) $8.63 7.60% $27,859 2.12%(e) 5.61% 184%
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$0.00 $(.05) $(.11) $1.62 3.47% $21,529 2.25%(d) 4.35% N/A
0.00 0.00 (.10) 1.67 6.98 44,890 2.10(d) 5.37 N/A
0.00 (.10) (.10) 1.66 (6.35) 55,778 1.97(d) 6.46 N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96 N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54 (d) 5.14 N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21 N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29* N/A
$(.05) $0.00 $(.61) $7.59 6.20% $434,273 1.28%(i) 6.54% 172%
0.00 0.00 (.69) 7.73 13.23 386,545 1.29 7.85 208
0.00 (.72) (.72) 7.47 (5.74) 320,333 1.23 7.39 230
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$(.10) $0.00 $(.55) $7.59 5.42% $86,785 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.34 273,109 2.00 7.14 208
0.00 (.66) (.66) 7.47 (6.50) 523,530 1.95 6.69 230
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$(.10) $0.00 $(.55) $7.59 5.42% $6,004 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.35 10,031 1.98 7.15 208
0.00 (.66) (.66) 7.47 (6.49) 3,416 1.92 6.66 230
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182
$(.20) $0.00 $(.67) $7.11 7.82% $96,133 1.58%(i) 6.50% 173%
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$(.18) $0.00 $(.60) $7.11 6.90% $29,949 2.29%(i) 5.79% 173%
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$(.19) $0.00 $(.61) $7.11 6.92% $1,203 2.28%(i) 5.80% 173%
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
Year Ended 11/30/97 $ 8.01 $1.03(h) $ (.05) $ .98 $(..97) $0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
Year Ended 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
Year Ended 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.76 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/97 $10.01 $ .88(h) $ 1.85 $2.73 $(.95) $(1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/97 $10.01 $ .81(h) $ 1.84 $2.65 $(.87) $(1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/97 $10.01 $ .82(h) $ 1.84 $2.66 $(.88) $(1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
Year Ended 10/31/97 $10.83 $ .74(h) $ 1.02 $1.76 $(.75) $(.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/97 $13.29 $1.15(h) $ .97 $2.12 $(1.22) $0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86 11.52 1.20 .73 1.93 (1.20) 0.00
CLASS B
Year Ended 6/30/97 $13.29 $1.05(h) $ .98 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/97 $13.29 $1.04(h) $ .99 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
4/22/97+ to 8/31/97 $10.00 $ .37(h) $ 1.15 $1.52 $(.35) $0.00
CLASS B
4/22/97+ to 8/31/97 $10.00 $ .31(h) $ 1.19 $1.50 $(.33) $0.00
CLASS C
4/22/97+ to 8/31/97 $10.00 $ .32(h) $ 1.18 $1.50 $(.33) $0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $0.00 $ (.97) $ 8.02 12.85% $ 511,749 2.15%(f) 12.78% 118%
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $1,378,407 2.86%(f) 12.15% 118%
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $ 283,483 2.85%(f) 12.14% 118%
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
$0.00 $0.00 $(2.10) $10.64 30.04% $ 37,416 1.55% 8.49% 314%
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $(2.02) $10.64 29.14% $ 93,377 2.26% 7.81% 314%
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $(2.03) $10.64 29.17% $ 25,130 2.25% 7.82% 314%
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$(.28) $0.00 $(1.13) $11.46 16.83% $ 12,954 1.90%(d) 6.56% 417%
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 18,855 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 4,388 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$0.00 $0.00 $(1.22) $14.19 16.59% $ 370,845 1.12% 8.34% 307%
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
$0.00 $0.00 $(1.13) $14.19 15.80% $ 480,326 1.82% 7.62% 307%
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.13) $14.19 15.80% $ 174,762 1.82% 7.61% 307%
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$0.00 $0.00 $ (.35) $11.17 15.33% $ 5,889 1.70%*(d) 8.04%* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 43,297 2.40*(d) 7.19* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 7,575 2.40*(d) 7.24* 73%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
("EQUITABLE") SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
"TRUST"), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER TO THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) "TOTAL DIVIDENDS AND DISTRIBUTIONS" INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996 AND 2.42% FOR THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS B
SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR ENDED APRIL 30, 1994,
3.60% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.33% FOR THE YEAR
ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR
THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED
AUGUST 31, 1997. IF LIMITED MATURITY GOVERNMENT HAD BORNE ALL EXPENSES, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.55%
(ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 2.28% (ANNUALIZED)
FOR 1992. THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FOR LIMITED
MATURITY GOVERNMENT WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 6.47%
(ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 5.86% (ANNUALIZED)
FOR 1992. IF WORLD INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE
BEEN 1.87% FOR 1992, 1.92% FOR 1993, 2.08% FOR 1994, 2.35% FOR 1995, 2.48% FOR
1996 AND 2.63% FOR 1997. IF NORTH AMERICAN GOVERNMENT INCOME HAD BORNE ALL
EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES,
2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 3.16%
(ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD BORNE ALL EXPENSES FOR
THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE RATIOS WOULD HAVE
BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH RESPECT TO CLASS
B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 2.59%
(ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES FOR THE
RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996 AND ITS FISCAL YEAR
ENDED IN 1997, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 19.20% (ANNUALIZED) AND 4.06% RESPECTIVELY; WITH RESPECT TO CLASS B
SHARES, 19.57% (ANNUALIZED) AND 4.76% RESPECTIVELY; AND WITH RESPECT TO
CLASS C SHARES, 19.49% (ANNUALIZED), AND 4.77% RESPECTIVELY. IF HIGH YIELD HAD
BORNE ALL EXPENSES FOR THE PERIOD APRIL 22, 1997 TO AUGUST 31, 1997, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 3.11%
(ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85% (ANNUALIZED); AND WITH
RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996 AND 1997; WITH RESPECT TO CLASS B SHARES, 2.10% FOR 1996
AND 1997; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996 AND 1997. IF
LIMITED MATURITY GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES,
1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20% FOR 1994, 1.41% FOR 1995,
1.58% FOR 1996, AND 1.65% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.10%
(ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91% FOR 1994, 2.11% FOR 1995, 2.30%
FOR 1996 AND 2.39% FOR 1997; WITH RESPECT TO CLASS C SHARES, 1.58%
(ANNUALIZED), FOR 1993, 1.89% FOR 1994, 2.10% FOR 1995, 2.29% FOR 1996 AND
2.37% FOR 1997. IF MORTGAGE SECURITIES INCOME FUND HAD NOT BORNE INTEREST
EXPENSE THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES .97% FOR 1994, 1.03% FOR 1995, 1.03% FOR 1996 AND
1.07% FOR 1997; WITH RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995,
1.74% FOR 1996 AND 1.78% FOR 1997; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, AND 1.77% FOR 1997.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. IF NORTH AMERICAN GOVERNMENT INCOME HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST EXPENSES) TO AVERAGE
NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.66% (ANNUALIZED)
FOR 1992, 1.33% FOR 1993, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996 AND
1.38% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992,
2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12% FOR 1996 AND 2.09% FOR
1997; AND WITH RESPECT TO CLASS C SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06%
FOR 1994, 2.21% FOR 1995, 2.12% FOR 1996, AND 2.08% FOR 1997.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR SHORT-TERM MULTI-MARKET THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.27% FOR 1997, WITH RESPECT TO CLASS B SHARES 1.98% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 1.98% FOR 1997. FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B 2.28% FOR 1997 AND WITH RESPECT TO
CLASS C 2.27% FOR 1997.
14
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds-Additional
Investment Practices" and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
EXCHANGE is the New York Stock Exchange.
15
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices-Mortgage-Related Securities." The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the
box," (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
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
Arkansas, California, Colorado, Connecticut*, Delaware, Florida, Hawaii*,
Illinois, Indiana, Kansas, Louisiana, Maine, Mississippi, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota*, Texas, Utah and Virginia, (iii)
credit unions chartered under the laws of California, Florida*, Georgia,
Illinois, Kentucky, Maine, Maryland*, Nevada*, New Hampshire, Ohio*, Oregon*,
Pennsylvania*, South Carolina, Utah, Washington and West Virginia, and (iv)
commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Connecticut*, Delaware, Florida, Georgia, Hawaii*, Idaho,
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, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas,
Utah, Vermont, Virginia, 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
16
securities. For a description of these securities, see "Additional Investment
Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations-Foreign Investment."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations-Securities Ratings" and "-Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
"Additional Investment Practices."
MULTI-MARKET 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.
17
ALLIANCE WORLD INCOME TRUST
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance World Income Trust, Inc. ("World Income"), Alliance Short-Term
Multi-Market Trust, Inc. ("Short-Term Multi-Market") and Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") each seek the highest level of
current income, consistent with what Alliance considers to be prudent
investment risk, that is available from a portfolio of high quality debt
securities having remaining maturities of not more than, with respect to WORLD
INCOME, one year, with respect to SHORT-TERM MULTI-MARKET, three years, and
with respect to MULTI-MARKET STRATEGY, five years. Each Fund seeks high current
yields by investing in a portfolio of debt securities denominated in the U.S.
Dollar and selected foreign currencies. The Multi-Market Funds seek investment
opportunities in foreign, as well as domestic, securities markets. WORLD
INCOME, which is not a money market fund, will maintain at least 35% of its net
assets in U.S. Dollar-denominated securities. SHORT-TERM MULTI-MARKET will
normally maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, but will invest at least 25% of its net
assets in U.S. Dollar-denominated securities. MULTI-MARKET STRATEGY normally
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages the
Multi-Market Funds' portfolios in accordance with a multi-market investment
strategy, allocating a Fund's investments among securities denominated in the
U.S. Dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. Alliance adjusts
each Multi-Market Fund's exposure to each currency such that the percentage of
assets invested in securities of a particular country or denominated in a
particular currency varies in accordance with Alliance's assessment of the
relative yield and appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by Alliance in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within a Fund's investment
portfolio. None of the Multi-Market Funds invests more than 25% of its net
assets in debt securities denominated in a single currency other than the U.S.
Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Additional Investment Practices-Forward Foreign Currency
Exchange Contracts"), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to a Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, a Fund could be in a less advantageous
position than if such a hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition
to the U.S. Dollar, such currencies include, among others, the Australian
Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish
Krone, Dutch Guilder, European Currency Unit ("ECU"), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a 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-U.S. 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
18
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations in the Asian and Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and WORLD INCOME will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds'
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a triple-A rating,
with respect to WORLD INCOME, or a high quality rating, with respect to
SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, banks (including foreign branches of foreign banks) having total assets of
more than $1 billion, with respect to WORLD INCOME, or $500 million, with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, and determined by
Alliance to be of high quality, and (v) prime commercial paper or unrated
commercial paper determined by Alliance to be of equivalent quality and issued
by U.S. or foreign companies having outstanding: in the case of WORLD INCOME,
triple-A debt securities; 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) with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if, as a result, more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices." MULTI-MARKET
STRATEGY maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See "Risk Considerations-Effects
of Borrowing."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. 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
19
balance of its total assets in investment grade debt securities issued by the
governments of countries located in Central and South America or any of their
political subdivisions, agencies, instrumentalities or authorities, provided
that such securities are denominated in their local currencies. The Fund will
not invest more than 10% of its total assets in debt securities issued by the
governmental entities of any one such country, except that the Fund may invest
up to 25% of its total assets in Argentine Government securities. The Fund will
normally invest at least 65% of its total assets in income-producing
securities. For a general description of Canada, Mexico and Argentina, see
Appendix B and the Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Government of Canada Treasury bills are debt obligations with
maturities of less than one year. A new issue of Government of Canada bonds
frequently consists of several different bonds with maturities ranging from
one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
Argentine Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its total assets less liabilities (other
than the amount borrowed). See "Risk Considerations-Effects of Borrowing."
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as "Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional
Investment Practices-Brady Bonds" and "Risk Considerations-Sovereign Debt
Obligations." The Fund may also invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. See "Risk Considerations-U.S.
Corporate Fixed-Income Securities." The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects that, based
upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15
years and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25
20
years. Alliance anticipates that the Fund's portfolio of sovereign debt
obligations will have a longer average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with the Fund's
investment objectives and policies. As of August 31, 1997, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
5% in A and above, 67% in Ba or BB, 9% in B, 2% in CCC and 5% in non-rated. See
"Risk Considerations-Securities Ratings," "-Investment in Fixed-Income
Securities Rated Baa and BBB," "-Investment in Lower-Rated Fixed-Income
Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. See
"Additional Investment Practices-Brady Bonds."
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia or Venezuela, each
of which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that it
will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of its
assets in the securities or obligations of issuers located in any particular
country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See "Risk
Considerations-Effects of Borrowing."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
21
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 than 35% of the value of
its total assets in lower-rated securities. See "Risk Considerations-Securities
Ratings" and "-Investment in Lower-Rated Fixed-Income Securities." Unrated
securities will be considered for investment by the Fund when Alliance believes
that the financial condition of the issuers of such obligations and the
protection afforded by the terms of the obligations themselves limit the risk
to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's investment objectives and policies. Lower-rated
securities in which the Fund may invest include Brady Bonds and fixed-income
securities of issuers located in emerging markets. There is no minimum rating
requirement applicable to the Fund's investments in lower-rated fixed-income
securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make short sales of securities or
maintain a short position. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices" and
"Risk Considerations." The Fund may borrow in order to purchase
securities or make other investments, although it currently intends to limit
its ability to borrow to an amount not to exceed 25% of its total assets. See
"Risk Considerations-Effects of Borrowing."
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations-Securities Ratings," "-Investment in Fixed-Income Securities
Rated Baa and BBB," "-Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1997, 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 29% in A and above, 41% in Baa or BBB, 14% in
Ba or BB, and 12% 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
22
fixed-income securities and sovereign debt obligations. Not more than 15% of
the Fund's total assets may be invested in sovereign debt obligations in the
form of foreign government loan participations and assignments, which may be
lower rated and considered to be predominantly speculative as regards the
issuer's capacity to pay interest and repay principal. All of the Fund's
investments, whether foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, the Fund has complete flexibility as to the
types of securities in which it will invest and the relative proportions
thereof, and the Fund plans to vary the proportions of its holdings of long-
and short-term fixed-income securities and of equity securities in order to
reflect its assessment of prospective cyclical changes even if such action may
adversely affect current income. However, substantially all of the Fund's
investments will be income producing. The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between one
year or less and 30 years.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through
mortgage-related securities. As a matter of fundamental policy, the
Fund will not purchase illiquid securities. For additional information on
the use, risks and costs of these practices, see "Additional Investment
Practices."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The
Fund is managed to maximize current income by taking advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. The Fund uses various strategies in attempting to achieve
its objective.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than
BBB by S&P) or unrated but deemed by Alliance to be equivalent to such
lower-rated securities. The Fund will not, however, invest more than 10% of
its total assets in (i) fixed-income securities which are rated lower than B3
or B- or their equivalents by two or more NRSROs or if unrated are of
equivalent quality as determined by Alliance, and (ii) money market
instruments of any entity which has an outstanding issue of unsecured debt
that is rated lower than B3 or B- or their equivalents by two or more NRSROs
or if unrated is of equivalent quality as determined by Alliance.
As of August 31, 1997, 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
12% in A and above, 3% in Ba or BB, 53% in B, 2% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC by each of
Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance
to be of equivalent quality to securities so rated.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations-Foreign Investment" and "-Currency
Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii)
23
certificates of deposit, bankers' acceptances, bank notes, time deposits and
interest bearing savings deposits issued or guaranteed by certain domestic and
foreign banks, (iii) commercial paper (rated at least A-1 by S&P or Prime-1 by
Moody's or, if not rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests in loans
extended by banks to such companies, (iv) corporate debt obligations with
remaining maturities of less than one year rated at least high quality as well
as corporate debt obligations rated at least high grade provided the
corporation also has outstanding an issue of commercial paper rated at least
A-1 by S&P or Prime-1 Moody's, and (v) floating rate or master demand notes.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. A Fund may take a significant
position in those derivatives that are within its investment policies if, in
Alliance's judgement, this represents the most effective response to current or
anticipated market conditions. The MULTI-MARKET FUNDS, HIGH YIELD 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, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
. SWAPS-A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal
24
amount is used solely to calculate the payment streams but is not exchanged.
With respect to currency swaps, actual principal amounts of currencies may be
exchanged by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper"
and "Structured Securities" below. The term "derivative" is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under "Mortgage-Related Securities" and "Other
Asset-Backed Securities."
Derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in a Fund.
. MARKET RISK-This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
. MANAGEMENT RISK-Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio,
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
. CREDIT RISK-This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
. LIQUIDITY RISK-Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
. LEVERAGE RISK-Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
. OTHER RISKS-Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or
25
holds a call option on the underlying security with an exercise price equal to
or less than that of the call option it has written. A put option written by a
Fund is covered if the Fund holds a put option on the underlying securities
with an exercise price equal to or greater than that of the put option it has
written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Alliance has
adopted procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below. Neither MORTGAGE SECURITIES
INCOME nor CORPORATE BOND will purchase an option on a security if, immediately
thereafter, the aggregate cost of all outstanding options purchased by such
Fund would exceed 2% of the Fund's total assets. Nor will either such Fund
write an option if, immediately thereafter, the aggregate value of the Fund's
portfolio securities subject to outstanding options would exceed 15% of the
Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the
U.S. Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME will not enter into a futures contract or write or purchase an option on
a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50%
of its total assets. MORTGAGE SECURITIES INCOME will not write or purchase
options on futures contracts. Nor will LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter
into a futures contract or, if
26
otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward 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 (a "transaction hedge"). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount (a "position hedge"). Instead of entering into a position hedge,
a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Fund are denominated (a
"cross-hedge").
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes,
27
which may include preserving a return or spread on a particular investment or
portion of its portfolio or protecting against an increase in the price of
securities the Fund anticipates purchasing at a later date. The Funds do not
intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME may enter into interest rate swaps involving
payments in the same currency or in different currencies. SHORT-TERM U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND will not enter
into an interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is then
rated in the highest rating category of at least one NRSRO. Each of 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 high quality debt
securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, of their respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full faith
and credit of the United States and differ only in their interest rates,
maturities and times of
28
issuance: U.S. Treasury bills (maturities of one year or less with no interest
paid and hence issued at a discount and repaid at full face value upon
maturity), U.S. Treasury notes (maturities of one to ten years with interest
payable every six months) and U.S. Treasury bonds (generally maturities of
greater than ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. Collateralized
mortgage obligations (CMOs) are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral
29
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. In a common
structure, payments of principal, including any principal prepayments, on the
underlying mortgages are applied to the classes of the series of a CMO in the
order of their respective stated maturities or final distribution dates, so
that no payment of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution date have been
paid in full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. Although payment of the
principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets; while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price
and yield volatility than is experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities
at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially
30
possible with fixed-rate mortgage securities. If the yield available on other
investments rises above the yield of the fixed-rate mortgage securities as a
result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome to perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with
the staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions
31
and Taxes-Zero Coupon Treasury Securities" in the Statement of Additional
Information of each Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and CORPORATE BOND may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of obligations of the same type rather than cash), which have
characteristics similar to zero coupon securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities. GLOBAL DOLLAR GOVERNMENT may invest
up to 25% of its total assets, and GLOBAL STRATEGIC INCOME and CORPORATE BOND
may invest without limit, in these types of structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest up to 25%, and
CORPORATE BOND may invest up to 15%, of their total assets, in loan
participations and assignments. The government that is the borrower on the loan
will be considered by a Fund to be the issuer of a loan participation or
assignment for purposes of its fundamental investment policy that it may not
invest 25% or more of its total assets in securities of issuers conducting
their principal business activities in the same industry (i.e., foreign
government).
32
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a 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 decrease as interest rates rise and increase as
interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. For a description of these risks, see "Risk
Considerations-Investment in Lower-Rated Fixed-Income Securities."
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the broker-dealer
from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box."
The Fund may not make a short sale, if as a result, more than 25% of its total
assets would be held as collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a
33
day or a few days later. The resale price is greater than the purchase price,
reflecting an agreed-upon interest rate for the period the buyer's money is
invested in the security. Such agreements permit a Fund to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. A Fund requires continual maintenance of
collateral in an amount equal to, or in excess of, the resale price. If a
vendor defaults on its repurchase obligation, a Fund would suffer a loss to
the extent that the proceeds from the sale of the collateral were less than
the repurchase price. If a vendor goes bankrupt, a Fund might be delayed in,
or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT currently enter into repurchase agreements only with their
custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are 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 secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT, of its total assets, nor will a Fund lend portfolio securities to
any officer, director, employee or affiliate of the Fund or Alliance.
ILLIQUID SECURITIES. 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
34
the security is suspended or, in the case of unlisted securities, when market
makers do not exist or will not entertain bids or offers), including many
currency swaps and any assets used to cover currency swaps, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days. Rule 144A
securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that are different from
or exceed those involved in the practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or
35
U.S. Government securities, (iii) borrow money except from banks for temporary
or emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities, borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made, outstanding borrowings in excess of 5% of the value of the
Fund's total assets will be repaid before any subsequent investments are made,
(iv) pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount of not more than 15% of the value of its total assets to secure
borrowings for temporary or emergency purposes and except as provided in (vi)
below, provided, however, that this limitation does not apply to deposits made
in connection with the entering into and holding of interest rate futures
contracts, (v) invest more than 10% of the value of its total assets in the
aggregate in illiquid securities or other illiquid investments and repurchase
agreements maturing in more than seven days, or (vi) lend its portfolio
securities if immediately after such a loan more than 20% of the value of the
Fund's total assets would be subject to such loans.
WORLD INCOME may not (i) invest 25% or more of its total assets in securities
of companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5% of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
SHORT-TERM MULTI-MARKET may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
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, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings, or (v) purchase a
security if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own more than 3% of the
total outstanding voting stock of any investment company or more than 5% of the
value of the Fund's net assets would be invested in securities of any one or
more investment companies.
GLOBAL STRATEGIC INCOME may not (i) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing there is asset coverage of at least 300% as defined in the 1940
Act, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S.
36
Government securities, or (ii) own more than 10% of the outstanding voting
securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may require a Fund to adopt special
procedures or seek local governmental approvals or other actions, any of which
may involve additional costs to a Fund. The liquidity of a Fund's investments
in any country in which any of these factors exists could be affected, and
Alliance will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many foreign countries
are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
37
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
WORLD INCOME may invest a portion of its net assets in securities denominated
in the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a
material adverse effect on the Fund's investments in the securities of Mexican
and other non-Canadian foreign issuers, including investments in securities
denominated in Mexican Pesos or other non-Canadian foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, which
themselves involve certain special risks. See "Additional Investment Practices"
above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent
38
with the Funds' investment objectives. The Funds may have limited legal
recourse in the event of a default with respect to certain sovereign debt
obligations it holds. For example, remedies from defaults on certain sovereign
debt obligations, unlike those on private debt, must, in some cases, be pursued
in the courts of the defaulting party itself. Legal recourse therefore may be
significantly diminished. Bankruptcy, moratorium and other similar laws
applicable to issuers of sovereign debt obligations may be substantially
different from those applicable to issuers of private debt obligations. The
political context, expressed as the willingness of an issuer of sovereign debt
obligations to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default under
commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation of
such changes, each Fund may increase the percentage of its investment portfolio
invested in U.S. Government securities, which would tend to offset the negative
impact of leverage on Fund shareholders. Each Fund may also reduce the degree
to which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance and
such sales could cause the Fund to incur related transaction costs and to
realize gains on securities held for less than three months. Until the start of
a Fund's first tax year beginning after August 5, 1997, not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company. Such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See "Dividends, Distributions and Taxes."
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may borrow to repurchase its
shares or to meet redemption requests. In addition, each Fund may borrow for
temporary purposes (including the purposes mentioned in the preceding sentence)
in an amount not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300% asset average
limit described above. See "Certain Fundamental Investment Policies."
SHORT-TERM U.S. GOVERNMENT, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN
39
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may
also borrow through the use of reverse repurchase agreements, and GLOBAL DOLLAR
GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME also
through the use of dollar rolls to the extent permitted by the 1940 Act. See
"Investment Objectives and Policies-Reverse Repurchase Agreements and Dollar
Rolls."
INVESTMENT IN THE BANKING INDUSTRY. Due to the investment policies of
MULTI-MARKET STRATEGY, WORLD INCOME and SHORT-TERM MULTI-MARKET with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of the concentration of loan portfolios
in particular businesses such as real estate, energy, agriculture or high
technology-related companies; competition within those industries as well as
with other types of financial institutions; and national and local governmental
regulation. In addition, each Fund's investments in commercial banks located in
several foreign countries are subject to additional risks due to the
combination in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Funds will seek to minimize their
exposure to such risks by investing only in debt securities which are
determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the risk
to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's objective and policies.
NON-DIVERSIFIED STATUS. Each of WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, 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
40
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 WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME is a non-diversified investment company, it may invest in a smaller
number of individual issuers than a diversified investment company, and an
investment in such Fund may, under certain circumstances, present greater risk
to an investor than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, each of GLOBAL STRATEGIC INCOME and NORTH AMERICAN GOVERNMENT INCOME
will be required to diversify its portfolio of foreign government securities in
a manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
YEAR 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Funds' major service providers fail to process
this type of information properly, that could have a negative impact on the
Funds' operations and the services that are provided to the Funds'
shareholders. Alliance, as well as AFD and AFS (both defined below), have
advised the Funds that they are reviewing all of their computer systems with
the goal of modifying or replacing such systems prior to January 1, 2000, to
the extent necessary to foreclose any such negative impact. In addition,
Alliance has been advised by each Fund's custodian that it is also in the
process of reviewing its systems with the same goal. As of the date of this
prospectus, the Funds and Alliance have no reason to believe that these goals
will not be achieved. Similarly, the values of certain of the portfolio
securities held by the Funds may be adversely affected by the inability of the
securities' issuers or of third parties to process this type of information
properly.
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund (except WORLD INCOME)
is $250. The minimum for subsequent investments in each Fund is $50.
Investments of $25 or more are allowed under the automatic investment program
of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statements of Additional Information for more
information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund (except WORLD INCOME) offers three classes of shares through this
Prospectus, Class A, Class B and Class C. WORLD INCOME offers only one class of
shares, which may be purchased without any initial sales charge or contingent
deferred sales charge ("CDSC"). The Funds may refuse any order to purchase
shares. In this regard, the Funds reserve the right to restrict purchases of
Fund shares (including through exchanges) when they appear to evidence a
pattern of frequent purchases and sales made in response to short-term
considerations.
CLASS A SHARES-INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption
or original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in
accordance with a Fund's
41
Combined Purchase Privilege, Cumulative Quantity Discount, Statement of
Intention, Privilege for Certain Retirement Plans, Reinstatement Privilege and
Sales at Net Asset Value programs. Consult the Subscription Application and
Statements of Additional Information.
CLASS B SHARES-DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However,
you may pay a CDSC if you redeem shares within three years (four years in the
case of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of
the CDSC (expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
Year Since Purchase CDSC
--------------------------------
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth and thereafter None
ALL OTHER FUNDS:
Year Since Purchase CDSC
--------------------------------
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (after which they convert to Class A shares). The higher fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
CLASS C SHARES-ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of
the Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than
Class A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in
a Fund are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Fund's Directors or Trustees believe accurately reflect fair
market value.
EMPLOYEE BENEFIT PLANS
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD FUND offer a fourth class of shares,
Advisor Class shares, by means of separate prospectuses. Advisor Class shares
may be purchased and
42
held solely by (i) accounts established under a fee-based program sponsored
and maintained by a registered broker-dealer or other financial intermediary
and approved by AFD, (ii) a self-directed defined contribution employee
benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants or
$25 million in assets and (iii) certain other categories of investors
described in the prospectuses for the Advisor Class, including investment
advisory clients of, and certain other persons associated with, Alliance and
its affiliates or the Funds. Advisor Class shares are offered without any
initial sales charge or CDSC and without an ongoing distribution fee and are
expected, therefore, to have different performance than Class A, Class B or
Class C shares. You may obtain more information about Advisor Class shares by
contacting AFS at 800-221-5672 or by contacting your financial representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in a Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that day's net asset value (less any applicable CDSC). Your
broker is responsible for furnishing all necessary documentation to a Fund and
may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to
43
do so. Dealers and agents may charge a commission for handling telephonic
requests. The telephone service may be suspended or terminated at any time
without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of WORLD INCOME for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for the purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1997 totaling more than $218 billion
(of which approximately $85 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 58 registered investment companies managed by Alliance
comprising 122 separate investment portfolios currently have over three million
shareholder accounts. As of December 31, 1997, Alliance was retained as an
investment manager for employee benefit plan assets of 31 of the Fortune 100
companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
World Income Douglas J. Peebles Associated with
since inception Alliance.
-Senior Vice President
Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)
Multi-Market Strategy Douglas J. Peebles since (see above)
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)
44
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice President Alliance.
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.*
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.*
Vice President
* ASSOCIATED WITH EQUITABLE CAPITAL MANAGEMENT CORPORATION ("EQUITABLE
CAPITAL") PRIOR TO JULY 22, 1993. ON THAT DATE ALLIANCE ACQUIRED THE BUSINESS
AND SUBSTANTIALLY ALL THE ASSETS OF EQUITABLE CAPITAL.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital, whose advisory business Alliance acquired on that
date, have served as investment adviser to the Historical Portfolio since its
inception in 1987. Wayne C. Tappe, who together with Nelson Jantzen is
primarily responsible for the day-to-day management of HIGH YIELD, has been the
person principally responsible for the day-to-day management of the Historical
Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of December 31, 1997, the assets in the Historical Portfolio totalled
approximately $421.8 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical
Services, Inc. ("Lipper"), a firm recognized for its reporting of performance
of actively managed funds. According to Lipper, performance data are presented
net of investment management fees, operating expenses and, for funds with
Rule 12b-1 plans, asset-based sales charges.
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 20.42% 15.89% 12.80% 12.04%
Lipper High Current Yield
Mutual Funds Average 12.96 14.17 11.36 10.66 9.78
High Yield 24.23%**
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 74.60% 109.05% 233.48% 249.07%
Lipper High Current Yield
Mutual Funds Average 12.96 48.92 71.52 177.35 181.23
* JANUARY 2, 1987
** RATE OF RETURN IS UNANNUALIZED, FOR CLASS A SHARES, ASSUMING THE
IMPOSITION OF THE MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS
ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a
45
Distribution Services Agreement (the "Agreement") with AFD. Pursuant to its
Plan, a Fund pays to AFD a Rule 12b-1 distribution services fee, which may not
exceed for each Fund other than WORLD INCOME an annual rate of .30% (.50% with
respect to SHORT-TERM U.S. GOVERNMENT) of the Fund's aggregate average daily
net assets attributable to the Class A shares, 1.00% of the Fund's aggregate
average daily net assets attributable to the Class B shares and 1.00% of the
Fund's aggregate average daily net assets attributable to the Class C shares,
and for WORLD INCOME may not exceed an annual rate of .90% of the Fund's
aggregate average daily net assets, for distribution expenses. The Trustees of
SHORT-TERM U.S. GOVERNMENT currently limit payments with respect to Class A
shares under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to,
with respect to each Fund other than WORLD INCOME, .25%, annualized, with
respect to Class A shares and Class B shares, and 1.00%, annualized, with
respect to Class C shares, and, with respect to WORLD INCOME, .90%, annualized,
of the assets maintained in a Fund by their customers. Distribution services
fees received from the Funds, except SHORT-TERM U.S. GOVERNMENT, with respect
to Class A shares will not be used to pay any interest expenses, carrying
charges or other financing costs or allocation of overhead of AFD. Distribution
services fees received from the Funds, with respect to Class B and Class C
shares, may be used for these purposes. The Plans also provide that Alliance
may use its own resources to finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
and Class C shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under the
Plan with respect to the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as the Plan is in
effect. Since AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT
is not directly tied to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except
SHORT-TERM U.S. GOVERNMENT), were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 8,593,091 (1.56%) $3,589,130 (2.63%)
Limited Maturity Government $ 356,382 (.86%) $2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.67%) $2,946,979 (9.52%)
Short-Term Multi-Market $25,420,759 (1.87%) $1,475,235 (18.72%)
Multi-Market Strategy $ 9,474,320 (4.13%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.67%) $4,072,381 (1.53%)
Global Dollar Government $ 2,214,590 (2.54%) $ 460,747 (2.29%)
Corporate Bond $ 9,163,392 (2.23%) $2,093,526 (1.77%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield* $ 1,679,237 (8.5%) $ 79,092 (2.36%)
* FOR THE FISCAL PERIOD APRIL 22, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
AUGUST 31, 1997.
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
46
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations imposed by the Code (including a holding-period requirement applied
at both the Fund and shareholder levels imposed by the Taxpayer Relief Act of
1997), as a result of which a shareholder may not be permitted to claim a full
credit or deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a regulated investment company relieves that Fund of Federal
income 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. The investment objectives of the Funds are
such that only a small portion, if any, of a Fund's distributions is expected
to qualify for the dividends-received deduction for corporate shareholders. In
addition, corporate shareholders who receive qualifying distributions must meet
the holding-period requirements in the Code in order to take the dividends-
received deduction.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains-that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains") and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted
net capital gains will be taxable to shareholders as such, regardless of how
long a shareholder has held shares in the Fund.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. Any loss realized on the sale of shares held six months
47
or less will be a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the federal tax status
of dividends and capital gains distributions made by a Fund for the preceding
year. Shareholders are urged to consult their tax advisers regarding their own
tax situation. Distributions by a Fund may be subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE WORLD INCOME TRUST, INC. (1990), ALLIANCE SHORT-TERM
MULTI-MARKET TRUST, INC. (1989), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
(1991), ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC. (1992), ALLIANCE
GLOBAL DOLLAR GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME
TRUST, INC. (1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1,
1996, ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance
Mortgage Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND
PORTFOLIO was known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S.
GOVERNMENT FUND is a series of The Alliance Portfolios, a Massachusetts
business trust that was organized in 1987. Prior to August 2, 1993, The
Alliance Portfolios was known as The Equitable Funds and SHORT-TERM U.S.
GOVERNMENT was known as The Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Funds are empowered to establish, without shareholder approval,
additional portfolios, which may have different investment objectives, and
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. Class A, Class B and Class C shares have identical voting,
dividend, liquidation and other rights, except that each class bears its own
distribution and transfer agency expenses. Each class of shares votes
separately with respect to a Fund's Rule 12b-1 distribution plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and Trustees and, in liquidation of a Fund, are entitled to receive
the net assets of the Fund. Since this Prospectus sets forth information about
all the Funds, it is theoretically possible that a Fund might be liable for any
materially inaccurate or incomplete disclosure in this Prospectus concerning
another Fund. Based on the advice of counsel, however, the Funds believe that
the potential liability of each Fund with respect to the disclosure in this
Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to a Fund's organization are discussed in its
Statement of Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund
and ACMC, alleging violations of the federal
48
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint sought
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994.
Plaintiffs alleged that during 1995 the Fund's losses exceeded $750,000,000 and
sought as relief unspecified damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint are that (i) the Fund misrepresented its ability to
hedge against the risks of investing in foreign securities, (ii) the Fund did
not properly disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented the
risks of investing in the Fund. The Amended Complaint made similar request for
class certification and damages as the Complaint. On July 15, 1997, the
District Court denied plaintiffs' motion to file the Amended Complaint and
dismissed the case ("Second Decision"). On October 29, 1997, the Court of
Appeals dismissed plaintiffs' appeal of the Second Decision as premature on
the grounds that the District Court had not entered a judgment with respect to
the Second Decision. On November 10, 1997, the District Court entered a
judgment with respect to the Second Decision, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an "actual distribution rate" for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed separately for Class A,
Class B and Class C shares. Advertisements of a Fund's total return disclose
its average annual compounded total return for the periods prescribed by the
Commission. A Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid. A Fund's advertisements may quote
performance rankings or ratings of a Fund by financial publications or
independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE "GENERAL INFORMATION-ORGANIZATION."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some
quality and
A-1
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB-Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B-Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC-Debt rated CCC is currently vulnerable to nonpayment and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial, or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC-Debt rated CC is currently highly vulnerable to nonpayment.
C-The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D-The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- -High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A- -Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B- -Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctutate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC-Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest, or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD-Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP-Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
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 generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Between 1991 and 1995, Canada 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 20% from October 1991. Between January 1996 and October 1997, the
Canadian Dollar remained steady in value against the U.S. Dollar at a level
approximately 3% to 4% above that low. Beginning in October 1997, however, the
Canadian Dollar decreased in value against the U.S. Dollar by approximately 6%,
reaching an all-time low of 1.4649 Canadian Dollars per U.S. Dollar on January
29, 1998. On February 20, 1998, the Canadian Dollar-U.S. Dollar exchange rate
was 1.4206:1. The range of fluctuation that has occurred in the past is not
necessarily indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including eight 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. Much of the past improvement
in the Mexican economy has been attributable to a series of economic policy
initiatives intended to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the
Mexican government 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.
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
accord among the government and the business and labor sectors of the economy
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.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized
B-1
since the economic crisis of 1994, and the high inflation and high interest
rates that continued to be a factor after 1994 have subsided as well. After
declining for five consecutive quarters beginning with the first quarter of
1995, Mexico's gross domestic product began to grow in the second quarter of
1996. That growth was sustained in 1996, resulting in a 5.1% increase from
1995, and, according to preliminary estimates, continued through 1997,
resulting in a 7.3% increase from 1996. In addition, inflation dropped from a
52% annual rate in 1995 to a 27.7% annual rate in 1996 and a 15.7% annual rate
in 1997. Mexico's economy is influenced by international economic conditions,
particularly those in the United States, and by world prices for oil and other
commodities. The recovery of the economy will require continued economic and
fiscal discipline as well as stable political and social conditions. In
addition, there is no assurance that Mexico's economic policy initiatives will
be successful or that succeeding administrations will continue these
initiatives.
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 22, 1994, the Mexican
government announced that it would permit the Peso to float against other
currencies, resulting in a precipitous decline against the U.S. Dollar. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including 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 announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product increased for four consecutive
years before declining in 1995. During 1996, however, gross domestic product
increased 4.3% from 1995. Preliminary data for 1997 indicate that gross
domestic product increased by more than 8.0% from 1996. The rate of inflation
is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. 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 strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted
B-2
abolishing previous requirements of a three-year waiting period for capital
repatriation. Under the legislation, foreign investors are permitted to remit
profits at any time.
B-3
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
WORLD INCOME TRUST
SHORT-TERM MULTI-MARKET TRUST
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). 3 Check off a distribution option for your dividends. 4 Check off a
distribution option for your capital gains. All distributions (dividends
and capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a preprinted, voided check for that
account. If you want your distributions sent to a third party you must
complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D.
If more than one dividend direction or monthly exchange is desired, please call
our Literature Center to obtain a Shareholder Account Services Options Form for
completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor's Name
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
70846GEN-TABFApp
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio, High Yield Fund and
World Income Trust.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
WORLD INCOME TRUST 54 not offered not offered
SHORT-TERM MULTI-MARKET TRUST 70 68 370
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. This service can be enacted once every 30 days.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
State Street Bank and Trust Company (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
The Registrant's Advisor Class Prospectus is incorporated herein
by reference to Part A of the Amendment to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
February 28, 1997.
<PAGE>
ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC.
______________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_____________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for Alliance Limited Maturity Government Fund, Inc.
(the "Fund") that offers Class A, Class B and Class C shares of
the Fund and, if the Fund begins to offer Advisor Class shares,
the Prospectus that offers the Advisor Class shares of the Fund
(the "Advisor Class Prospectus" and, together with any Prospectus
that offers the Class A, Class B and Class C shares, the
"Prospectus(es)"). The Fund currently does not offer Advisor
Class shares. Copies of the Prospectus(es) of the Fund may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund..................................
Management of the Fund...................................
Expenses of the Fund.....................................
Purchase of Shares.......................................
Redemption and Repurchase of Shares......................
Shareholder Services.....................................
Net Asset Value..........................................
Dividends, Distributions and Taxes.......................
Brokerage and Portfolio Transactions.....................
General Information......................................
Report of Independent Auditors and Financial
Statements.............................................
Appendix A (Bond and Commercial Paper Ratings)........... A-1
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
________________________________________________________________
The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information set forth in the Prospectus of the Fund under the
heading "Description of the Fund." Except as otherwise
indicated, investment policies of the Fund are not designated
"fundamental policies" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and may,
therefore, be changed by the Fund's Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to
shareholders. The Fund's investment objective may not be changed
without shareholder approval. There can be, of course, no
assurance that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVE
The Fund is a diversified, open-end management
investment company which seeks the highest level of current
income, consistent with low volatility of net asset value. As a
fundamental policy, the Fund normally has at least 65% of the
value of its total assets invested in securities that are issued
or guaranteed by the United States Government, its agencies or
instrumentalities ("U.S. Government Securities"), including
mortgage-related securities, and repurchase agreements relating
to U.S. Government Securities.
In pursuing its investment objective and policies, the
Fund takes advantage of a wide range of maturities of debt
securities and adjusts the dollar-weighted average maturity of
its portfolio from time to time, depending on its assessment of
relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market
value of its 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 the
Fund's assets, it is not exposed to any material risk of loss as
a result of default on any securities held by the Fund. Like all
investors in interest-bearing securities, however, the Fund is
2
<PAGE>
exposed to the risk that the prices of individual securities held
by it can fluctuate, in some cases significantly, in response to
changes in prevailing interest rates.
The Fund's investment policy of investing at least 65%
of the value of its total assets in U.S. Government securities,
including mortgage related securities, and repurchase agreements
relating to U.S. Government Securities (except when in a
temporary defensive posture) is deemed fundamental and may not be
changed without shareholder approval. The Fund's other
investment polices are not fundamental and, therefore, may be
changed by the Board of Directors without shareholder approval.
For this purpose (and for the purpose of changing the Fund's
investment restrictions and approving the Fund's advisory
agreement, each as more fully described below), the approval of a
majority of the Fund's outstanding voting securities means the
affirmative vote of (i) 67% or more of the shares represented at
a meeting at which more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the
outstanding shares, whichever is less.
The Fund may invest up to 35% of the value of its total
assets in (i) securities backed by assets such as automobile or
credit card receivables or home equity loans ("asset-backed
securities"), including mortgage-related securities that are not
U.S. Government securities, rated at least Aa by Moody's
Investors Service, Inc. ("Moody's") or AA by Standard & Poor's
Ratings Services ("S&P"), Duff & Phelps Credit Rating Co. ("Duff
& Phelps") or Fitch Investors Service, Inc. ("Fitch") or, if not
rated, of equivalent investment quality as determined by the
Adviser ("high quality securities"), (ii) "zero coupon" 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) commercial paper rated
at least Prime-2 by Moody's or A-2 by S&P, Duff 2 by Duff &
Phelps or Fitch-2 by Fitch or, if not rated, issued by companies
which have outstanding high quality debt issues and (v) high
quality debt securities of corporate issuers. When business or
financial conditions warrant, the Fund may take a temporary
defensive position and invest without limit in the foregoing
securities.
Alliance Capital Management L.P. (the "Adviser")
continuously monitors the ratings of securities held by the Fund
and the creditworthiness of their issuers. For a description of
the commercial paper ratings used by Moody's, S&P, Duff & Phelps
and Fitch, see Appendix A.
NEW INSTRUMENTS. The Fund expects that new types of
securities in which the Fund may invest will be developed and
3
<PAGE>
marketed from time to time. Consistent with the Fund's
investment objective, policies and quality standards, the Adviser
will consider investing in such new types of securities.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The following additional investment policies supplement
those set forth in the Prospectus.
FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may
enter into contracts for the purchase or sale for future delivery
of fixed-income securities or foreign securities, or contracts
based on financial indices including any index of (i) securities
issued or guaranteed by the United States Government, its
agencies or instrumentalities or (ii) corporate debt securities
("futures contracts"), and may purchase and write put and call
options to buy or sell futures contracts ("options on futures
contracts"). A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities
or foreign securities called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract
means the incurring of a contractual obligation to acquire the
securities or foreign securities called for by the contract at a
specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the
contract and the price at which the contract was originally
struck. Options on futures contracts to be written or purchased
by the Fund will be traded on U.S. or foreign exchanges or over-
the-counter. These investment techniques will be used only to
hedge against anticipated future changes in interest or exchange
rates which otherwise might either adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date.
These investment techniques will not be used for speculation.
The successful use of such instruments draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate and currency rate movements correctly.
Should interest or exchange rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses
and thus will be in a worse position than if such strategies had
not been used. In addition to the correlation between movements
in the price of futures contracts or options on futures contracts
and movements in the price of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
4
<PAGE>
The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts: (i) the
aggregate of margin deposits on all the outstanding futures
contracts of the Fund and premiums paid on outstanding options on
futures contracts would exceed 5% of the market value of the
total assets of the Fund, or (ii) the aggregate of the market
value of the outstanding futures contracts of the Fund and the
market value of the currencies and futures contracts subject to
outstanding options written by the Fund would exceed 50% of the
market value of the total assets of the Fund. Neither of these
restrictions will be changed by the Fund's Board of Directors
without considering the policies and concerns of the various
applicable federal and state regulatory agencies.
See Appendix B for further discussion of the use, risks
and costs of futures contracts and options on futures contracts.
FORWARD COMMITMENTS. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring, i.e., a "when, as
and if issued" trade.
When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date, normally within two months
after the transaction, although delayed settlements beyond two
months may be negotiated. Securities purchased or sold under a
forward commitment are subject to market fluctuation, and no
interest accrues to the purchaser prior to the settlement date.
At the time the Fund enters into a forward commitment, it will
record the transaction and thereafter reflect the value of the
security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be canceled in the event that the required
condition did not occur and the trade was canceled.
The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond
5
<PAGE>
prices, the Fund might sell a security in its portfolio and
purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Fund might be required to complete such when-issued or
forward transactions at prices less favorable than current market
values. No forward commitments will be made by the Fund if, as a
result, the Fund's aggregate commitments under such transactions
would be more than 30% of the then current value of the Fund's
total assets.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in the separate account of the Fund,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it can incur a gain or loss.
In the event the other party to a forward commitment transaction
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.
INTEREST RATE TRANSACTIONS. The Fund may, without
limit, enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund expects to enter into
these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may
also enter into these transactions to protect against any
increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use
these transactions in a speculative manner. Interest rate swaps
involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed-rate payments. The
purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the
interest rate floor.
6
<PAGE>
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities,
and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of
the two payments. The net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount
of liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian. If the Fund enters into an
interest rate swap on other than a net basis, the Fund will
maintain a segregated account in the full amount accrued on a
daily basis of the Fund's obligations with respect to the swap.
The Fund will not enter into any 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. The Adviser will monitor the creditworthiness of
counterparties on an ongoing basis. If there were a default by
such a counterparty, the Fund would have contractual remedies.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation.
The Adviser has determined that, as a result, the swap market has
become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To
the extent the Fund sells (i.e., writes) caps and floors, it will
maintain in a segregated account liquid assets having an
aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of the Fund's obligations with respect
to the caps or floors. The use of interest rate swaps is a
highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of the market values, interest rates and other
applicable factors, the investment performance of the Fund would
diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
7
<PAGE>
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described all over.
EURODOLLAR INSTRUMENTS. The Fund may invest in
Eurodollar instruments for hedging purposes. Eurodollar
instruments are essentially U.S. Dollar-denominated futures
contracts or options thereon that are linked to the 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. The Fund intends to use Eurodollar futures
contracts and options thereon to hedge against changes in the
LIBOR to which many short-term borrowings and floating rate
securities are linked. Eurodollar instruments are subject to the
same limitations and risks as other futures contracts and options
thereon as described above and below and in the Fund's Statement
of Additional Information.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase
and write put and call options on foreign currencies for the
purpose of protecting against declines in the U.S. Dollar value
of foreign currency-denominated portfolio securities and against
increases in the U.S. Dollar cost of such securities to be
acquired. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received. The
Fund must offset an exchange-traded option which it has written
through a closing purchase transaction. The purchase of an
option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs. The
Fund must offset an exchange-traded option which it has purchased
by entering into a closing sale transaction. In connection with
options written or purchased by the Fund over-the-counter, the
Fund can only look to the counter-party for purposes of offset.
There is no specific percentage limitation on the Fund's
investments in options on foreign currencies.
For additional information on the use, risks and costs
of options on foreign currencies, see Appendix B.
GENERAL. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange
8
<PAGE>
rate movements correctly. Should interest or exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options, interest rate
transactions or forward commitment contracts or may realize
losses and thus be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies, and
adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation
between movements in the prices of such instruments and movements
in the values of the securities and currencies hedged will not be
perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options, interest rate transaction and forward
commitment contracts will depend on the availability of liquid
markets in such instruments. Markets for these vehicles with
respect to a number of fixed-income securities and currencies are
relatively new and still developing. If, for example, a
secondary market did not exist with respect to an option
purchased or written by the Fund over-the-counter, it might not
be possible to effect a closing transaction in the option (i.e.,
dispose of the option) with the result that (i) an option
purchased by the Fund would have to be exercised in order for the
Fund to realize any profit and (ii) the Fund may not be able to
sell portfolio securities covering an option written by the Fund
until the option expired or it delivered the underlying currency
or futures contract upon exercise. No assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.
REPURCHASE AGREEMENTS. The Fund may enter into
"repurchase agreements," pertaining to the types of securities in
which it invests, with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in U.S. Government Securities (as defined below).
There is no percentage restriction on the Fund's ability to enter
into repurchase agreements. Currently the Fund enters into
repurchase agreements only with its custodian and such primary
dealers. A repurchase agreement arises when a buyer such as the
Fund purchases a security and simultaneously agrees to resell it
to the vendor at an agreed-upon future date, normally one day or
a few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate. Such agreements
permit the Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-
term nature. The Fund requires continual maintenance for its
account in the Federal Reserve/Treasury Book Entry System of
collateral in an amount equal to, or in excess of, the market
value of the securities which are the subject of the agreement.
9
<PAGE>
In the event a vendor defaulted on its repurchase obligation, the
Fund might suffer a loss to the extent that the proceeds from the
sale of the collateral were less than the repurchase price. In
the event of a vendor's bankruptcy, the Fund might be delayed in,
or prevented from, selling the collateral for the Fund's benefit.
The Fund's Board of Directors has established procedures, which
are periodically reviewed by the Board, pursuant to which the
Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The
Fund may also use reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the Fund can
recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Fund of the
reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
The Fund may enter into dollar rolls in which the Fund
sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period,
the Fund foregoes principal and interest paid on the securities.
The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase
as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account in which it
will maintain liquid assets equal in value to its obligations in
respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk
that the market value of the securities the 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, the 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 Fund.
Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the
10
<PAGE>
borrowings) of at least 300% of all borrowings. However, under
normal circumstances, the Fund does not expect to engage in
reverse repurchase agreements and dollar rolls with respect to
greater than 50% of the Fund's total assets.
LOANS OF PORTFOLIO SECURITIES. The Fund may make
secured loans of its portfolio securities to brokers, dealers and
financial institutions, provided that cash, U.S. Government
Securities (as defined below), its agencies or instrumentalities
or bank letters of credit equal to at least 100% of the market
value of the securities loaned are deposited and maintained by
the borrower with the Fund. The risks in lending portfolio
securities, as with other extensions of credit, consist of
possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Fund will not lend portfolio securities in excess of 20% of the
value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, employee or affiliate of
either the Fund or the Adviser. The Board of Directors will
monitor the Fund's lending of portfolio securities.
ILLIQUID SECURITIES. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors. The Fund will not maintain more than 15% of the
Fund's net assets (taken at market value) in illiquid securities.
For this purpose, illiquid securities include, among others,
(i) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is
no readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (ii) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (iii) repurchase
agreements not terminable within seven days. Securities eligible
for resale under Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), that have legal or contractual
restrictions on resale but have a readily available market are
not deemed illiquid for purposes of this limitation. The Adviser
will monitor the liquidity of such securities under the
supervision of the Board of Directors of the Fund.
11
<PAGE>
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act,
securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the clearance and settlement of transactions in
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc.
12
<PAGE>
The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (i) the frequency
of trades and quotes for the security; (ii) the number of dealers
making quotations to purchase or sell the security; (iii) the
number of other potential purchasers of the security; (iv) the
number of dealers undertaking to make a market in the security;
(v) the nature of the security (including its unregistered
nature) and the nature of the marketplace for the security (e.g.,
the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and
(vi) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of securities.
PORTFOLIO TURNOVER
The investment activities described above are likely to
result in the Fund engaging in a considerable amount of trading
of securities held for less than one year. Accordingly, it can
be expected that the Fund will have a higher turnover rate, and,
thus, a higher incidence of short-term capital gains taxable as
ordinary income, than might be expected from investment companies
which invest substantially all of their funds on a long-term
basis. For the fiscal years ended in 1996 and 1997 the portfolio
turnover rates of the securities of the Fund were 159% and 249%,
respectively. Management anticipates that the annual turnover in
the Fund will not exceed 500%. An annual turnover rate of 500%
occurs, for example, when all the securities in the Fund's
portfolio are replaced five times in a period of one year. A
higher rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne
by the Fund and its shareholders. See "Dividends, Distributions
and Taxes" and "General Information--Portfolio Transactions."
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without a vote
of a majority of the Fund's outstanding voting securities which
means the vote of (1) 67% or more of the shares represented at a
meeting at which more than 50% of the outstanding shares of the
Fund are represented or (2) more than 50% of the outstanding
shares of the Fund, whichever is less.
13
<PAGE>
The Fund may not:
1. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and
policies; (ii) the lending of portfolio securities; and (iii) the
use of repurchase agreements;
2. Participate on a joint or joint and several basis
in any securities trading account;
3. Invest in companies for the purpose of exercising
control;
4. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short ("short sales against the
box"), and unless not more than 10% of the Fund's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization of gain or
loss for federal income tax purposes);
5. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Fund would own any securities of an open-
end investment company or more than 3% of the total outstanding
voting stock of any closed-end investment company or more than 5%
of the value of the Fund's total assets would be invested in
securities of any one or more closed-end investment companies;
6. (i) Purchase or sell real estate, except that it
may invest in mortgage-related securities and whole loans and
purchase and sell securities of companies which deal in real
estate or interests therein; (ii) purchase or sell commodities or
commodities contracts, except that it may invest in futures
contracts and options on futures contracts and contracts for the
future acquisition or delivery of fixed-income securities;
(iii) invest in interests in oil, gas or other mineral
exploration or development programs; (iv) purchase securities on
margin, except for such short-term credits as may be necessary
for the clearance of transactions; and (v) act as an underwriter
of securities, except that the Fund may acquire restricted
securities under circumstances in which, if such securities are
sold, the Fund might be deemed to be an underwriter for purposes
of the Securities Act.
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Fund may
14
<PAGE>
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
securities issued or guaranteed by the United States Government,
its agencies or instrumentalities ("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.
In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Fund may not invest in warrants if such
warrants, valued at the lower cost or market, would exceed 5% of
the value of the Fund's net assets. Included within such amount,
but not to exceed 2% of the Fund's net assets may be warrants
which are not listed on the New York Stock Exchange (the
"Exchange") or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities may be deemed to be
without value. The Fund also undertakes that it will not
purchase illiquid securities if immediately after such investment
more than 10% of the Fund's net assets (taken at market value)
would be invested in such securities and that it will not
purchase the securities of any company that has a record of less
than three years of continuous operation (including that of
predecessors) if such purchase at the time thereof would cause
more than 5% of its total assets, taken at current value, to be
invested in the securities of such companies.
Whenever any investment policy or restriction states a
minimum or maximum percentage of the Fund's assets which may be
invested in any security or other asset, it is intended that such
minimum or maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any later increase or
decrease in percentage beyond the specified limitations resulting
from a change in values or net assets will not be considered a
violation of any such maximum.
15
<PAGE>
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of December
31, 1997 totaling more than $218 billion (of which approximately
$85 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundation and endowment funds. As of December 31, 1997, the
Adviser was an investment manager of employee benefit fund assets
for 31 of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,500
employees who operated out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Chennai, Istanbul, London,
Madrid, Mumbai, New Delhi, Paris, Seoul, Singapore, Sydney, Tokyo
and Toronto and affiliate offices located in Vienna, Warsaw, Hong
Kong, Sao Paulo and Moscow. The 58 registered investment
companies comprising more than 122 separate investment portfolios
managed by the Adviser currently have over three million
shareholder accounts.
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"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
16
<PAGE>
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
17
<PAGE>
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement was approved by the unanimous vote,
cast in person, of the Fund's Directors (including the Directors
who are not parties to the Advisory Agreement or "interested
persons", as defined in the 1940 Act, of any such party) at a
meeting called for the purpose held on April 29, 1992, and by the
Fund's initial shareholder of the Fund on April 29, 1992. The
Advisory Agreement continues in force for successive twelve-month
periods (computed from each December 1), provided that such
continuance is specifically approved at least annually by the
Fund's Directors or by a majority vote of the holders of the
outstanding voting securities of the Fund, and, in either case,
by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons, as defined in the 1940
Act, of any such party. Most recently, the continuance of the
Advisory Agreement until November 30, 1998 was approved by a
vote, cast in person, of the Directors, including a majority of
the Directors who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for
that purpose and held on September 9, 1997. The Advisory
Agreement may be terminated without penalty on 60 days' written
notice at the option of either party or by a vote of the
shareholders; it will automatically terminate in the event of
assignment. The Adviser is not liable for any action or inaction
in regard to its obligations under the Advisory Agreement as long
as it does not exhibit willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser at an annual rate
of .65 of 1% of the Fund's average net assets. For the fiscal
years of the fund ended in 1997, 1996 and 1995, the Adviser
received from the Fund advisory fees in the amounts of $603,635,
$908,425 and $1,563,474, respectively.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance 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 Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
18
<PAGE>
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
Institutional Funds, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Income Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Municipal Securities Income
Fund, Inc., Alliance All-Market Advantage Fund, Inc., Alliance
World Dollar Government Fund, Inc., Alliance World Dollar
Government Fund II, Inc., The Austria Fund, Inc., The Korean
Investment Fund, Inc., The Southern Africa Fund, Inc. and The
Spain Fund, Inc., all registered closed-end investment companies.
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a trustee,
director or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the
address of of the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
DIRECTORS
JOHN D. CARIFA,* 52, Chairman and President of the Fund,
is the President, Chief Operating Officer and a Director of
Alliance Capital Management Corporation ("ACMC") with which he
has been associated since prior to 1993.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
19
<PAGE>
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4653,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1993. He is currently an independent consultant. His address
is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 55, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is Historic Hudson Valley, 150 White Plains Road,
Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 65, is an investment adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 45 East 89th Street, New York, New
York 10128.
CLIFFORD L. MICHEL, 58, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President, Chief Executive Officer and
Director of Wenonah Development Company (investments) and a
Director of Placer Dome, Inc. (mining). His address is 80 Pine
Street, New York, New York 10005.
DONALD J. ROBINSON, 63, was formerly a senior partner
and a member of the Executive Committee in the law firm of
Orrick, Herrington & Sutcliffe and is currently senior counsel to
that firm. His address is 666 Fifth Avenue, 19th Floor, New York,
New York 10103.
OFFICERS
JOHN D. CARIFA, Chairman and President, see biography
(under "Directors" section) above.
KATHLEEN A. CORBET, 37, Senior Vice President, is an
Executive Vice President of ACMC with which she has been
associated since July 1993. Prior thereto, she headed Equitable
20
<PAGE>
Capital Management Corporation's Fixed Income Management
Department since prior to 1993.
WAYNE D. LYSKI, 56, Senior Vice President, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.
PATRICIA J. YOUNG, 43, Senior Vice President, is a
Senior Vice President of ACMC with which she has been associated
since prior to 1993.
JEFFREY S. PHLEGAR, 31, Senior Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
EDMUND P. BERGAN, JR., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1993.
ANDREW L. GANGOLF, 43, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD since December
1994. Prior thereto, he was a Vice President and Assistant
Secretary of Delaware Management Company, Inc. since prior to
1993.
DOMENICK PUGLIESE, 36, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice President
and Counsel of Concord Holding Corporation since 1994 and Vice
President and Associate General Counsel of Prudential Securities
since prior to 1993.
EMILIE D. WRAPP, 41, Assistant Secretary, is a Vice
President and Special Counsel of AFD, with which she has been
associated since prior to 1993.
MARK D. GERSTEN, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS"), with which he has been associated since prior to
1993.
JUAN J. RODRIGUEZ, 40, Controller, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
CARLA LAROSE, 34, Assistant Controller, is a Manager of
AFS with which she has been associated since prior to 1993.
21
<PAGE>
JOSEPH J. MANTINEO, 38, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
VINCENT S. NOTO, 33, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended November 30, 1997, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
Total Number
Total Number of Investment
of Registered Portfolios
Investment Within the
Companies Alliance
Total in the Alliance Fund, Complex
Compensation Fund Complex, Including the
from the Including the Fund, as to
Alliance Fund Fund, as to which the
Aggregate Complex, which the Director Director is a
Compensation Including is a Director Director or
Name of Director From the Fund the Fund or Trustee Trustee
________________ _____________ _____________ __________________ _____________
John D. Carifa $-0- $-0- 54 118
Ruth Block $3,039 $164,000 40 80
David H. Dievler $3,046 $188,500 47 83
John H. Dobkin $3,030 $126,500 44 80
William H. Foulk, Jr. $3,106 $176,250 48 113
Dr. James M. Hester $3,006 $156,500 40 76
Clifford L. Michel $2,775 $194,500 41 92
Donald J. Robinson $2,971 $235,500 41 94
As of February 6, 1998 the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
22
<PAGE>
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter"), to permit the
Principal Underwriter to distribute the Fund's shares and to
permit the Fund to pay distribution services fees to defray
expenses associated with the distribution of its Class A, Class B
and Class C shares in accordance with a plan of distribution
which is included in the Agreement and has been duly adopted and
approved in accordance with Rule 12b-1 adopted by the Commission
under the 1940 Act (the "Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charges and
distribution services fees on the Class B shares and the
distribution services fee on the Class C shares are the same as
those of the initial sales charge and distribution services fee
with respect to the Class A shares in that in each case the sales
charge and distribution services fee provide for the financing of
the distribution of the relevant class of the Fund's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not "interested persons" of the Fund, as defined in the 1940 Act,
are committed to the discretion of such disinterested Directors
then in office.
The Agreement became effective on July 22, 1992 and was
amended as of April 30, 1993 to permit the distribution of an
additional class of shares, Class C shares. The amendment to the
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on February 23, 1993, and by the initial holder of
Class C shares of the Fund on April 30, 1993. The Agreement
23
<PAGE>
became effective on September 30, 1996 with respect to Advisor
Class shares.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the fiscal year ended November 30, 1997, the Fund
paid distribution services fees for expenditures under the
Agreement, with respect to Class A shares, in amounts aggregating
$48,346, which constituted .30 of 1%, annualized, of the Fund's
average daily net assets attributable to the Class A shares
during the period, and the Adviser made payments from its own
resources as described above in the aggregate amount of $389,629.
Of the $437,975 paid by the Fund and the Adviser under the Plan
with respect to Class A shares, $41,330 was spent on advertising,
$5,195 on the printing and mailing of prospectuses for persons
other than current shareholders, $147,338 for compensation to
broker-dealers and other financial intermediaries (including,
$82,533 to the Fund's Principal Underwriter), $117,857 for
compensation to sales personnel and $126,255 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the fiscal year ended November 30, 1997, the Fund
paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
$413,725, which constituted approximately 1% of the Fund's
average daily net assets attributable to the Class B shares
during the period. Of the $297,212 paid by the Fund under the
Plan, with respect to the Class B shares, $18,692 was spent on
advertising, $1,715 on printing and mailing of prospectuses for
persons other than current shareholders, $170,982 for
compensation to broker- dealers and other financial
intermediaries (including, $38,395 to the Fund's Principal
Underwriter), $10,261 for compensation to sales personnel,
$48,784 was spent on the printing of sales literature, travel,
entertainment, due diligence and other promotional expenses and
$46,778 was spent on interest on Class B financing. The
additional $116,513 in payments to the Principal Underwriter will
be carried forward and offset against future distribution service
fees payable under the Plan.
During the Fund's fiscal year ended November 30, 1997,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class C shares, in amounts
aggregating $353,792 which constituted approximately 1%,
annualized, of the Fund's average daily net assets attributable
24
<PAGE>
to Class C shares during the period and the Adviser made payments
from its own resources as described above aggregating $183,690.
Of the $537,482 paid by the Fund and the Adviser under the Plan,
with respect to Class C shares, $29,350 was spent on advertising,
$3,695 on printing and mailing of prospectuses for persons other
than current shareholders, $386,540 for compensation to broker-
dealers and other financial intermediaries (including, $64,449 to
the Fund's Principal Underwriter), $7,758 for compensation to
sales personnel, $74,957 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses and $35,182 was spent on interest on Class C
financing.
The Agreement will continue in effect for successive
twelve-month periods (computed from each October 1), provided,
however, that such continuance is specifically approved at least
annually by the Directors of the Fund or by vote of the holders
of a majority of the outstanding voting securities (as defined in
the 1940 Act) of that class, and, in either case, by a majority
of the Directors of the Fund who are not parties to the Agreement
or interested persons, as defined in the 1940 Act, of any such
party (other than as directors of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto. Most recently
the continuance of the Agreement until September 30, 1998 was
approved by a vote, cast in person, of the Directors, including a
majority of the Directors who are not "interested persons", as
defined in the 1940 Act, at their meeting held on September 9,
1997.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
25
<PAGE>
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, any party
must give the other parties 60 days' written notice; to terminate
the Rule 12b-1 Plan only, the Fund need give no notice to the
Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B shares and Class C shares is
higher than the transfer agency fee with respect to the Class A
shares and Advisor Class shares, reflecting the additional costs
associated with the Class B and Class C contingent deferred sales
charges. For the fiscal year ended November 30, 1997, the Fund
paid Alliance Fund Services, Inc. $151,077 pursuant to the
Transfer Agency Agreement.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under the heading "Purchase and Sale of
Shares -- How to Buy Shares."
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
26
<PAGE>
into selected agent agreements with the Principal Underwriter
("selected agents") and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Commercial Real Estate Group, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of each Fund in
which the program invests in order to be approved by AFD for
investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Funds shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"Class A Shares". On each Fund business day on which a purchase
27
<PAGE>
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the
Exchange (currently 4:00 p.m. Eastern time) by dividing the value
of the Fund's total assets, less its liabilities, by the total
number of its shares then outstanding. A Fund business day is
any day on which the Exchange is open for trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A and Advisor Class shares as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
28
<PAGE>
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
29
<PAGE>
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B shares and Class C shares bear
higher transfer agency costs than those borne by Class A shares
and Advisor Class shares, (iv) each of Class A, Class B, and
Class C shares has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its
distribution services fee is paid and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of the Class A
shareholders, an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, then such amendment will also be submitted
to the Class B shareholders and Advisor Class shareholders and
the Class A, Class B and Advisor Class shareholders will vote
separately by Class, and (v) Class B shares and Advisor Class
shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charge on Class B shares prior to
conversion, or the accumulated distribution services fee and
contingent deferred sales charge on Class C shares, would be less
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
30
<PAGE>
than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans) for more than
$250,000 for Class B shares. Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge (on Class A shares) would have to hold his
or her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value of
money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
31
<PAGE>
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended in 1997, 1996 and
1995, the aggregate amount of underwriting commission payable
with respect to Class A shares of the Fund were $62,887, $34,256
and $121,385, respectively. Of those amounts, the Principal
Underwriter received the amounts of $-0-, $2,444 and $7,584,
respectively, representing that portion of the sales charges paid
on shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Fund's fiscal years ended
in 1997, 1996 and 1995, the Principal Underwriter received
contingent deferred sales charges of $11, $-0- and $-0-,
respectively, on Class A shares, $39,451, $87,323 and $470,467,
respectively, on Class B shares, and $20,202, $2,744 and $-0-,
respectively, on Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
SALES CHARGE
Discount or
Commission
As % of As % of to Dealers or
Amount of Net Amount the Public Agents As % of
Purchase Invested Offering Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
32
<PAGE>
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers or agents for selling Class A
Shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Distribution Services Agreement described above, pay such
dealers or agents from its own resources a fee of up to 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "-
- -Class B Shares -- Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A Shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
33
<PAGE>
charge may be deemed to be an "underwriter" under the Securities
Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on November 30, 1997.
Net Asset Value per Class A
Share at November 30, 1997 $9.44
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $ .42
_____
Class A Per Share Offering Price
to the Public $9.86
=====
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
34
<PAGE>
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Fund, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
35
<PAGE>
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Fund held by the investor and (b) all shares
of any other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described
in paragraph (ii) owned by another
shareholder eligible to combine his or her
purchase with that of the investor into a
single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
36
<PAGE>
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
37
<PAGE>
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable
to each succeeding monthly purchase will be that normally
applicable, under such schedule, to an investment equal to the
sum of (i) the total purchase previously made during the 13-month
period and (ii) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
38
<PAGE>
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliates or agents, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
CLASS B SHARES
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
39
<PAGE>
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
40
<PAGE>
Contingent Deferred Sales as a %
Year Since Purchase of Dollar Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
41
<PAGE>
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
42
<PAGE>
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans, and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares-- General", and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan or to be associated with the investment
adviser or financial intermediary, in each case, that satisfies
the requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
43
<PAGE>
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A,Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within seven
days after the Fund's receipt of such tender for redemption. If
a shareholder is in doubt about what documents are required by
his or her fee-based program or employee benefit plan, the
shareholder should contact his or her financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
44
<PAGE>
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
45
<PAGE>
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTION--GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund nor
the Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
46
<PAGE>
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
47
<PAGE>
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing EFT drawn on the
investor's own bank account. Under such a program, pre-
authorized monthly drafts for a fixed amount (at least $25) are
used to purchase shares through the selected dealer or selected
agent designated by the investor at the public offering price
next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts
can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
48
<PAGE>
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption
and, in the case of Class B shares, for the purpose of conversion
to Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
49
<PAGE>
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
50
<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 "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
plan's request, without any sales charge, for Class A shares of
the Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
51
<PAGE>
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
52
<PAGE>
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
53
<PAGE>
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
STATEMENTS AND REPORTS
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against
Class A or Class C shares of the Fund redeemed from the
investor's account. Under this service, checks may be made
payable to any payee in any amount not less than $500 and not
more than 90% of the net asset value of the Class A or Class C
shares in the investor's account (excluding for this purpose the
current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder
wishing to establish this checkwriting service subsequent to the
opening of his or her Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund and the Bank each reserve the
right to change or suspend the checkwriting service. There is no
charge to the shareholder for the initiation and maintenance of
this service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
54
<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 shares to be redeemed until the day that the check is
presented to the Bank for payment.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
55
<PAGE>
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
56
<PAGE>
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
57
<PAGE>
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
GENERAL
The Fund intends for each taxable year to be qualified
as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"). Qualification relieves
the Fund of federal income tax liability on the part of its net
ordinary income and net realized capital gains which it timely
distributes to its shareholders. Such qualification does not, of
course, involve governmental supervision of management or
investment practices or policies. Investors should consult their
own counsel for a complete understanding of the requirements the
Fund must meet to qualify to be taxed as a "regulated investment
company."
In order to qualify as a regulated investment company
for any taxable year, the Fund must, among other things, derive
at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of securities or other income
(including but not limited to the gains from options, futures or
forward contracts) derived with respect to its business of
investing in securities.
The information set forth in the Prospectus and the
following discussion relate solely to the significant United
States federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies to be taxed as a
regulated investment company. An investor should consult his or
her own tax counsel with respect to the specific tax consequences
of being a shareholder of the Fund, including the effect and
applicability of federal, state and local tax laws to his or her
own particular situation and the possible effects of changes
therein.
The Fund intends to declare and distribute dividends in
the amounts and at the times necessary to avoid the application
of the 4% federal excise tax imposed on certain undistributed
income of regulated investment companies. The Fund will be
58
<PAGE>
required to pay the 4% excise tax to the extent it does not
distribute to its shareholders during any calendar year an amount
equal to the sum of (i) 98% of its ordinary taxable income for
the calendar year, (ii) 98% of its capital gain net income and
foreign currency gains for the twelve months ended October 31 (or
November 30 if elected by the Fund) of such year and (iii) any
ordinary income or capital gain net income from the preceding
calendar year that was not distributed during such year. For
this purpose, income or gain retained by the Fund that is subject
to corporate income tax will be considered to have been
distributed by the Fund by year-end. For federal income and
excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or
December but actually paid during the following January will be
taxable to these shareholders for the year declared, and not for
the subsequent calendar year in which the shareholders actually
receive the dividend.
Dividends of the Fund's net ordinary income and
distributions of any net realized short-term capital gain are
taxable to shareholders as ordinary income. Since the Fund
expects to derive substantially all of its gross income from
sources other than dividends, it is expected that none of the
Fund's dividends or distributions will qualify for the dividends-
received deduction for corporations.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains---that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Distributions of net capital gains will be
treated in the hands of shareholders as mid-term gains to the
extent designated by the Fund as deriving from net gains from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gains,
regardless of how long a shareholder has held shares in the Fund.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him or her as described above. If a shareholder has
held shares in the Fund for six months or less and during that
period has received a distribution of net capital gains, any loss
recognized by the shareholder on the sale of those shares during
59
<PAGE>
the six-month period will be treated as a long-term capital loss
to the extent of the distribution.
Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
The Fund may be required to withhold federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is
not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of debt securities
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his or her Fund shares. To
60
<PAGE>
the extent that such distributions exceed such shareholder's
basis, each will be treated as a gain from the sale of shares.
OPTIONS AND FUTURES CONTRACTS. Certain listed options
and regulated futures contracts are considered "section 1256
contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts generally will be considered 60% long-term and 40%
short-term capital gain or loss although the Fund may elect to
treat gain or loss realized by the Fund on section 1256 contracts
with respect to foreign currencies as ordinary. The Fund can
elect to exempt its section 1256 contracts which are part of a
"mixed straddle" (as described below) from the application of
section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to over-the-counter put and call options,
gain or loss realized by the Fund upon the lapse or sale of such
options held by the Fund will be either long-term or short-term
capital gain or loss depending upon the Fund's holding period
with respect to such option. However, gain or loss realized upon
the lapse or closing out of such options that are written by the
Fund will be treated as short-term capital gain or loss. In
general, if the Fund exercises an option, or if an option that
the Fund has written is exercised, gain or loss on the option
will not be separately recognized but the premium received or
paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over- the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
61
<PAGE>
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). The
foregoing rules will also apply to other put and call options
which have as their underlying property foreign currency and
which are traded over-the-counter or on certain foreign exchanges
to the extent gain or loss with respect to such options is
attributable to fluctuations in foreign currency exchange rates.
TAX STRADDLES. Any option, futures contract, or forward
contract, interest rate swap, cap or floor or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. Various elections are available to the Fund which
may mitigate the effects of the straddle rules, particularly with
respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by the Fund
all of the offsetting positions of which consist of section 1256
contracts. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position consists of an ordinary
asset and at least one position consists of a capital asset. No
such regulations have yet been issued.
ZERO COUPON TREASURY SECURITIES. Under current federal
tax law, the Fund will receive net investment income in the form
of interest by virtue of holding Treasury bills, notes and bonds,
and will recognize interest attributable to it under the original
issue discount rules of the Code from holding zero coupon
Treasury securities. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as
62
<PAGE>
income each year even though the Fund receives no interest
payment in cash on the security during the year. Accordingly,
the Fund may be required to pay out as an income distribution
each year an amount which is greater than the total amount of
cash interest the Fund actually received. Such distributions
will be made from the cash assets of the Fund or by liquidation
of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Adviser
will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net
capital gains from such transactions, its shareholders may
receive a larger capital gain distribution, if any, than they
would have in the absence of such transactions.
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-
through securities such as GNMA Certificates, FNMA Certificates,
FHLMC Certificates, and privately issued mortgage-related
securities generally are taxable as trusts for federal income tax
purposes, with the certificate holders treated as the owners of
the trust involved. As a result, payments of interest, principal
and prepayments made on the underlying mortgage pool are taxed
directly to certificate holders such as the Fund. Payments of
interest, principal and prepayments made on the underlying
mortgage pool will therefore generally maintain their character
when received by the Fund.
STRIPPED MORTGAGE-RELATED SECURITIES. Certain classes
of MRS which are issued at a discount, the payments of which are
subject to acceleration by reason of prepayments of the
underlying Mortgage Assets securing such classes, are subject to
special rules for determining the portion of the discount at
which the class was issued which must be accrued as income each
year. Under Code section 1272(a)(6), a principal-only class or a
class which receives a portion of the interest and a portion of
the principal from the underlying Mortgage Assets is subject to
rules which require accrual of interest to be calculated and
included in the income of a holder (such as the Fund) based on
the increase in the present value of the payments remaining on
the class, taking into account payments includable in the class'
stated redemption price at maturity which are received during the
accrual period. For this purpose, the present value calculation
is made at the beginning of each accrual period (i) using the
yield to maturity determined for the class at the time of its
issuance (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the
accrual period), calculated on the assumption that certain
prepayments will occur, and (ii) taking into account any
prepayments that have occurred before the close of the accrual
period. Since interest included in the Fund's income as a result
of these rules will have been accrued and not actually paid, the
Fund may be required to pay out as an income distribution each
63
<PAGE>
year an amount which is greater than the total amount of cash
interest the Fund actually received, with possible results as
described above.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS. The Fund may
invest in REMICs. Interests in REMICs are classified as either
"regular" interests or "residual" interests. Regular interests
in a REMIC are treated as debt instruments for federal income tax
purposes to which the rules generally applicable to debt
obligations apply. If regular interests in a REMIC are issued at
a discount, the rules of Code section 1272(a)(6) as discussed
above under "Stripped Mortgage-Related Securities" apply for
determining the portion of the discount at which the interest was
issued which must be accrued as income each year. The
application of these rules may increase the amount of the Fund's
net investment income available to be distributed to
shareholders, potentially causing the Fund to pay out as an
income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received, as
discussed above.
Under the Code, special rules apply with respect to the
treatment of a portion of the Fund income from REMIC residual
interests. (Such portion is referred to herein as "Excess
Inclusion Income".) Excess Inclusion Income generally cannot be
offset by net operating losses and, in addition, constitutes
unrelated business taxable income to entities which are subject
to the unrelated business income tax. The Code provides that a
portion of Excess Inclusion Income attributable to REMIC residual
interests held by regulated investment companies such as the Fund
shall, pursuant to regulations, be allocated to the shareholders
of such regulated investment company in proportion to the
dividends received by such shareholders. Accordingly,
shareholders of the Fund will generally not be able to use net
operating losses to offset such Excess Inclusion Income. In
addition, if a shareholder of the Fund is a tax-exempt entity not
subject to the unrelated business income tax and is allocated any
amount of Excess Inclusion Income, the Fund must pay a tax on the
amount of Excess Inclusion Income allocated to such shareholder
at the highest corporate rate. Any tax paid by the Fund as a
result of this requirement may be deducted by the Fund from the
gross income of the residual interest involved. A shareholder
subject to the unrelated business income tax may be required to
file a return and pay a tax on such Excess Inclusion Income even
though a shareholder might not have been required to pay such tax
or file such return absent the receipt of such Excess Inclusion
Income. It is anticipated that only a small portion, if any, of
the assets of the Fund will be invested in REMIC residual
interests. Accordingly, the amount of Excess Inclusion Income,
if any, received by the Fund and allocated to its shareholders
should be quite small. Shareholders that are subject to the
64
<PAGE>
unrelated business income tax should consult their own tax
advisor regarding the treatment of their income derived from the
Fund.
FOREIGN TAXES. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. The United States has entered into tax treaties with
many foreign countries which entitle the Fund to a reduced rate
of such taxes or exemption from taxes on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries is not known. The Fund will not be
eligible to pass through to its shareholders the amount of
foreign taxes paid by the Fund for purposes of the "foreign tax
credit" under the federal income tax.
The foregoing discussion relates only to U.S. Federal
income tax law as it affects shareholders who are U.S. residents
or U.S. corporations. The effects of Federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.
________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund's portfolio transactions
occur primarily with issuers, underwriters or major dealers
acting as principals. The transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriter; transactions
with dealers normally reflect the spread between bid and asked
prices. Premiums are paid with respect to options purchased by
the Fund, and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
65
<PAGE>
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Consistent with the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution,
the Fund may consider sales of shares of the Fund as a factor in
the selection of dealers to enter into portfolio transactions
with the Fund. Portfolio securities will not be purchased from
or sold to Donaldson, Lufkin & Jenrette Securities Corporation,
an affiliate of the Adviser, or any other subsidiary or affiliate
of The Equitable Life Assurance Society of the United States.
The investment activities described above are likely to
result in the Fund engaging in a considerable amount of trading
of securities held for less than one year. Accordingly, it can
be expected that the Fund will have a higher turnover rate, and,
thus, a higher incidence of short-term capital gains taxable as
ordinary income, than might be expected from investment companies
which invest substantially all of their funds on a long-term
basis. Management anticipates that the annual turnover in the
Fund will not be in excess of 500%. An annual turnover rate of
500% occurs, for example, when all the securities in the Fund's
portfolio are replaced five times in a period of one year. A
high rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital
gain. See "Dividends, Distributions and Taxes" and "General
Information-Portfolio Transactions" in the Prospectus.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
CAPITALIZATION
The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they choose to do so, and in such event the holders
of the remaining less than 50% of the shares voting for such
election of Directors will not be able to elect any person or
persons to the Board of Directors.
The authorized capital stock of the Fund consists of
3,000,000,000 shares of Class A Common Stock, $.001 par value,
66
<PAGE>
3,000,000,000 shares of Class B Common Stock, $.001 par value,
3,000,000,000 shares of Class C Common Stock, $.001 par value and
3,000,000,000 shares of Advisor Class Common Stock, par value
$.001. All shares of the Fund, when issued, are fully paid and
non-assessable. The Board of Directors is authorized to
reclassify and issue any unissued shares to any number of
additional series and classes without shareholder approval.
Accordingly, the Board 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.
At February 6, 1998, there were 1,664,705 Class A
shares, 3,429,267 Class B shares and 2,989,884 Class C shares of
common stock and no Advisor Class shares outstanding. To the
knowledge of the Fund, the following persons owned of record, and
no person owned beneficially, 5% or more of the outstanding
shares of the Fund as of February 6, 1998:
No. of
Shares % of % of % of
Name and Address of Class Class A Class B Class C
MLPF&S For the Sole Benefit 433,465 26.04%
of Its Customers 803,518 23.43%
Attn: Fund Administration
4800 Deer Lake Dr. East3rd Floor 1,360,660 45.51%
Jacksonville, Florida
32246-6484
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, will act as the Fund's
custodian for the assets of the Fund, but plays no part in
deciding on the purchase or sale of portfolio securities.
67
<PAGE>
Subject to the supervision of the Fund's Directors, State Street
Bank and Trust Company may enter into sub-custodial agreements
for the holding of the Fund's foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act.
COUNSEL
Legal matters in connection with the issuance of the
shares of Common Stock offered hereby are passed upon by Seward &
Kissel, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield",
"actual distribution rate" and "total return". Computed
separately for each class, the Fund's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the 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 each class of
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, if
shorter, 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 Commission, the average annual
68
<PAGE>
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, 1997
was 4.89% for Class A shares, 4.37% for Class B shares and 4.38%
for Class C shares. The Fund's distribution rates for such
period for Class A, Class B and Class C shares were 5.45%, 4.98%
and 5.00%, respectively. The Fund's average annual total returns
for the one-year period ended November 30, 1997 were 1.28%, 2.04%
and 4.01% for Class A, Class B and Class C shares, respectively.
The Fund's average annual total returns for the period June 1,
1992 (commencement of operations) through November 30, 1997, were
4.02% and 4.10% 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, 1997, was
3.76% for Class C shares. The Fund will compute yield and total
return figures separately for Class A, Class B and Class C
shares.
Yield and total return are not fixed and will fluctuate
in response to prevailing market conditions or as a function of
the type, and quality of the securities in the Fund's portfolio,
the Fund's average portfolio maturity and its expenses.
Quotations of yield and total return do not include any provision
for the effect of individual income taxes. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions. The Fund may advertise
the fluctuation of its net asset value over certain time periods
and compare its performance to that available from other
investments, including money market funds and certificates of
deposit, the 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. 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".
69
<PAGE>
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission. Copies of the Registration Statement may be obtained
at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington,
D.C.
70
<PAGE>
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
ANNUAL REPORT
NOVEMBER 30, 1997
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-54.1%
COLLATERALIZED MORTGAGE OBLIGATIONS-40.4%
ADJUSTABLE RATE-26.9%
Donaldson, Lufkin & Jenrette
Series 1994-QE1 Cl. A1
8.00%, 4/25/24 (a) $3,232 $ 3,235,915
Federal National Mortgage Association
Series 1997-20 Cl. F
6.158%, 3/25/27 4,302 4,289,620
Housing Security, Inc.
Series 1995-B Cl. A1A
7.549%, 11/25/28 4,973 5,072,670
Prudential Home Mortgage Securities, Inc.
Series 1993-56 Cl. A1
8.274%, 1/25/24 1,889 1,939,726
Resolution Trust Corp.
Series 1991-M4 Cl. A1
6.449%, 2/25/20 2,533 2,517,423
Sears Mortgage Securities Corp.
Series 1992-18A Cl. A1
7.86%, 9/25/22 4,016 4,081,677
------------
21,137,031
FIXED RATE-13.5%
Federal Home Loan Mortgage Corp.
Series 1350 Cl. E
6.70%, 1/15/15 2,378 2,374,198
Series 1434 Cl. H
7.00%, 8/15/21 2,500 2,542,200
Federal National Mortgage Association
Series 1997-M8 Cl. A1
6.94%, 1/25/22 1,495 1,531,003
Series 1990-144 Cl. J
7.00%, 5/25/14 316 315,202
First Union Lehman Brothers Commercial
Series 1997 C2 Cl. A1
6.479%, 11/18/29 2,300 2,309,338
Residential Funding Mortgage Security I
Series 1993-S11 Cl. A5
7.25%, 3/25/23 1,526 1,530,594
------------
10,602,535
Total Collateralized Mortgage Obligations
(cost $31,636,653) 31,739,566
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-7.2%
6.00%, 8/20/27 (b) 4,333 4,368,294
11.25%, 7/15/13-1/15/16
GPM 907 1,001,803
11.50%, 4/15/13 BD 26 29,399
11.50%, 2/15/13-6/15/13
GPM 184 206,661
11.75%, 1/20/16 GPM 14 15,861
Total Government National Mortgage Association
(cost $5,592,578) 5,622,018
STRIPPED MORTGAGE BACKED SECURITY-2.5%
Mortgage Capital Funding, Inc.
Series 1996-MC2 Cl. X, I/O
8.50%, 12/21/26 (c)
(cost $1,946,443) 1,946 2,003,556
FEDERAL HOME LOAN MORTGAGE CORP.-2.0%
11.00%, 1/01/11-9/01/20
(cost $1,586,618) 1,420 1,601,935
FEDERAL NATIONAL MORTGAGE ASSOCIATION-2.0%
7.50%, 4/01/08 (d) 1 1,107
11.25%, 2/01/16 1,355 1,536,780
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
Total Federal National Mortgage Association
(cost $1,527,171) $ 1,537,887
Total Mortgage-Related Securities
(cost $42,289,463) 42,504,962
U.S. GOVERNMENT OBLIGATIONS-53.1%
U.S. TREASURY NOTES-45.9%
5.75%, 12/31/98 (e) $ 2,400 2,400,744
6.00%, 8/15/00 (e) 8,000 8,037,520
6.125%, 12/31/01 600 605,532
6.25%, 2/28/02-6/30/02 12,750 12,936,563
6.875%, 5/15/06 (e) 11,400 12,121,392
------------
36,101,751
U.S. TREASURY BOND-7.2%
11.875%, 11/15/03 $4,350 $ 5,640,036
Total U.S. Government Obligations
(cost $41,676,510) 41,741,787
REPURCHASE AGREEMENT-5.8%
Prudential-Bache Securities, Inc.
5.73%, dated 11/28/97,
due 12/01/97, collateralized by $4,615,000
FHLMC, 7.00%,11/01/27
(cost $4,538,000) 4,538 4,538,000
TOTAL INVESTMENTS-113.0%
(cost $88,503,973) 88,784,749
Other assets less liabilities-(13.0%) (10,236,859)
NET ASSETS-100% $78,547,890
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At November 30, 1997, this security
amounted to $3,235,915 or 4.1% of net assets.
(b) Adjustable rate security.
(c) Interest rate represents yield to maturity and principal amount represents
amortized cost.
(d) 15 year mortgage.
(e) Securities, or portions thereof, with an aggregate market value of
$11,191,113 have been segregated to collateralize reverse repurchase agreements.
Glossary of Terms:
BD - Builder Buydown
FHLMC - Federal Home Loan Mortgage Corp.
GPM - Graduated Payment Mortgage
I/O - Interest Only
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $88,503,973) $ 88,784,749
Receivable for capital stock sold 1,044,557
Interest receivable 870,573
Receivable for investment securities sold 206,619
Total assets 90,906,498
LIABILITIES
Due to custodian 241
Reverse repurchase agreement 11,163,069
Payable for capital stock redeemed 840,764
Dividends payable 110,578
Distribution fee payable 56,234
Advisory fee payable 42,477
Accrued expenses and other liabilities 145,245
Total liabilities 12,358,608
NET ASSETS $ 78,547,890
COMPOSITION OF NET ASSETS
Capital stock, at par $ 8,324
Additional paid-in capital 100,277,414
Distributions in excess of net investment income (110,578)
Accumulated net realized loss on investment transactions (21,908,046)
Net unrealized appreciation of investments 280,776
$ 78,547,890
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($16,196,561 / 1,716,533 shares of capital stock
issued and outstanding) $9.44
Sales charge - 4.25% of public offering price .42
Maximum offering price $9.86
CLASS B SHARES
Net asset value and offering price per share
($33,613,028 / 3,562,035 shares of capital stock
issued and outstanding) $9.44
CLASS C SHARES
Net asset value and offering price per share
($28,738,301 / 3,045,400 shares of capital stock
issued and outstanding) $9.44
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $7,378,181
EXPENSES
Advisory fee $ 603,635
Distribution fee - Class A 48,346
Distribution fee - Class B 413,725
Distribution fee - Class C 353,792
Transfer agency 151,077
Administrative 138,482
Audit and legal 103,787
Custodian 99,571
Printing 63,681
Registration 44,150
Amortization of organization expenses 41,356
Directors' fees 21,558
Miscellaneous 10,103
Total expenses before interest 2,093,263
Interest expense 702,424
Total expenses 2,795,687
Net investment income 4,582,494
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (250,987)
Net change in unrealized appreciation of investments (55,810)
Net loss on investment transactions (306,797)
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,275,697
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 4,582,494 $ 6,766,537
Net realized loss on investment transactions (250,987) (1,648,824)
Net change in unrealized appreciation
of investments (55,810) 220,055
Net increase in net assets from operations 4,275,697 5,337,768
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (884,292) (1,099,192)
Class B (1,988,935) (3,020,671)
Class C (1,706,319) (2,547,881)
Tax return of capital
Class A (40,988) (80,449)
Class B (92,191) (221,079)
Class C (79,091) (186,476)
CAPITAL STOCK TRANSACTIONS
Net decrease (31,026,939) (68,798,912)
Total decrease (31,543,058) (70,616,892)
NET ASSETS
Beginning of year 110,090,948 180,707,840
End of year $ 78,547,890 $110,090,948
See notes to financial statements.
9
STATEMENT OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1997
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 7,604,965
Interest expense paid (702,424)
Operating expenses paid (2,162,774)
Net increase in cash from operating activities $ 4,739,767
INVESTING ACTIVITIES:
Proceeds from disposition of long-term
portfolio investments 281,030,812
Purchase of long-term portfolio investments (251,958,183)
Purchase of short-term portfolio investments,
net (3,453,000)
Net increase in cash from investing activities 25,619,629
FINANCING ACTIVITIES*:
Net decrease in reverse repurchase agreements 6,061,426
Net redemptions from capital stock transactions (34,742,380)
Cash dividends paid (1,679,247)
Net decrease in cash from financing activities (30,360,201)
Net decrease in cash (805)
Cash at beginning of year 564
Due to custodian at end of year $ (241)
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from
operations $ 4,275,697
ADJUSTMENTS:
Decrease in interest receivable $ 255,928
Net realized loss on investment transactions 250,987
Net change in unrealized appreciation of
investments 55,810
Accretion of bond discount (29,144)
Decrease in deferred and other assets 41,356
Decrease in accrued expenses (110,867)
Total adjustments 464,070
NET INCREASE IN CASH FROM OPERATING ACTIVITIES $ 4,739,767
* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Limited Maturity Government Fund, Inc. (the "Fund") was incorporated
in the state of Maryland on April 8, 1992 as a diversified, open-end management
investment company. The Fund offers Class A, Class B and Class C shares. Class
A shares are sold with a front-end sales charge of up to 4.25% for purchases
not exceeding $1,000,000. With respect to purchases of $1,000,000 or more,
Class A shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge of 1%. Class B shares are currently sold with
a contingent deferred sales charge which declines from 3% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares six years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. All three classes
of shares have identical voting, dividend, liquidation and other rights, 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
Portfolio securities traded on a national securities exchange are generally
valued at the last reported sale price or if there was no sale on such day, the
last bid price quoted on such day. If no bid prices are quoted, then the
security is valued at the mean of the bid and asked prices as obtained on that
day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market are valued at the mean of the
closing bid and asked prices provided by two or more dealers regularly making a
market in such securities. U.S. government securities and other debt securities
which mature in 60 days or less are valued at amortized cost unless this method
does not represent fair value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by, or
in accordance with procedures approved by, the Board of Directors. Fixed income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair value of such securities.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $276,500 have been deferred and were
amortized on a straight-line basis through August 1997.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to a tax return of capital, resulted in a net decrease in
distribution in excess of net investment income and a corresponding decrease in
additional paid-in capital. This reclassification had no effect on net assets.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.65% of the average daily net assets of the Fund. The fee is accrued daily and
paid monthly.
Pursuant to the advisory agreement, the Fund paid $138,482 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended November 30, 1997.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $107,926 for the year ended November 30, 1997.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Fund's shares. The Distributor
received $39,451 and $20,202 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class B and Class C shares, respectively, for
the year ended November 30, 1997.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30% of the average daily net assets attributable to the Class A
shares and 1% of the average daily net assets attributable to both Class B and
Class C shares. The fees are 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 $356,382 and $2,860,904 for Class B and Class C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs incurred by the
Distributor, beyond the current 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
and U.S. government securities) aggregated $12,206,934 and $24,205,358,
respectively, for the year ended November 30, 1997. There were purchases of
$233,462,361 and sales of $253,122,296 of U.S. government and government agency
obligations for the year ended November 30, 1997.
At November 30, 1997, the cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $664,807 and gross unrealized
depreciation of investments was $384,031 resulting in net unrealized
appreciation of $280,776.
At November 30, 1997, the Fund had a net capital loss carryforward of
$21,908,046 of which $219,462 expires in the year 2000, $177,358 expires in the
year 2001, $11,863,144 expires in the year 2002, $7,728,928 expires in the year
2003, $1,668,167 expires in the year 2004 and $250,987 expires in the year 2005.
FINANCIAL FUTURES CONTRACTS
The Fund may buy or sell financial futures contracts for the purpose of hedging
its portfolio against adverse affects of anticipated movements in the market.
The Fund bears the market risk that arises from changes in the value of these
financial instruments.
At the time the Fund enters into a futures 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.
12
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
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. At November
30, 1997, the Fund had no outstanding futures contracts.
NOTE E: CAPITAL STOCK
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 12,567,555 2,218,089 $117,268,204 $ 20,814,961
Shares issued in
reinvestment of
dividends and
distributions 58,760 66,439 549,654 622,936
Shares converted
from Class B 353,816 231,530 3,315,573 2,158,178
Shares redeemed (12,982,766) (3,727,280) (121,071,651) (34,954,990)
Net increase
(decrease) (2,635) (1,211,222) $ 61,780 $(11,358,915)
CLASS B
Shares sold 2,084,994 1,169,061 $ 19,497,685 $ 10,938,822
Shares issued in
reinvestment of
dividends and
distributions 137,401 171,299 1,284,843 1,606,681
Shares converted
to Class A (353,816) (231,530) (3,315,573) (2,158,178)
Shares redeemed (3,639,461) (4,640,656) (34,015,979) (43,509,656)
Net decrease (1,770,882) (3,531,826) $(16,549,024) $(33,122,331)
CLASS C
Shares sold 647,676 1,443,550 $ 6,051,461 $ 13,565,512
Shares issued in
reinvestment of
dividends and
distributions 141,389 131,894 1,322,376 1,236,980
Shares redeemed (2,343,438) (4,169,294) (21,913,532) (39,120,158)
Net decrease (1,554,373) (2,593,850) $(14,539,695) $(24,317,666)
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
NOTE F: REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price.
As of November 30, 1997, the Fund had entered into the following reverse
repurchase agreements:
AMOUNT BROKER INTEREST RATE MATURITY
- ---------- -------------- ------------- ----------------
$8,170,000 Morgan Stanley 5.15% December 1, 1997
$2,454,000 Morgan Stanley 5.55% December 1, 1997
$ 532,500 Morgan Stanley 5.60% December 3, 1997
For the year ended November 30, 1997, the maximum amount of reverse repurchase
agreements outstanding was $32,333,875, the average amount outstanding was
approximately $13,335,869, and the daily weighted average interest rate was
5.30%.
14
FINANCIAL HIGHLIGHTS
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.45 $9.52 $9.51 $9.94 $9.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .51(a) .52(a) .42 .57
Net realized and unrealized gain (loss)
on investment transactions .02 (.04) .02 (.32) .11
Net increase in net asset value from
operations .53 .47 .54 .10 .68
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.52) (.51) (.50) (.48) (.58)
Tax return of capital (.02) (.03) (.03) (.04) -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.54) (.54) (.53) (.53) (.58)
Net asset value, end of year $9.44 $9.45 $9.52 $9.51 $9.94
TOTAL RETURN
Total investment return based on net
asset value (b) 5.79% 5.11% 5.91% 1.03% 7.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $16,197 $16,248 $27,887 $43,173 $59,215
Ratio of expenses to average net assets 2.41% 2.22% 2.14% 1.34% 1.54%
Ratio of expenses to average net assets
excluding interest expense (c) 1.65% 1.58% 1.41% 1.20% 1.33%
Ratio of net investment income to average
net assets 5.52% 5.44% 5.53% 4.78% 5.66%
Portfolio turnover rate 249% 159% 293% 375% 499%
</TABLE>
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.45 $9.52 $9.52 $9.94 $9.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45(a) .44(a) .46(a) .39 .49
Net realized and unrealized gain (loss)
on investment transactions .01 (.04) .01 (.35) .12
Net increase in net asset value from
operations .46 .40 .47 .04 .61
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.44) (.44) (.42) (.51)
Tax return of capital (.02) (.03) (.03) (.03) -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.47) (.47) (.47) (.46) (.51)
Net asset value, end of year $9.44 $9.45 $9.52 $9.52 $9.94
TOTAL RETURN
Total investment return based on net
asset value (b) 5.04% 4.36% 5.05% .42% 6.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $33,613 $50,386 $84,362 $136,458 $168,157
Ratio of expenses to average net assets 3.14% 2.94% 2.85% 2.08% 2.26%
Ratio of expenses to average net assets
excluding interest expense (c) 2.39% 2.30% 2.11% 1.91% 2.07%
Ratio of net investment income to
average net assets 4.80% 4.73% 4.83% 4.12% 4.98%
Portfolio turnover rate 249% 159% 293% 375% 499%
</TABLE>
See footnote summary on page 17.
16
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 3,1993(D)
YEAR ENDED NOVEMBER 30, TO
-------------------------------------------------- NOVEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.45 $9.52 $9.52 $9.94 $9.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45(a) .45(a) .46(a) .37 .27
Net realized and unrealized gain (loss)
on investment transactions .01 (.05) .01 (.33) (.03)
Net increase in net asset value from
operations .46 .40 .47 .04 .24
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.45) (.44) (.42) (.28)
Tax return of capital (.02) (.02) (.03) (.03) -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.47) (.47) (.47) (.46) (.28)
Net asset value, end of period $9.44 $9.45 $9.52 $9.52 $9.94
TOTAL RETURN
Total investment return based on net
asset value (b) 5.05% 4.38% 5.06% .42% 2.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $28,738 $43,457 $68,459 $141,838 $228,703
Ratio of expenses to average net assets 3.13% 2.92% 2.85% 2.04% 1.74%(e)
Ratio of expenses to average net assets
excluding interest expense (c) 2.37% 2.29% 2.10% 1.89% 1.58%(e)
Ratio of net investment income to
average net assets 4.82% 4.75% 4.84% 4.10% 3.70%(e)
Portfolio turnover rate 249% 159% 293% 375% 499%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Net of interest expense of .76%, .64%, .73%, .14% and .21%, respectively,
on reverse repurchase agreements (see Note F).
(d) Commencement of distribution.
(e) Annualized.
17
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Limited Maturity Government Fund, Inc., including the portfolio of
investments, as of November 30, 1997, and the related statements of operations
and cash flows for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Limited Maturity Government Fund, Inc. at November 30, 1997, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
New York, New York
January 7, 1998
18
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
STANDARD & POOR's COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category
utilized by S&P, which uses the numbers 1+, 1, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issuers rated A by S&P have the following characteristics:
Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash
flow are in an upward trend. Typically, the issuer is a strong
company in a well-established industry and has superior
management.
MOODY's COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of short-
term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: Leading
market positions in well established industries; high rates of
return on funds employed; conservative capitalization structures
with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high
internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-
term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement
for relatively high financial leverage. Adequate alternate
liquidity is maintained.
A-1
<PAGE>
FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL
PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps,
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by strong
fundamental protection factors, and risk factors which are very
small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small
risk factors, and good access to capital markets.
A-2
<PAGE>
APPENDIX B
FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS AND FOREIGN CURRENCIES
FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of securities issued or guaranteed by the United States
Government, its agencies or instrumentalities or corporate debt
securities. Futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The
Fund will enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the
United States Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-related securities and three-month U.S.
Treasury Bills.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases in
the case of future contracts with respect to debt securities
entered into by the Fund and in all cases in the case of futures
contracts with respect to foreign currencies entered into by the
Fund the contractual obligation is fulfilled before the date of
the contract without having to make or take delivery of the
B-1
<PAGE>
securities or foreign currencies. The offsetting of a
contractual obligation is accomplished by buying (or selling, as
the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a
transaction, which is effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities
or currency. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with
the exchange on which the contracts are traded, the Fund will
incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as the portfolio of
the Fund, which holds or intends to acquire fixed-income
securities, is to attempt to protect the Fund from fluctuations
in interest rates without actually buying or selling fixed-income
securities. For example, if interest rates were expected to
increase, the Fund might enter into futures contracts for the
sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities
owned by the Fund. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value
of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have.
The Fund could accomplish similar results by selling debt
securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Fund to
maintain a defensive position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Fund could
take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect
to such futures contracts will consist of cash, cash equivalents
or high-quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the
B-2
<PAGE>
initial and variation margin payments made by the Fund with
respect to such futures contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as the portfolio of
the Fund, which holds or intends to acquire fixed-income
securities denominated in foreign currencies, is to attempt to
protect the Fund from fluctuations in foreign exchange rates
without actually buying or selling fixed-income securities or
foreign currency. For example, the Fund can sell futures
contracts on a specified currency to protect against a decline in
value of such currency and its portfolio securities which are
denominated in such currency. Similarly, the Fund may sell
futures contracts on one currency to hedge against fluctuations
in the value of securities denominated in a different currency if
there is an established historical record of correlation between
the two currencies.
The Fund can purchase futures contracts on foreign
currency to fix the price in U.S. Dollars of a security
denominated in such currency that the Fund has acquired or
expects to acquire. This would be done, for example, when the
Fund anticipates the subsequent purchase of particular securities
when it has the necessary cash, but expects currency exchange
rates then available in the applicable market to be less
favorable than rates that are currently available. To the extent
the Fund enters into futures contracts for this purpose, the
assets in the segregated account maintained with the Fund's
Custodian to cover the Fund's obligations with respect to such
futures contracts will consist of cash, cash equivalents or high-
grade liquid debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such
futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial margin and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close-out futures contracts
positions through offsetting transactions which could distort the
normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of
view of speculators, the margin deposit requirements in the
futures market are less onerous than margin requirements in the
B-3
<PAGE>
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate or foreign currency exchange
rate trends by the Adviser may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although
the Fund believes that use of such contracts will benefit the
Fund, if the Adviser's investment judgment about the general
direction of interest rates or exchange rates is incorrect, the
Fund's overall performance would be poorer than if it had not
entered into any such contract. For example, if the Fund has
hedged against the possibility of an increase in interest rates
which would adversely affect the price of debt securities held in
its portfolio and interest rates decrease instead, the Fund will
lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the
purchase of a call option on an individual security or currency.
Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price
of the underlying debt securities or foreign currency, it may or
may not be less risky than ownership of the futures contract or
underlying debt securities or foreign currency. As with the
purchase of futures contracts against declining prices of foreign
currency, when the Fund is not fully invested it may purchase a
call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security which is deliverable upon exercise of the futures
contract or against declining prices of foreign currency. If the
futures price at expiration of the option is below the exercise
price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against
B-4
<PAGE>
increasing prices of the security which is deliverable upon
exercise of the futures contract and against increasing prices of
foreign currency. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Fund intends to purchase or against any increase in the price of
currency. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities or foreign currency. For
example, the Fund may purchase a put option on a futures contract
to hedge the Fund's portfolio against the risk of rising interest
rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts and options on futures contracts on
foreign currencies will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the
value of portfolio securities, the Fund may purchase put options
on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. The Fund must offset an
B-5
<PAGE>
exchange-traded option which it has purchased by entering into a
"closing sale transaction". A closing sale transaction
terminates the obligation of the writer of the option and does
not result in the ownership of an option. The Fund realizes a
profit or loss from a closing sale transaction if the premium
received from the transaction is more than or less than the cost
of the option.
The benefit to the Fund deriving from purchases of
foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions
in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such
rates. However, the losses to the Fund would be limited to
amount of premiums paid.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the U.S. Dollar value of foreign
currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected
decline occurs, the option will most likely not be exercised, and
the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the U.S. Dollar cost of
securities to be acquired, the Fund could write a put option on
the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge
such increased cost up to the amount of the premium. As in the
case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. The Fund must offset an exchange-traded option which
it has written through a closing purchase transaction. The Fund
realizes a profit or a loss from a closing purchase transaction
if the cost of the transaction is less than or more than the
premium received by the Fund from writing the option. Through
the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits which
might otherwise have been obtained from favorable movements in
exchange rates.
In connection with options written or purchased by the
Fund over-the-counter, the Fund can only look to the counterparty
for purposes of offset.
B-6
<PAGE>
The Fund intends to write covered call options on
foreign currencies. A call option is covered if the Fund has a
call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, or
high-grade liquid debt securities in a segregated account with
its Custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. Dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency other than the currency underlying the option due to an
adverse change in the exchange rate. In such circumstances, the
Fund collateralizes the option by maintaining in a segregated
account with the Fund's Custodian, liquid assets in an amount not
less than the value of the underlying foreign currency in U.S.
Dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES.
Unlike transactions entered into by the Fund in futures
contracts and options on futures contracts, options on foreign
currencies contracts are not traded on contract markets regulated
by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are
traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock
regulation. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
B-7
<PAGE>
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercise, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise. These risks could affect the ability
of the Fund to offset positions in a timely and profitable
fashion.
In addition, futures contracts, options on futures
contracts and options on foreign currencies may be traded on
foreign exchanges. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of
foreign currencies or securities. The value of such positions
also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in
the United States of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by Alliance). In
addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
B-8
<PAGE>
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at 800-221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal tax purposes. The exchange
service may be changed, suspended, or terminated on 60 days
written notice.
B-9
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Portfolio of Investments, November 30, 1997
Statement of Assets and Liabilities, November 30, 1997
Statement of Operations, year ended November 30, 1997
Statement of Changes in Net Assets, years ended November
30, 1997 and November 30, 1996
Statement of Cash Flows, Year Ended November 30, 1997
Notes to Financial Statements, November 30, 1997
Financial Highlights, for Class A and Class B shares for
years ended November 30, 1997, November 30,
1996, November 30, 1995, November 30, 1994 and
November 30, 1993; for Class C shares for
years ended November 30, 1997, November 30,
1996, November 30, 1995, November 30, 1994 and
for the period May 3, 1993 (commencement of
operations) to 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) (a) Articles of Incorporation of the Registrant
dated April 8, 1992 - Incorporated by
reference to Exhibit (1)(a) to Post-Effective
Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the
Securities and Exchange Commission on October
31, 1997.
(1) (b) Articles of Amendment dated April 28, 1992 -
Incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
C-1
<PAGE>
(1) (c) Articles Supplementary dated April 29, 1997 -
Incorporated by reference to Exhibit (1)(c) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(1) (d) Articles of Amendment dated February 29, 1996
- Incorporated by reference to Exhibit (1)(d)
to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(1) (e) Articles Supplementary dated October 2, 1996 -
Incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1996.
(2) Amended By-Laws of the Registrant -
Incorporated by reference to Exhibit (2) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(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) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. -
Incorporated by reference to Exhibit (5) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
C-2
<PAGE>
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference to Exhibit
(6)(a) to Post- Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(6) (b) Amendment to Distribution Services Agreement -
Incorporated by reference from Post-Effective
Amendment No. 15 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on October
31, 1996.
(c) Selected Dealer Agreement between Alliance
Fund Distributors, Inc. and selected dealers
offering shares of Registrant - Incorporated
by reference to Exhibit (6)(c) to Post-
Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed with
the Securities and Exchange Commission on
October 31, 1997.
(d) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated
by reference to Exhibit (6)(d) to Post-
Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed with
the Securities and Exchange Commission on
October 31, 1997.
(7) Not applicable.
(8) (a) Custodian Contract between the Registrant and
State Street Bank and Trust Company - filed
herewith.
(b) Amendment to Custodian Contract - filed
herewith.
(9) Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc. -
Incorporated by reference to Exhibit (9)to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
C-3
<PAGE>
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(10) (a) Opinion and Consent of Seward & Kissel -
Incorporated by reference to Exhibit (10)(a)
to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-
1A filed with the Securities and Exchange
Commission on October 31, 1997.
(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP - Incorporated by reference to
Exhibit (10)(b) to Post- Effective Amendment
No. 18 to Registrant's Registration Statement
on Form N-1A filed with the Securities and
Exchange Commission on October 31, 1997.
(11) Consent of Independent Auditors - filed
herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. Incorporated by
reference from Post- 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 ofperformance
quotations - Incorporated by reference to
Exhibit (16) to Post-Effective Amendment No.
18 to Registrant's Registration Statement on
Form N-1A filed with the Securities and
Exchange Commission on October 31, 1997.
(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 Securities and Exchange
Commission on February 29, 1996; Amended Rule
18f-3 Plan - Incorporated by reference from
Post-Effective Amendment No. 15 to Registrants
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
October 31, 1996.
C-4
<PAGE>
(27) Financial Data Schedule - filed herewith.
Other Exhibits: Powers of Attorney of Ms. Block and Messrs.
Carifa, Dievler, Dobkin, Foulk, Hester, Michel and Robinson -
filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
As of February 6, 1998, the Registrant had 904 record
holders of Class A shares of common stock, 1,802 record holders
of Class B shares of common stock and 1,144 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:
"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.
C-5
<PAGE>
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger, consolidation,
or other transaction in which the predecessor's existence ceased
upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other than
a director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or the
employment or agency relationship undertaken by the employee or
agent in behalf of the corporation.
(iii) "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a
proceeding.
(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative.
(b)(1) A corporation may indemnify any director made a
party to any proceeding by reason of service in that capacity
unless it is established that:
(i) The act or omission of the director was
material to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate
dishonesty; or
(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.
C-6
<PAGE>
(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:
(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
C-7
<PAGE>
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
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.
C-8
<PAGE>
(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:
(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:
C-9
<PAGE>
(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.
(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
C-10
<PAGE>
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."
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
C-11
<PAGE>
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 besubject 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
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 oneof the following
additional conditions shall be met: (a) the person
C-12
<PAGE>
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
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.
C-13
<PAGE>
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.
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,
C-14
<PAGE>
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 or willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct") or
(2) a reasonable determination is made, based upon a review of
the facts, that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of
the directors who are neither "interested persons" of the
Registrant as defined in section 2(a)(19) of the Investment
Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors"), or (b) an independent
legal counsel in a written opinion. TheRegistrant will advance
attorneys fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters in
defending a proceeding, upon the undertaking by or on behalf of
the indemnitee to repay the advance unless it is ultimately
determined that he is entitled to indemnification and, as a
condition to the advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of disinterested, non-party directors of the
Registrant, or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P. under the
captions "Management of the Fund" in the Prospectus and in the
Statement of Additional Information constituting Parts A and B,
C-15
<PAGE>
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, 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 Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
C-16
<PAGE>
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance 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.
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
David Conine Executive Vice
President
Richard K. Saccullo Executive Vice
President
Edmund P. Bergan, Jr. Senior Vice President,
General Counsel and Secretary
Secretary
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Anne S. Drennan Senior Vice President
and Treasurer
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
C-17
<PAGE>
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
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
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
C-18
<PAGE>
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
William C. Fisher Vice President
Gerard J. Friscia Vice President and
Controller
Andrew L. Gangolf Vice President and Assistant Secretary
Assistant General
Counsel
Mark D. Gersten Vice President Treasurer and Chief
Financial Officer
Joseph W. Gibson Vice President
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Thomas K. Intoccia Vice President
Larry P. Johns Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
C-19
<PAGE>
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President & Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Robert C. Schultz Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
William C. White Vice President
C-20
<PAGE>
Emilie D. Wrapp Vice President & Assistant
Special Counsel Secretary
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Russell R. Corby Assistant Vice
President
Jean A. Cronin Assistant Vice
President
John W. Cronin Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Dunn Assistant Vice
President
John E. English Assistant Vice
President
Duff C. Ferguson Assistant Vice
President
Brian S. Hanigan Assistant Vice
President
James J. Hill Assistant Vice
President
C-21
<PAGE>
Eric. G. Kalender Assistant Vice
President
Robin L. Kraebel Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Michael Laino Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
Patrick Look Assistant Vice
President &
Assistant Treasurer
Kristine J. Luisi Assistant Vice
President
Richard F. Meier Assistant Vice
President
Richard J. Olszewski Assistant Vice
President
Catherine N. Peterson Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Clara Sierra Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Vincent T. Strangio Assistant Vice
President
Marie R. Vogel Assistent Vice
President
Wesley S. Williams Assistant Vice
President
C-22
<PAGE>
Matthew Witschel Assitant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094-1520 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.
C-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to 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 23rd day of February, 1998.
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 February 23, 1998
________________ President
John D. Carifa
2. Principal Financial and
Accounting Officer:
/s/Mark D. Gersten Treasurer and February 23, 1998
__________________ Chief Financial
Mark D. Gersten Officer
3. All of the Directors:
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James Hester
C-24
<PAGE>
Clifford L. Michel
Donald J. Robinson
By: /s/Edmund P. Bergan, Jr. February 23, 1998
_______________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-25
<PAGE>
INDEX TO EXHIBITS
(8)(a) Custodian Contract
(8)(b) Amendment to Custodian Contract
(11) Consent of Independent Auditors
(27) Financial Data Schedule
OTHER EXHIBITS - Powers of Attorney of Ms. Block and Messrs.
Carifa, Dievler, Dobkin, Foulk, Hester, Michel and Robinson
C-26
00250110.AX9
<PAGE>
CUSTODIAN CONTRACT
Between
ALLIANCE MORTGAGE STRATEGY TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held By
it.................................................
2. Duties of the of the Custodian with Respect to
Property of the Fund Held by the Custodian.........
2.1 Holding Securities...........................
2.2 Delivery of Securities.......................
2.3 Registration of Securities...................
2.4 Bank Accounts................................
2.5 Payments for Shares..........................
2.6 Availability of Federal Funds................
2.7 Collection of Income.........................
2.8 Payment of Fund Monies.......................
2.9 Liability for Payment in Advance of Receipt
of Securities Purchased......................
2.10 Payments for Repurchases or Redemptions of
Shares of the Fund...........................
2.11 Appointment of Agents........................
2.12 Deposit of Fund Assets in Securities System..
2.12A Fund Assets Held in the Custodian's Direct
Paper System.................................
2.13 Segregated Account...........................
2.14 Ownership Certificates for Tax Purposes......
2.15 Proxies......................................
2.16 Communications Relating to Fund Portfolio
Securities...................................
2.17 Proper Instructions..........................
2.18 Actions Permitted Without Express Authority..
2.19 Evidence of Authority........................
3. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and Net
Income.............................................
4. Records...........................
5. Opinion of Fund's Independent Accountant...........
6. Reports to Fund by Independent Public Accountants..
7. Compensation of Custodian..........................
8. Responsibility of Custodian........................
9. Effective Period, Termination and Amendment........
10. Successor Custodian................................
11. Interpretive and Additional Provisions ............
2
<PAGE>
12. Massachusetts Law to Apply.........................
13. Prior Contracts....................................
3
<PAGE>
CUSTODIAN CONTRACT
This Contract between Alliance Mortgage Strategy Trust,
Inc., a corporation organized and existing under the laws of
Maryland, having its principal place of business at 1345 Avenue
of the Americas, New York, New York 10105 hereinafter called the
"Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called
the "Custodian",
WITNESSETH, that in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian
of its assets pursuant to the provisions of the Articles of
Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it
with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or
treasury shares of capital stock ("Shares") of the Fund as may be
issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the
Fund and not delivered to the Custodian.
4
<PAGE>
Upon receipt of "Proper Instructions" (within the
meaning of Section 2.17), the Custodian shall from time to time
employ one or more sub-custodians, but only in accordance with an
applicable vote by the Board of Directors of the Fund, and
provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the
Fund Held By the Custodian
2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of the Fund all
non-cash property, including all securities owned by the
Fund, other than (a) securities which are maintained
pursuant to Section 2.12 in a clearing agency which acts
as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury,
collectively referred to herein as a "Securities System"
and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian
pursuant to Section 2.12A.
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by the Fund held by the
5
<PAGE>
Custodian or in a Securities System account of the
Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper Account") only upon
receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties,
only in the following cases:
1) Upon sale of such securities for the account
of the Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with
any repurchase agreement related to such
securities entered into by the Fund;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.12 hereof;
4) To the depository agent in connection with
tender or other similar offers for portfolio
securities of the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in
any such case, the cash or other consideration
is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Fund or into the
name of any nominee or nominees of the
6
<PAGE>
Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.11
or into the name or nominee name of any sub-
custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds,
certificates or other evidence representing
the same aggregate face amount or number of
units; provided that, in any such case, the
new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the
account of the Fund, to the broker or its
clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such securities
except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
7
<PAGE>
of such securities, or pursuant to provisions
for conversion contained in such securities,
or pursuant to any deposit agreement; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against
receipt of adequate collateral as agreed upon
from time to time by the Custodian and the
Fund, which may be in the form of cash or
obligations issued by the United States
government, its agencies or instrumentalities,
except that in connection with any loans for
which collateral is to be credited to the
Custodian's account in the book-entry system
authorized by the U.S. Department of the
8
<PAGE>
Treasury, the Custodian will not be held
liable or responsible for the delivery of
securities owned by the Fund prior to the
receipt of such collateral;
11) For delivery as security in connection with
any borrowings by the Fund requiring a pledge
of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions
of any agreement among the Fund, the Custodian
and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association
of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options
Clearing Corporation and of any registered
national securities exchange, or of any
similar organization or organizations,
regarding escrow or other arrangements in
connection with transactions by the Fund;
13) For delivery in accordance with the provisions
of any agreement among the Fund, the
Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act,
relating to compliance with the rules of the
9
<PAGE>
Commodity Futures Trading Commission and/or
any Contract Market, or any similar
organization or organizations, regarding
account deposits in connection with
transactions by the Fund;
14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for the Fund, for
delivery to such Transfer Agent or to the
holders of shares in connection with
distributions in kind, as may be described
from time to time in the Fund's currently
effective prospectus and statement of
additional information ("prospectus"), in
satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper corporate purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution
of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant
Secretary, specifying the securities to be
delivered, setting forth the purpose for which
such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and
10
<PAGE>
naming the person or persons to whom delivery
of such securities shall be made.
2.3 Registration of Securities. Securities held by the
Custodian (other than bearer securities) shall be
registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian
which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the
appointment of a nominee to be used in common with other
registered investment companies having the same
investment adviser as the Fund, or in the name or
nominee name of any agent appointed pursuant to Section
2.11 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Fund under
the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name",
the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or
exchange offers.
11
<PAGE>
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the name of the
Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by
the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for the Fund
may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the
funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the
Board of Directors of the Fund. Such funds shall be
deposited by the Custodian in its capacity as Custodian
and shall be withdrawable by the Custodian only in that
capacity.
2.5 Payments for Shares. The Custodian shall receive from
the distributor for the Fund's Shares or from the
12
<PAGE>
Transfer Agent of the Fund and deposit into the Fund's
account such payments as are received for Shares of the
Fund issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund
and the Transfer Agent of any receipt by it of payments
for Shares of the Fund.
2.6 Availability of Federal Funds. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions, make federal
funds available to the Fund as of specified times agreed
upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of
the Fund which are deposited into the Fund's account.
2.7 Collection of Income. Subject to the provisions of
Section 2.3, the Custodian shall collect on a timely
basis all income and other payments with respect to
registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely
basis all income and other payments with respect to
bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as
collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian
13
<PAGE>
shall detach and present for payment all coupons and
other income items requiring presentation as and when
they become due and shall collect interest when due on
securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section
2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund
with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Fund is
properly entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper
Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall
pay out monies of the Fund in the following cases only:
1) Upon the purchase of securities, options,
futures contracts or options on futures
contracts for the account of the Fund but only
(a) against the delivery of such securities or
evidence of title to such options, futures
contracts or options on futures contracts, to
the Custodian (or any bank, banking firm or
trust company doing business in the United
States or abroad which is qualified under the
14
<PAGE>
Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by
the Custodian as its agent for this purpose)
registered in the name of the Fund or in the
name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase
effected through a Securities System, in
accordance with the conditions set forth in
Section 2.12 hereof; (c) in the case of a
purchase involving the Direct Paper System, in
accordance with the conditions set forth in
Section 2.12A; (d) in the case of repurchase
agreements entered into between the Fund and
the Custodian, or another bank, or a broker-
dealer which is a member of NASD, (i) against
delivery of the securities either in
certificate form or through an entry crediting
the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by
the Fund of securities owned by the Custodian
along with written evidence of the agreement
by the Custodian to repurchase such securities
from the Fund or (e) for transfer to a time
15
<PAGE>
deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may
be effected prior to receipt of a confirmation
from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund
as defined in Section 2.17;
2) In connection with conversion, exchange or
surrender of securities owned by the Fund as
set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares
issued by the Fund as set forth in Section
2.10 hereof;
4) For the payment of any expense or liability
incurred by the Fund, including but not
limited to the following payments for the
account of the Fund: interest, taxes,
management, accounting, transfer agent and
legal fees, and operating expenses of the Fund
whether or not such expenses are to be in
whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends declared
pursuant to the governing documents of the
Fund;
16
<PAGE>
6) For payment of the amount of dividends
received in respect of securities sold short;
7) For any other proper purpose, but only upon
receipt of, in addition to Proper
Instructions, a certified copy of a resolution
of the Board of Directors or of the Executive
Committee of the Fund signed by an officer of
the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for
which such payment is to be made, declaring
such purpose to be a proper purpose, and
naming the person or persons to whom such
payment is to be made.
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased. Except as specifically stated
otherwise in this Contract, in any and every case where
payment for purchase of securities for the account of
the Fund is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific
written instructions from the Fund to so pay in advance,
the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities
had been received by the Custodian.
17
<PAGE>
2.10 Payments for Repurchases or Redemptions of Shares of he
Fund. From such funds as may be available for the
purpose but subject to the limitations of the Articles
of Incorporation and any applicable votes of the Board
of Directors of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of
Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares.
In connection with the redemption or repurchase of
Shares of the Fund, the Custodian is authorized upon
receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by
the Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or
times in its discretion appoint (and may at any time
remove) any other bank or trust company which is itself
qualified under the Investment Company Act of 1940, as
18
<PAGE>
amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the
Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or
liabilities hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain securities owned
by the Fund in a clearing agency registered with the
Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to
herein as "Securities System" in accordance with
applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Fund
in a Securities System provided that such
securities are represented in an account
("Account") of the Custodian in the Securities
System which shall not include any assets of
the Custodian other than assets held as a
19
<PAGE>
fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to
securities of the Fund which are maintained in
a Securities System shall identify by book-
entry those securities belonging to the Fund;
3) The Custodian shall pay for securities
purchased for the account of the Fund upon (i)
receipt of advice from the Securities System
that such securities have been transferred to
the Account, and (ii) the making of an entry
on the records of the Custodian to reflect
such payment and transfer for the account of
the Fund. The Custodian shall transfer
securities sold for the account of the Fund
upon (i) receipt of advice from the Securities
System that payment for such securities has
been transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all
advices from the Securities System of
transfers of securities for the account of the
Fund shall identify the Fund, be maintained
for the Fund by the Custodian and be provided
20
<PAGE>
to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the
Fund in the form of a written advice or notice
and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's
transactions in the Securities System for the
account of the Fund.
4) The Custodian shall provide the Fund with any
report obtained by the Custodian on the
Securities System's accounting system,
internal accounting control and procedures for
safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial
or annual certificate, as the case may be,
required by Article 9 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable
to the Fund for any loss or damage to the Fund
resulting from use of the Securities System by
reason of any negligence, misfeasance or
misconduct of the Custodian or any of its
agents or of any of its or their employees or
from failure of the Custodian or any such
21
<PAGE>
agent to enforce effectively such rights as it
may have against the Securities System; at the
election of the Fund, it shall be entitled to
be subrogated to the rights the Custodian with
respect to any claim other against the
Securities System or any person which the
Custodian may have as a consequence of any
such loss or damage if and to the extent that
the Fund has not been made whole for any such
loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System
The Custodian may deposit and/or maintain securities
owned by the Fund in the Direct Paper System of the
Custodian subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the Fund
in the Direct Paper System only if such
securities are represented in an account
("Account") of the Custodian in the Direct
Paper System which shall not include any
assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for
customers;
22
<PAGE>
3) The records of the Custodian with respect to
securities of the Fund which are maintained in
the Direct Paper System shall identify by
book-entry those securities belonging to the
Fund;
4) The Custodian shall pay for securities
purchased for the account of the Fund upon the
making of an entry on the records of the
Custodian to reflect such payment and transfer
of securities to the account of the Fund. The
Custodian shall transfer securities sold for
the account of the Fund upon the making of an
entry on the records of the Custodian to
reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund
confirmation of each transfer to or from the
account of the Fund, in the form of a written
advice or notice, of Direct Paper on the next
business day following such transfer and shall
furnish to the Fund copies of daily
transaction sheets reflecting each day's
transaction in the Securities System for the
account of the Fund;
23
<PAGE>
6) The Custodian shall provide the Fund with any
report on its system of internal accounting
control as the Fund may reasonably request
from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of
Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an
account by the Custodian pursuant to Section 2.12
hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-
dealer registered under the Exchange Act and a member of
the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or
any registered contract market.), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or
government securities in connection with options
purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold
24
<PAGE>
by the Fund, (iii) for the purpose of compliance by the
Fund with the procedures required by Investment Company
Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other
proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to securities of the Fund held by it and in
connection with transfers of securities.
2.15 Proxies. The Custodian shall, with respect to the
securities held hereunder, cause to be promptly executed
by the registered holder of such securities, if the
securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without
25
<PAGE>
indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices
relating to such securities.
2.16 Communications Relating to Fund Portfolio Securities
Subject to the provisions of Section 2.3, the Custodian
shall transmit promptly to the Fund all written
information (including, without limitation, pendency of
calls and maturities of securities and expirations of
rights in connection therewith and notices of exercise
of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the
Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit
promptly to the Fund all written information received by
the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction,
the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian
is to take such action.
26
<PAGE>
2.17 Proper Instructions. Proper Instructions as used
throughout this Article 2 means a writing signed or
initialled by one or more person or persons as the Board
of Directors shall have from time to time authorized.
Each such writing shall set forth the specific
transaction or type of transaction involved, including a
specific statement of the purpose for which such action
is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give
such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to
be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors of the Fund
accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions
may include communications effected directly between
electro-mechanical or electronic devices provided that
the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the
Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which
27
<PAGE>
requires a segregated asset account in accordance with
Section 2.13.
2.18 Actions Permitted without Express Authority. The
Custodian may in its discretion, without express
authority from the Fund:
1) make payments to itself or others for minor
expenses of handling securities or other
similar items relating to its duties under
this Contract, provided that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
Fund, checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of
the Fund except as otherwise directed by the
Board of Directors of the Fund.
2.19 Evidence of Authority. The Custodian shall be protected
in acting upon any instructions, notice, request,
consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly
28
<PAGE>
executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the
Board of Directors of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any
action by the Board of Directors pursuant to the
Articles of Incorporation as described in such vote, and
such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the
contrary.
3. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Directors of the Fund to keep the books of account of the Fund
and/or compute the net asset value per share of the outstanding
shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such
net asset value per share. If so directed, the Custodian shall
also calculate daily the net income of the Fund as described in
the Fund's currently effective prospectus and shall advise the
Fund and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of
the division of such net income among its various components.
29
<PAGE>
The calculations of the net asset value per share and the daily
income of the Fund shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
4. Records
The Custodian shall create and maintain all records
relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All
such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents
of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by the Fund
and held by the Custodian and shall, when requested to do so by
the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers
in such tabulations.
5. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the
Fund may from time to time request, to obtain from year to year
favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the
preparation of the Fund's Form N-1A, and Form N-SAR or other
30
<PAGE>
annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as
the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to
the services provided by the Custodian under this Contract; such
reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the
reports shall so state.
7. Compensation of Custodian
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund and the Custodian.
8. Responsibility of Custodian
So long as and to the extent that it is in the exercise
of reasonable care, the Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
Contract and shall be held harmless in acting upon any notice,
31
<PAGE>
request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
If the Fund requires the Custodian to take any action
with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian,
result in the Custodian or its nominee assigned to the Fund being
liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities for any
purpose (including but not limited to securities settlements,
foreign exchange contracts and assumed settlement) or in the
event that the Custodian or its nominee shall incur or be
32
<PAGE>
assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available
cash and to dispose of Fund assets to the extent necessary to
obtain reimbursement.
9. Effective Period, Termination and Amendment
This Contract shall become effective as of its
execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by
mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take
effect not sooner than thirty (30) days after the date of such
delivery or mailing; provided, however that the Custodian shall
not act under Section 2.12 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary
that the Board of Directors of the Fund has approved the initial
use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by the Fund of
such Securities System, as required in each case by Rule 17f-4
33
<PAGE>
under the Investment Company Act of 1940, as amended and that the
Custodian shall not act under Section 2.12A hereof in the absence
of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors has approved the
initial use of the Direct Paper System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by the Fund of
the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any provision of
the Articles of Incorporation, and further provided, that the
Fund may at any time by action of its Board of Directors
(i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or
(ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to
the Custodian such compensation as may be due as of the date of
such termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
34
<PAGE>
10. Successor Custodian
If a successor custodian shall be appointed by the Board
of Directors of the Fund, the Custodian shall, upon termination,
deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy
of a vote of the Board of Directors of the Fund, deliver at the
office of the Custodian and transfer such securities, funds and
other properties in accordance with such vote.
In the event that no written order designating a
successor custodian or certified copy of a vote of the Board of
Directors shall have been delivered to the Custodian on or before
the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company
Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held by
the Custodian and all instruments held by the Custodian relative
thereto and all other property held by it under this Contract and
35
<PAGE>
to transfer to an account of such successor custodian all of the
Fund's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of
Directors to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract
relating to the duties and obligations of the Custodian shall
remain in full force and effect.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Contract as may in their joint opinion be consistent with
the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Articles of Incorporation of the Fund. No interpretive or
36
<PAGE>
additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of the
Commonwealth of Massachusetts.
13. Prior Contracts
This Contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund and the Custodian
relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the day of 1992.
ATTEST ALLIANCE MORTGAGE STRATEGY TRUST,
INC
/s/ Jacqueline D. White /s/ David H. Dievler
________________________ By:____________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ James A. DePietro /s/ Ronald E. Logue
_______________________ By:____________________________
37
00250110.AY4
<PAGE>
AMENDMENT TO THE CUSTODIAN CONTRACT
AGREEMENT made by and between State Street Bank and Trust Company
(the "Custodian") and Alliance Limited Maturity Government Fund,
Inc. (formerly Alliance Mortgage Strategy Trust, Inc.) (the
"Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian
contract dated April 29, 1992 as amended September 14, 1993 (the
"Custodian Contract") governing the terms and conditions under
which the Custodian maintains custody of the securities and other
assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian
Contract to provide for the maintenance of the Fund's foreign
securities, and cash incidental to transactions in such
securities, in the custody of certain foreign banking
institutions and foreign securities depositories acting as
sub-custodians in conformity with the requirements of Rule 17f-5
under the Investment Company Act of 1940;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and the Fund hereby amend the
Custodian Contract by the addition of the following terms and
conditions:
1. Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the
Custodian to employ as sub-custodians for the
Fund's securities and other assets maintained
outside the United States the foreign banking
institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-
custodians"). Upon receipt of "Proper
Instructions", as defined in Section 2.17 of the
Custodian Contract, together with a certified
resolution of the Fund's Board of Directors, the
Custodian and the Fund may agree to amend Schedule
A hereto from time to time to designate additional
foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt
of Proper Instructions, the Fund may instruct the
Custodian to cease the employment of any one or
more such sub-custodians for maintaining custody of
the Fund's assets.
<PAGE>
2. Assets to be Held.
The Custodian shall limit the securities and other
assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as
defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and
cash equivalents in such amounts as the Custodian
or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its
books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-
custodian.
3. Foreign Securities Depositories.
Except as may otherwise be agreed upon in writing
by the Custodian and the Fund, assets of the Funds
shall be maintained in foreign securities
depositories only through arrangements implemented
by the foreign banking institutions serving as sub-
custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry
into agreements containing the provisions set forth
in Section 4 hereof.
4. Agreements with Foreign Banking Institutions.
Each agreement with a foreign banking institution
shall provide that: (a) the Fund's assets will not
be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign
banking institution or its creditors or agent,
except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the
Fund's assets will be freely transferable without
the payment of money or value other than for
custody or administration; (c) adequate records
will be maintained by the Custodian identifying the
assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of
the Custodian, including to the extent permitted
under applicable law the independent public
accountants for the Fund, will be given access to
the books and records of the foreign banking
institution relating to its actions under its
agreement with the Custodian; and (e) assets of the
Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian
or its agents.
2
<PAGE>
5. Access of Independent Accountants of the Fund.
Upon request of the Fund, the Custodian will use
its best efforts to arrange for the independent
accountants of the Fund to be afforded access to
the books and records of any foreign banking
institution employed as a foreign sub-custodian
insofar as such books and records relate to the
performance of such foreign banking institution
under its agreement with the Custodian.
6. Reports by Custodian.
The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in
respect of the securities and other assets of the
Fund held by foreign sub-custodians, including but
not limited to an identification of entities having
possession of the Fund's securities and other
assets and advices or notifications of any
transfers of securities to or from each custodial
account maintained by a foreign banking institution
for the Custodian on behalf of its customers
indicating, as to securities acquired for the Fund,
the identity of the entity having physical
possession of such securities.
7. Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b)
of this Section 7, the provision of Sections 2.2
and 2.7 of the Custodian Contract shall apply,
mutatis mutandis to the foreign securities of the
Fund held outside the United States by foreign sub-
custodians.
(b) Notwithstanding any provision of the Custodian
Contract to the contrary, settlement and payment
for securities received for the account of the Fund
and delivery of securities maintained for the
account of the Fund may be effected in accordance
with the customary established securities trading
or securities processing practices and procedures
in the jurisdiction or market in which the
transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the
expectation of receiving later payment for such
securities from such purchaser or dealer.
3
<PAGE>
(c) Securities maintained in the custody of a
foreign sub-custodian may be maintained in the name
of such entity's nominee to the same extent as set
forth in Section 2.3 of the Custodian Contract, and
the Fund agrees to hold any such nominee harmless
from any liability as a holder of record of such
securities.
8. Liability of Foreign Sub-Custodians.
Each agreement pursuant to which the Custodian
employs a foreign banking institution as a foreign
sub-custodian shall require the institution to
exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising
out of or in connection with the institution's
performance of such obligations. At the election
of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any
claims against a foreign banking institution as a
consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent
that the Fund has not been made whole for any such
loss, damage, cost, expense, liability or claim.
9. Liability of Custodian.
The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the
same extent as set forth with respect to sub-
custodians generally in the Custodian Contract and,
regardless of whether assets are maintained in the
custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as
contemplated by paragraph 12 hereof, the Custodian
shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from
nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any
loss where the sub-custodian has otherwise
exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 9, in
delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such
delegation, except such loss as may result from (a)
political risk (including, but not limited to,
exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil
4
<PAGE>
strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State
Street London Ltd. not caused by political risk)
due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable
care.
10. Reimbursement for Advances.
If the Fund requires the Custodian to advance cash
or securities for any purpose including the
purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the
performance of this Contract, except such as may
arise from its or its nominee's own negligent
action, negligent failure to act or willful
misconduct, any property at any time held for the
account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Fund
assets to the extent necessary to obtain
reimbursement.
11. Monitoring Responsibilities.
The Custodian shall furnish annually to the Fund,
during the month of June, information concerning
the foreign sub-custodians employed by the
Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in
connection with the initial approval of the
Custodian Contract. In addition, the Custodian
will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in
the financial condition of a foreign sub-custodian
or any material loss of the assets of the Fund or
in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities
and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a
substantial likelihood that its shareholders'
equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200
million (in each case computed in accordance with
generally accepted U.S. accounting principles).
5
<PAGE>
12. Branches of U.S. Banks.
(a) Except as otherwise set forth in this amendment
to the Custodian Contract, the provisions hereof
shall not apply where the custody of the Funds
assets is maintained in a foreign branch of a
banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such
branch as a sub-custodian shall be governed by
paragraph 1 of the Custodian Contract.
(b) Cash held for the Fund in the United Kingdom
shall be maintained in an interest bearing account
established for the Fund with the Custodian's
London branch, which account shall be subject to
the direction of the Custodian, State Street London
Ltd. or both.
13. Tax Law.
The Custodian shall have no responsibility or
liability for any obligations now or hereafter
imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of the United States of
America or any state or political subdivision
thereof. It shall be the responsibility of the
Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of jurisdictions other
than those mentioned in the above sentence,
including responsibility for withholding and other
taxes, assessments or other governmental charges,
certifications and governmental reporting. The
sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for
exemption or refund under the tax law of
jurisdictions for which the Fund has provided such
information.
14. Applicability of Custodian Contract;
Except as specifically superseded or modified
herein, the terms and provisions of the Custodian
Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized
6
<PAGE>
representative and its seal to be hereunder affixed as of the
4th day of June, 1996.
ATTEST ALLIANCE LIMITED MATURITY GOVERNMENT
FUND, INC.
/s/ Andrew L. Gangolf /s/ Edmund P. Bergan, Jr.
_____________________ By:____________________________
Secretary
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Francine Hayes /s/ Ronald E. Logue
_____________________ By:____________________________
Executive Vice President
7
00250110.AY3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholder Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated January 7, 1998 included in this
Registration Statement (Form N-1A Nos. 33-47031 and 811-06627) of
Alliance Limited Maturity Government Fund, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
February 26, 1998
00250110.AY1
<PAGE>
[ARTICLE] 6
[CIK] 0000885983
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
[SERIES]
[NUMBER] 001
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1997
[PERIOD-START] DEC-01-1996
[PERIOD-END] NOV-30-1997
[INVESTMENTS-AT-COST] 88,503,973
[INVESTMENTS-AT-VALUE] 88,784,749
[RECEIVABLES] 2,121,749
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 90,906,498
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 12,358,608
[TOTAL-LIABILITIES] 12,358,608
[SENIOR-EQUITY] 8,324
[PAID-IN-CAPITAL-COMMON] 100,277,414
[SHARES-COMMON-STOCK] 1,716,533
[SHARES-COMMON-PRIOR] 1,719,168
[ACCUMULATED-NII-CURRENT] (110,578)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (21,908,046)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 280,776
[NET-ASSETS] 78,547,890
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 7,378,181
[OTHER-INCOME] 0
[EXPENSES-NET] (2,795,687)
[NET-INVESTMENT-INCOME] 4,582,494
[REALIZED-GAINS-CURRENT] (250,987)
[APPREC-INCREASE-CURRENT] (55,810)
[NET-CHANGE-FROM-OPS] 4,275,697
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (884,292)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (40,988)
[NUMBER-OF-SHARES-SOLD] 12,921,371
[NUMBER-OF-SHARES-REDEEMED] (12,982,766)
[SHARES-REINVESTED] 58,760
[NET-CHANGE-IN-ASSETS] (31,543,058)
[ACCUMULATED-NII-PRIOR] (155,035)
[ACCUMULATED-GAINS-PRIOR] (21,657,059)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 604,000
[INTEREST-EXPENSE] 702,000
[GROSS-EXPENSE] 2,796,000
[AVERAGE-NET-ASSETS] 16,115,172
[PER-SHARE-NAV-BEGIN] 9.45
[PER-SHARE-NII] 0.51
[PER-SHARE-GAIN-APPREC] 0.02
[PER-SHARE-DIVIDEND] (0.52)
[PER-SHARE-DISTRIBUTIONS] (0.02)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.44
[EXPENSE-RATIO] 2.41
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250110.AY5
2
<PAGE>
[ARTICLE] 6
[CIK] 0000885983
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
[SERIES]
[NUMBER] 002
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1997
[PERIOD-START] DEC-01-1996
[PERIOD-END] NOV-30-1997
[INVESTMENTS-AT-COST] 88,503,973
[INVESTMENTS-AT-VALUE] 88,784,749
[RECEIVABLES] 2,121,749
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 90,906,498
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 12,358,608
[TOTAL-LIABILITIES] 12,358,608
[SENIOR-EQUITY] 8,324
[PAID-IN-CAPITAL-COMMON] 100,277,414
[SHARES-COMMON-STOCK] 3,562,035
[SHARES-COMMON-PRIOR] 5,332,917
[ACCUMULATED-NII-CURRENT] (110,578)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (21,908,046)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 280,776
[NET-ASSETS] 78,547,890
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 7,378,181
[OTHER-INCOME] 0
[EXPENSES-NET] (2,795,687)
[NET-INVESTMENT-INCOME] 4,582,494
[REALIZED-GAINS-CURRENT] (250,987)
[APPREC-INCREASE-CURRENT] (55,810)
[NET-CHANGE-FROM-OPS] 4,275,697
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,988,935)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (92,191)
[NUMBER-OF-SHARES-SOLD] 2,084,994
[NUMBER-OF-SHARES-REDEEMED] (3,993,277)
[SHARES-REINVESTED] 137,401
[NET-CHANGE-IN-ASSETS] (31,543,058)
[ACCUMULATED-NII-PRIOR] (155,035)
[ACCUMULATED-GAINS-PRIOR] (21,657,059)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 604,000
[INTEREST-EXPENSE] 702,000
[GROSS-EXPENSE] 2,796,000
[AVERAGE-NET-ASSETS] 41,372,530
[PER-SHARE-NAV-BEGIN] 9.45
[PER-SHARE-NII] 0.45
[PER-SHARE-GAIN-APPREC] 0.01
[PER-SHARE-DIVIDEND] (0.45)
[PER-SHARE-DISTRIBUTIONS] (0.02)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.44
[EXPENSE-RATIO] 3.14
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250110.AY6
2
<PAGE>
[ARTICLE] 6
[CIK] 0000885983
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
[SERIES]
[NUMBER] 003
[NAME] ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1997
[PERIOD-START] DEC-01-1996
[PERIOD-END] NOV-30-1997
[INVESTMENTS-AT-COST] 88,503,973
[INVESTMENTS-AT-VALUE] 88,784,749
[RECEIVABLES] 2,121,749
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 90,906,498
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 12,358,608
[TOTAL-LIABILITIES] 12,358,608
[SENIOR-EQUITY] 8,324
[PAID-IN-CAPITAL-COMMON] 100,277,414
[SHARES-COMMON-STOCK] 3,045,400
[SHARES-COMMON-PRIOR] 4,599,773
[ACCUMULATED-NII-CURRENT] (110,578)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (21,908,046)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 280,776
[NET-ASSETS] 78,547,890
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 7,378,181
[OTHER-INCOME] 0
[EXPENSES-NET] (2,795,687)
[NET-INVESTMENT-INCOME] 4,582,494
[REALIZED-GAINS-CURRENT] (250,987)
[APPREC-INCREASE-CURRENT] (55,810)
[NET-CHANGE-FROM-OPS] 4,275,697
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,706,319)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] (79,091)
[NUMBER-OF-SHARES-SOLD] 647,676
[NUMBER-OF-SHARES-REDEEMED] (2,343,438)
[SHARES-REINVESTED] 141,389
[NET-CHANGE-IN-ASSETS] (31,543,058)
[ACCUMULATED-NII-PRIOR] (155,035)
[ACCUMULATED-GAINS-PRIOR] (21,657,059)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 604,000
[INTEREST-EXPENSE] 702,000
[GROSS-EXPENSE] 2,796,000
[AVERAGE-NET-ASSETS] 35,379,194
[PER-SHARE-NAV-BEGIN] 9.45
[PER-SHARE-NII] 0.45
[PER-SHARE-GAIN-APPREC] 0.01
[PER-SHARE-DIVIDEND] (0.45)
[PER-SHARE-DISTRIBUTIONS] (0.02)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.44
[EXPENSE-RATIO] 3.13
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250110.AY7
2
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc. Alliance
Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance
New Europe Fund, Inc., Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Fund,
Inc., The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc. and The Alliance Portfolios, and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc. Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc. and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ David H. Dievler
___________________________
David H. Dievler
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Growth and Income Fund, Inc.,
Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance International Fund, Alliance Limited
Maturity Government Fund, Inc., Alliance Mortgage Securites
Incoem Fund, Inc., Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ John H. Dobkin
___________________________
John H. Dobkin
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance Limited Maturity Government Fund, Inc., Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., The Alliance Portfolios and the
Hudson River Trust, and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Utility
Income Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates and The
Alliance Fund, Inc., and filing the same, with exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Money Market Fund, Alliance Mortgage Securities Income
Fund, Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
Alliance North American Government Income Trust, Inc., Alliance
Premier Growth Fund, Inc., Alliance Quasar Fund, Inc., Alliance
Real Estate Investment Fund, Inc., Alliance/Regent Sector
Opportunity Fund, Inc., Alliance Short-Term Multi-Market Trust,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., Fiduciary Management
Associates, The Alliance Fund, Inc. and The Hudson River Trust,
and filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
/s/ Clifford L. Michel
___________________________
Clifford L. Michel
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund, Inc.,
Alliance Real Estate Investment Fund, Inc., Alliance/Regent
Sector Opportunity Fund, Inc., Alliance Short-Term Multi-Market
Trust, Inc., Alliance Utility Income Fund, Inc., Alliance
Variable Products Series Fund, Inc., Alliance World Income Trust,
Inc., Alliance Worldwide Privatization Fund, Inc., Fiduciary
Management Associates, The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, and filing the same, with
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute
or substitutes, may do or cause to be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: September 9, 1997
00250110.AZ1
