<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-04015 and 811-01708.
<PAGE>
<PAGE>
PROSPECTUS
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
2,884,235 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES
------------
Alliance World Dollar Government Fund, Inc. (the "Fund") is issuing to its
shareholders of record as of the close of business on June 21, 1996 (the
"Record Date") non-transferable rights ("Rights") entitling the holders
thereof to subscribe for an aggregate of 2,884,235 shares ("Shares") of the
Fund's Common Stock at the rate of one share of Common Stock for every three
Rights held (the "Offer"). Shareholders of record will receive one Right for
each whole share of Common Stock held on the Record Date. Shareholders who
fully exercise their Rights will be entitled to subscribe for additional
shares of Common Stock pursuant to the Over-Subscription Privilege as
described herein. The Fund may increase the number of Shares of Common Stock
subject to subscription by up to 25% of the Shares, or 721,058 Shares, for an
aggregate total of 3,605,293 Shares in order to cover over-subscription
requests. Fractional shares will not be issued upon the exercise of Rights;
accordingly, Rights will be exercisable only in integral multiples of three.
The Rights are non-transferable and, accordingly, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock
Exchange or any other exchange. See "The Offer." THE SUBSCRIPTION PRICE PER
SHARE (THE "SUBSCRIPTION PRICE") WILL BE 95% OF THE LOWER OF (i) THE AVERAGE
OF THE LAST REPORTED SALE PRICES OF SHARES OF THE FUND'S COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE ON THE DATE OF THE EXPIRATION OF THE OFFER (THE
"PRICING DATE") AND ON THE FOUR PRECEDING BUSINESS DAYS AND (ii) THE NET ASSET
VALUE PER SHARE AS OF THE CLOSE OF BUSINESS ON THE PRICING DATE.
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on May 17, 1996. Shares of the Common Stock trade on that
exchange under the symbol "AWG". The net asset values per share of Common
Stock at the close of business on May 17, 1996 and June 21, 1996 were $13.56
and $13.29, respectively. The last reported sale price of shares of the Common
Stock on the New York Stock Exchange on each of those dates was $12.50.
THE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JULY 19, 1996 (THE
"EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.
------------
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would
be the case if the Offer had not been made. In addition, because the
Subscription Price per Share will be less than the net asset value per share
and because the Fund will incur expenses in connection with the Offer, the
Offer will result in a dilution of net asset value per share for all
shareholders. Such dilution will disproportionately affect shareholders who do
not exercise their Rights. If the Subscription Price per Share were to be
substantially less than the net asset value per share, such dilution would be
substantial. Shareholders will have no right to rescind their subscriptions
after receipt of their payment for Shares by the Subscription Agent. See
"Special Risk Considerations--Dilution and the Effect of Non-Participation in
the Offer." For a trading history of the Fund see "Net Asset Value and Market
Price Information."
(Continued on following page)
------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
SUBSCRIPTION ESTIMATED PROCEEDS TO
PRICE(1) SALES LOAD(2) FUND(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $11.88 $0.45 $11.43
- --------------------------------------------------------------------------------
Total Maximum(4)........................ $34,264,712 $1,284,927 $32,979,785
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
------------
(Footnotes on following page)
SMITH BARNEY INC.
The date of this Prospectus is June 21, 1996.
<PAGE>
(Continued from previous page)
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is to seek high current income by investing
exclusively in fixed income securities denominated in U.S. dollars. In seeking
to achieve this objective, the Fund invests substantially all of its assets in
(i) U.S. dollar-denominated debt obligations issued or guaranteed by foreign
governments, including participations in loans between foreign governments and
financial institutions, and interests in entities organized and operated for
the purpose of restructuring the investment characteristics of instruments
issued or guaranteed by foreign governments ("Sovereign Debt Obligations") and
(ii) zero coupon obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("Zero Coupon Obligations"). Under normal
circumstances, the Fund invests at least 75% of its total assets in (i)
Sovereign Debt 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 (but not as to interest) by Zero Coupon
Obligations having the same maturity ("Collateralized Brady Bonds") and (ii)
Zero Coupon Obligations. See "Investment Objective and Policies." There can be
no assurance that the Fund's investment objective will be achieved.
Investment in the Fund entails certain risks not associated with other
investments. The net asset value of the Fund's shares will change as the
levels of interest rates fluctuate. When interest rates decline, the net asset
value of the Fund's shares can be expected to rise. Conversely, when interest
rates rise, such net asset value can be expected to decline. In addition,
because it invests in Sovereign Debt Obligations, the Fund will be exposed to
the direct or indirect consequences of political, social and economic changes
in various emerging market countries. Furthermore, substantially all of the
Fund's assets may be invested in high yield, high risk debt securities that
are low-rated (i.e., below investment grade) or unrated and, in both cases,
that are considered to be predominantly speculative as regards the issuers'
capacity to pay interest and repay principal. SEE "SPECIAL RISK
CONSIDERATIONS."
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing and should be retained for
future reference. A Statement of Additional Information dated June 21, 1996
(the "SAI") containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in its entirety into this Prospectus. A copy of the SAI, the table of contents
of which appears on page 48 of this Prospectus, may be obtained without charge
by calling the Fund at (800) 227-4618.
The Fund's investment adviser and administrator is Alliance Capital
Management L.P. ("Alliance"), a leading international investment manager. See
"Management of the Fund." The address of the Fund is 1345 Avenue of the
Americas, New York, New York 10105 and its telephone number is (800) 247-4154.
All questions and inquiries relating to the Offer should be directed to the
Information Agent, Shareholder Communications Corporation, 17 State Street,
New York, New York 10004, (800) 733-8481, Extension 347.
- --------
(Footnotes from previous page)
(1) Estimated on the basis of the closing market price per share on the New
York Stock Exchange on June 21, 1996.
(2) In connection with the Offer, Smith Barney Inc. (the "Dealer Manager") and
other broker-dealers soliciting the exercise of Rights will receive
soliciting fees equal to 2.50% of the Subscription Price per Share for
each Share issued pursuant to the exercise of the Rights and the Over-
Subscription Privilege. The Fund has also agreed to pay the Dealer Manager
a fee for financial advisory services and marketing assistance in
connection with the Offer equal to 1.25% of the Subscription Price per
Share for each Share issued upon exercise of the Rights and pursuant to
the Over-Subscription Privilege and has agreed to indemnify the Dealer
Manager against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Distribution Arrangements."
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$550,000, including up to $100,000 to be paid to the Dealer Manager in
reimbursement for its reasonable expenses. Funds received by check prior
to the final due date of this Offer will be deposited into a segregated
interest bearing account (which interest will be paid to the Fund
regardless of whether Shares are issued and sold by the Fund) at The Bank
of New York pending proration and distribution of Shares.
(4) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at its
discretion increase the number of Shares subject to subscription by up to
25% of the Shares offered hereby. If the Fund increases the number of
Shares subject to subscription by 25%, the aggregate maximum Estimated
Subscription Price, Estimated Sales Load and Estimated Proceeds to the
Fund will be $42,830,881, $1,606,158 and $41,224,723, respectively.
2
<PAGE>
EXPENSE INFORMATION
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) (l)...................... 3.75%
ANNUAL EXPENSES (as a percentage of net assets) (2)
Advisory fee (3)........................................................ 1.00%
Other expenses..........................................................
Administration fee (3)................................................ .15%
Other operating expenses.............................................. .28%
-----
Total annual expenses..................................................... 1.43%
=====
</TABLE>
- --------
(1) Consists of Dealer Manager and soliciting fees. See "Distribution
Arrangements." The fees will be borne by all of the Fund's shareholders,
including those shareholders who do not exercise their Rights.
(2) Amounts based on the Fund's most recently completed fiscal year, except
that "Other expenses" are based on estimated amounts for the Fund's
current fiscal year and assume that the Fund's shareholders exercise their
Rights to purchase all of the Shares and purchase an additional 25% of the
Shares pursuant to the Over-Subscription Privilege. "Other expenses" do
not include expenses related to the issuance of the Shares, estimated at
$550,000. Annual expenses for the fiscal year ended October 31, 1995 were
1.55% as a percentage of average net assets.
(3) See "Management of the Fund--Advisory Agreement" and "--Administration
Agreement" herein and in the SAI.
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return...................................... $51 $81 $113 $202
</TABLE>
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that a shareholder bears directly
or indirectly. The above example is based on an operating expense ratio of
1.43% and assumes reinvestment of all dividends and distributions at net asset
value. The example should not be considered a representation of future
expenses or annual rates of return; actual expenses or annual rates of return
may be greater or less than those shown.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information ("SAI") that is incorporated herein by reference.
Investors should carefully consider information set forth under the heading
"Special Risk Considerations."
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of Alliance World Dollar Government Fund, Inc. (the
"Fund") has determined that it would be in the best interests of the Fund and
its shareholders to increase the assets of the Fund available for investment,
thereby enabling the Fund to more fully take advantage of available investment
opportunities consistent with the Fund's investment objective of seeking high
current income by investing exclusively in fixed income securities denominated
in U.S. dollars. In reaching its decision, the Board of Directors was advised
by Alliance that the raising of new assets would enable the Fund to take
advantage of current opportunities in emerging market sovereign debt markets.
More specifically, Alliance advised the Board of Directors at a May 17, 1996
special meeting that relatively high yields then available on Brady Bonds of
emerging market countries provided an attractive investment opportunity. In
Alliance's view, these high yields were evidenced by the "spread" between the
yield on 30-year U.S. Treasury bonds and yields on Brady Bonds of emerging
market countries, which increased following the decline in value of the Mexican
currency in late 1994 and subsequent related events. Alliance was also of the
view that the relatively high yields on Brady Bonds of emerging market
countries could be expected to decline as conditions in the market for such
Brady Bonds stabilize, thus tending to increase the market values of the Brady
Bonds of emerging market countries and thereby affording the Fund the
opportunity to realize capital gains. For certain historical information
regarding the spread between yields on 30-year U.S. Treasury bonds and those on
Brady Bonds, see "The Offer--Purpose of the Offer" below. Alliance also cited
the improving credit quality of many emerging market countries that issue
Sovereign Debt Obligations. In addition, the Board of Directors took into
account the fact that a well-subscribed rights offering may reduce the Fund's
expense ratio and considered that such a rights offering could result in an
improvement in the liquidity of the trading market for shares of the Fund's
Common Stock, although no assurance can be given that either of these results
will be achieved. The Board of Directors also considered alternatives to the
Offer, including an underwritten offering of shares and an offering of
transferable rights to purchase shares, as well as the proposed terms of the
Offer, the estimated expenses of the Offer, and its dilutive effect, including
its effect on shareholders of the Fund who do not exercise their Rights, and
its implications for the Fund's dividend. The Board also considered the
possible impact of the Offer on the trading price of the Fund's shares of
Common Stock, the benefits and costs of utilizing a dealer manager and
soliciting brokers, the experience and capabilities of the Dealer Manager, and
the treatment of foreign shareholders under the Offer. In its deliberations,
the Board recognized that Alliance was subject to a conflict of interest in
recommending approval of the Offer. After careful consideration, the Board of
Directors unanimously voted to approve the Offer.
Alliance's view as to current investment opportunities available in the
sovereign debt markets is based on prevailing market conditions. There can be
no assurance that these conditions will not materially change prior to the
investment of the proceeds of the offering or thereafter, in which case the
benefits expected to be derived from the offering may not be realized. The
Board of Directors of the Fund may, at any time prior to the issuance and sale
of Shares by the Fund, determine to take such actions, which may include
withdrawal or cancellation of the offering, as it deems appropriate in light of
then prevailing market conditions. See "The Offer--Terms of the Offer."
4
<PAGE>
TERMS OF THE OFFER
The Fund is issuing to holders of its common stock, par value $.01 per share
(the "Common Stock"), of record on June 21, 1996 non-transferable Rights to
subscribe for an aggregate of 2,884,235 Shares (3,605,293 Shares if the Fund
increases the number of Shares available by up to 25% pursuant to the Over-
Subscription Privilege). Each shareholder is being issued one Right for each
whole share of Common Stock held on the Record Date. The Rights entitle the
holders thereof to subscribe for one Share for every three Rights held (1 for
3). Fractional Shares will not be issued upon the exercise of Rights;
accordingly, Rights will be exercisable only in integral multiples of three.
Rights may be exercised at any time during the Subscription Period, which
commences on June 21, 1996 and ends at 5:00 p.m., Eastern time, on July 19,
1996, unless extended by the Fund until 5:00 p.m., Eastern time, on a date not
later than July 26, 1996. Any shareholder who fully exercises all Rights issued
to him pursuant to the Primary Subscription will be entitled to request
additional Shares at the Subscription Price pursuant to the terms of the "Over-
Subscription Privilege."
The issuance and sale of the Shares is subject to the withdrawal or
cancellation of the offering by the Fund at any time prior to 5:00 p.m. Eastern
time on the Confirmation Date (as defined herein). In the event the Shares are
not issued and sold by the Fund, amounts paid for Shares will be returned to
subscribing shareholders. No interest will be paid to shareholders with respect
to such amounts.
OVER-SUBSCRIPTION PRIVILEGE
Any Shareholder who fully exercises all Rights issued to him (other than
those Rights that cannot be exercised because they represent the right to
acquire less than one Share) is entitled to subscribe for Shares which were not
otherwise subscribed for by others on Primary Subscription. If sufficient
shares are not available to honor all over-subscription requests, the Fund may,
at its discretion, issue up to an additional 25% of the shares available
pursuant to the Offer (up to 721,058 additional Shares) in order to cover such
over-subscription requests. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, which is more fully discussed under "The
Offer--Over-Subscription Privilege."
SUBSCRIPTION PRICE
The Subscription Price per Share for the Shares to be issued pursuant to the
Offer will be 95% of the lower of (i) the average of the last reported sale
prices of shares of the Fund's Common Stock on the New York Stock Exchange on
the date of the expiration of the Offer (the "Pricing Date") and on the four
preceding business days and (ii) the net asset value per share as of the close
of business on the Pricing Date. See "The Offer--Subscription Price."
DEALER MANAGER AND SOLICITING FEES
The Fund has agreed to pay to Smith Barney Inc. (the "Dealer Manager") and
other broker-dealers soliciting the exercise of Rights soliciting fees equal to
2.50% of the Subscription Price for each Share issued pursuant to the exercise
of Rights and pursuant to the Over-Subscription Privilege. The Fund has also
agreed to pay the Dealer Manager a fee for financial advisory services and
marketing assistance in connection with the Offer equal to 1.25% of the
Subscription Price per Share for each Share issued upon exercise of Rights and
pursuant to the Over-Subscription privilege, and to reimburse up to $100,000 of
the Dealer Manager's reasonable expenses incurred in connection with the Offer.
See "Distribution Arrangements."
5
<PAGE>
INFORMATION AGENT
The Information Agent for the Offer is:
SHAREHOLDER
COMMUNICATIONS CORPORATION
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, Extension 347
or
Call Collect: (212) 805-7000
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date.............................. June 21, 1996
Subscription Period...................... June 21, 1996 through July 19, 1996*
Expiration Date and Pricing Date......... July 19, 1996*
Subscription Certificates and Payment for
Shares Due**............................ July 19, 1996*
Notices of Guaranteed Delivery Due**..... July 19, 1996*
Payment for Guarantees of Delivery Due... July 24, 1996*
Confirmation to Participants............. August 1, 1996*
Final Payment for Shares................. August 15, 1996*
</TABLE>
- --------
* Unless the Offer is extended to a date not later than July 26, 1996.
** A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and Payment for Shares or (ii) a Notice of Guaranteed Delivery
by the Expiration Date.
METHOD OF EXERCISE OF RIGHTS
The Rights are evidenced by subscription certificates ("Subscription
Certificates"), which will be mailed to shareholders as of the Record Date,
except as discussed below under "Foreign Restrictions." If a shareholder's
shares are held by Cede & Co. or any other depository or nominee on his or her
behalf, the Subscription Certificates will be mailed to Cede & Co. or such
depository or nominee. Rights may be exercised by completing and signing the
Subscription Certificate and mailing or otherwise delivering it to the
Subscription Agent. A shareholder may also exercise Rights by contacting his or
her broker, banker or trust company, which can arrange, on the shareholder's
behalf, to guarantee delivery of payment and of a properly completed and
executed Subscription Certificate ("Notice of Guaranteed Delivery"). Completed
Subscription Certificates or Notices of Guaranteed Delivery must be received by
the Subscription Agent prior to 5:00 p.m., Eastern time on the Expiration Date.
See "The Offer--Method of Exercise of Rights."
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to shareholders whose addresses
are outside the United States (for these purposes the United States includes
its territories and possessions). The Rights to which those Subscription
Certificates relate will be held by the Subscription Agent for such
shareholders' accounts until instructions are received to exercise the Rights,
subject to applicable law. If no instructions are received prior to 5:00 p.m.
Eastern time on the Expiration Date, such Rights will expire. See "The Offer--
Foreign Restrictions."
6
<PAGE>
INFORMATION REGARDING THE FUND
THE FUND
Alliance World Dollar Government Fund, Inc. is a non-diversified, closed-end
management investment company. The Fund's investment objective is to seek high
current income by investing exclusively in fixed income securities denominated
in U.S. dollars. In seeking to achieve this objective, the Fund invests
substantially all of its assets in (i) U.S. dollar-denominated debt obligations
issued or guaranteed by foreign governments, including participations in loans
between foreign governments and financial institutions, and interests in
entities organized and operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign governments
("Sovereign Debt Obligations") and (ii) zero coupon obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("Zero
Coupon Obligations"). Under normal circumstances, the Fund invests at least 75%
of its total assets in (i) Sovereign Debt 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 (but not as to
interest) by Zero Coupon Obligations having the same maturity ("Collateralized
Brady Bonds") and (ii) Zero Coupon Obligations. The Fund, which emphasizes
investments in the Sovereign Debt Obligations of countries that are considered
emerging market countries at the time of purchase, will not invest 25% or more
of its total assets in the Sovereign Debt Obligations of any one country. At
April 30, 1996, 69.9% of the Fund's total assets were invested in Sovereign
Debt Obligations, including Collateralized Brady Bonds that represented 51.6%
of the Fund's total assets. At that date the Fund was invested in the
obligations of a total of twelve countries, with those of the United States
(consisting solely of Zero Coupon Obligations), Brazil, Venezuela, Argentina
and Bulgaria representing the Fund's five largest holdings, or 26.7%, 12.7%,
10.2%, 8.2% and 7.8%, respectively, of the Fund's investments in debt
obligations. See "The Fund."
TENDER OFFERS AND SHARE REPURCHASES
In recognition of the fact that the Fund's shares have at times traded at a
discount and the possibility that the Fund's shares may trade at a discount in
the future, the Fund's Board of Directors has determined that it would be in
the interest of shareholders for the Fund to have the ability to take action to
attempt to reduce or eliminate market value discounts from net asset value. To
that end, the Board contemplates that the Fund may from time to time take
action either (i) to repurchase shares of its Common Stock in the open market
or (ii) to make an offer to purchase its shares of Common Stock from all
beneficial holders of its shares at a price per share equal to the net asset
value per share of the Common Stock determined at the close of business on the
day the offer terminates (a "Tender Offer"). The Board has each quarter
considered, and intends to continue each quarter to consider, the making of a
Tender Offer or open market repurchases of the Fund's shares. The Board may at
any time, however, decide that the Fund should not make a Tender Offer or
repurchase its shares in the open market. The Fund's shares have historically
traded at or near their net asset value. For example, during the fifty-two
weeks ended June 21, 1996, the Fund's shares traded at an average discount from
net asset value of 2.98%. To date, the Board has determined that the Fund not
conduct a Tender Offer or make open-market share repurchases.
In addition, the Fund will, except as described below, commence a Tender
Offer during the fourth quarter of 1997 (the "1997 Tender Offer"). However, the
Board has established a policy that, if shares of the Fund's Common Stock are
traded on the principal securities exchange where listed at or above net asset
value or at an average discount from net asset value of less than 5%,
determined on the basis of the discount as of the last trading day in each week
during a period of 12 calendar weeks prior to September 1, 1997, the Fund will
not proceed with the 1997 Tender Offer. If the Fund commences a Tender Offer,
the Board may determine not to purchase shares of the Fund's Common Stock
pursuant to the Tender Offer under certain conditions. If the Fund commences
the 1997 Tender Offer and the Board of Directors determines not to purchase
shares of the Common Stock as a consequence of any such condition, the Fund
will commence one or more additional tender offers (a "Subsequent Offer").
7
<PAGE>
If all shares tendered are not purchased pursuant to the 1997 Tender Offer or
a Subsequent Offer with respect to the 1997 Tender Offer by March 31, 1998, the
Fund's Articles of Incorporation require the Board of Directors to submit to
shareholders by no later than July 31, 1998 a proposal to convert the Fund to
an open-end investment company. If the Fund continues as a closed-end
investment company, the Fund will commence a tender offer during the fourth
quarter of 2002, a subsequent tender offer during 2003 or submit to
shareholders a proposal to convert the Fund to an open-end investment company
in 2003 as described more fully below. Conversion to an open-end investment
company would make the Fund's Common Stock redeemable in cash upon demand by
shareholders at the next determined net asset value less any redemption
charges. Conversion of the Fund to an open-end investment company could be
effected if approved by prescribed percentages applicable at various points in
time of the outstanding shares of the Fund. In the event submission of such a
proposal is required by the Fund's Articles of Incorporation and shareholder
approval of conversion to an open-end investment company is not obtained, the
Fund will continue as a closed-end investment company. See "Tender Offers and
Share Repurchases; Conversion to Open-End Status."
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes all its net investment income. Dividends from such net
investment income are declared and paid monthly to shareholders. All net
realized long- or short-term capital gains, if any, are distributed to
shareholders at least annually. To the extent practicable, the Fund attempts to
maintain a constant level of monthly distributions to shareholders although
there can be no assurance that it will be able to do so. In order to maintain
such monthly distributions, short-term capital gains may from time to time be
included in monthly distributions. See "Dividends and Distribution" below.
It is expected that no dividends or other distributions will be payable with
respect to the Shares offered hereby until September 1996. The Board of
Directors is expected to act in July 1996 to declare a dividend to be payable
in August to shareholders of record as of July 31, 1996. As the Confirmation
Date of the Offer, which is the date of issuance of the Shares for which
subscriptions are received, is August 1, 1996 (or a later date if the Offer is
extended), the dividend to be payable in August will not be payable with
respect to the Shares offered hereby, notwithstanding that the dividend will be
paid after the issuance of such Shares.
Based upon Alliance's analysis of current market conditions and the
expectation that the Fund will begin investing the net proceeds of the offering
on the Confirmation Date (subject to any extension of the Offer), it is not
anticipated that the dilution in the net asset value per share as a result of
the Offer will result in any dilution in the amount of monthly distributions
per share paid with respect to the Fund's shares of Common Stock, although
there can be no assurance that no such dilution will result. See "The Offer--
Dilution and Effect of Non-Participation in the Offer."
INFORMATION REGARDING THE ADVISER AND ADMINISTRATOR
Alliance Capital Management L.P., a Delaware limited partnership listed on
the New York Stock Exchange, serves as investment adviser and administrator to
the Fund. Alliance is a leading international investment manager supervising
client accounts with assets as of March 31, 1996 totaling more than $163
billion. See "Management of the Fund--Adviser and Administrator."
USE OF PROCEEDS
Assuming all Shares offered hereby are sold at the Estimated Subscription
Price, as defined below, of $11.88 per Share, the net proceeds of the Offer are
estimated to be $32,429,785 after payment of the Dealer Manager and soliciting
fees and estimated offering expenses. Expenses related to the issuance of the
Shares will be borne by the Fund and will reduce the net asset value of the
Common Stock. If the Fund increases the number of Shares subject to the Offer
by 25%, or 721,058 Shares, in order to satisfy over-subscriptions, the
additional net proceeds
8
<PAGE>
will be approximately $8,244,938. The net proceeds will be invested within
approximately one month following receipt by the Fund of payment for the Shares
in accordance with the Fund's investment objective and policies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution. Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would be the case if the Offer had not been made. In addition, because the
Subscription Price of each Share will be less than the net asset value per
share of the Fund's Common Stock and because the Fund will incur expenses in
connection with the Offer, the Offer will result in a dilution of net asset
value per share for all shareholders, which will disproportionately affect
shareholders who do not exercise their Rights. Although it is not possible to
state precisely the amount of such decrease in net asset value because it is
not known at the date of this Prospectus how many Shares will be subscribed
for, or what the Subscription Price will be, such dilution might be
substantial. See "The Offer--Dilution and Effect of Non-Participation in the
Offer."
Debt Securities. The net asset value of the Fund's shares will change as the
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio of debt securities, such as that of the Fund's, can be expected to
rise. Conversely, when interest rates rise, the value of such a portfolio can
be expected to decline. Debt securities purchased at a discount tend to be
subject to greater price fluctuations in response to interest rate changes than
are ordinary interest-paying debt securities with similar maturities. Prices of
longer-term debt securities tend to be subject to greater fluctuations in
response to interest rate changes than those of shorter-term debt securities.
Foreign Investments. By investing in Sovereign Debt Obligations, the Fund
will be exposed to the direct or indirect consequences of political, social and
economic changes in various countries. Foreign investment in certain Sovereign
Debt Obligations is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude foreign investment in
certain Sovereign Debt Obligations and increase the costs and expenses of the
Fund. Foreign issuers are also subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers.
Low and Unrated Instruments. At any time, substantially all of the Fund's
assets may be invested in high yield, high risk debt securities that are low-
rated (i.e., below investment grade) or which are unrated but are of comparable
quality as determined by Alliance. Currently, Sovereign Debt Obligations of the
type in which the Fund will invest substantially all of its assets are
generally considered to have a credit quality below investment grade by
internationally recognized credit rating organizations such as Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P").
Debt securities rated below investment grade are those rated Ba1 or lower by
Moody's or BB+ or lower by S&P and are considered by those organizations to be
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. Certain of the
Sovereign Debt Obligations in which the Fund may invest may be considered
comparable to securities having the lowest ratings for non-subordinated debt
instruments assigned by Moody's or S&P (i.e., rated C by Moody's or CCC or
lower by S&P). 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.
Extent of Trading Markets. No established secondary markets may exist for
many of the Sovereign Debt Obligations in which the Fund invests. Reduced
secondary market liquidity can have an adverse effect on the market price and
the Fund's ability to dispose of particular instruments when necessary to meet
its liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer.
9
<PAGE>
Securities Not Readily Marketable. The Fund may invest up to 50% of its total
assets in securities that are not readily marketable. Because of the absence of
a trading market for these investments, the Fund may not be able to realize
their value upon sale. The risks associated with these investments will be
accentuated in situations in which the Fund's operations require cash, such as
when the Fund tenders for its shares of Common Stock or pays distributions, and
could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of these investments.
Non-Diversified Status. The Fund is a "non-diversified" investment company
and therefore may invest in a smaller number of issuers than would a
diversified investment company. Accordingly, an investment in the Fund may,
under certain circumstances, present greater risk to an investor than would an
investment in a diversified investment company.
Discount from Net Asset Value. Shares of closed-end investment companies
frequently trade at a discount from net asset value. Since the commencement of
operations of the Fund in November 1992, the Fund's shares have traded at
different times at a discount from and at a premium above their net asset
value. During the fifty-two week period ended June 21, 1996, the Fund's shares
traded at an average discount from net asset value of 2.98%. The Fund cannot
predict whether its shares will in the future trade at a premium above or
discount from net asset value. The risk of its shares trading at a discount is
a risk separate from the risk of a decline in net asset value. See "Net Asset
Value and Market Price Information."
Charter Provisions. Certain anti-takeover provisions will make a change in
the Fund's business or management more difficult without the approval of the
Fund's Board of Directors and may have the effect of depriving stockholders of
an opportunity to sell their shares at a premium above the prevailing market
price. See "Description of Common Stock--Certain Anti-Takeover Provisions of
the Articles of Incorporation and Bylaws."
10
<PAGE>
FINANCIAL HIGHLIGHTS
PER SHARE DATA, RATIOS AND CERTAIN SUPPLEMENTAL DATA
The following information as to per share data, ratios and certain
supplemental data for each of the periods shown below, except for the six
months ended April 30, 1996, has been audited by Ernst & Young LLP,
independent auditors, as stated in their report included in the SAI. This
information should be read in conjunction with the financial statements and
notes thereto included in the SAI, copies of which can be obtained by
shareholders.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED NOVEMBER 2, 1992*
APRIL 30, OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
1996 1995 1994 1993
----------- ----------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.88 $ 11.08 $ 22.09 $ 13.82 (a)
-------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... .70 1.51 (b) 1.32 1.54
Net realized and
unrealized gain (loss)
on investments......... 1.32 .71 (5.66) 8.19
-------- -------- ------- --------
Net increase (decrease)
in net asset value from
operations............. 2.02 2.22 (4.34) 9.73
-------- -------- ------- --------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income...... (.70) (1.42) (1.39) (1.46)
Distributions from net
realized gains......... - - (4.96) -
Distributions in excess
of net realized gains.. - - (.09) -
Tax return of capital
distribution........... - - (.23) -
-------- -------- ------- --------
Total distributions..... (.70) (1.42) (6.67) (1.46)
-------- -------- ------- --------
Net asset value, end of
period................. $ 13.20 $ 11.88 $ 11.08 $ 22.09
======== ======== ======= ========
Market value, end of
period................. $ 12.875 $ 11.75 $ 13.00 $ 20.375
======== ======== ======= ========
TOTAL RETURN (C)
Total investment return
based on:
Market value.......... 15.64% 2.78% (7.52)% 59.14%
Net asset value....... 17.26% 21.92% (27.29)% 72.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted)............... $114,212 $102,757 $93,528 $164,622
Ratio of expenses to
average net assets..... 1.52%(d) 1.55% 1.43% 1.44%(d)
Ratio of net investment
income to average net
assets................. 10.88%(d) 14.12% 9.08% 9.79%(d)
Portfolio turnover
rate................... 134% 441% 395% 417%
</TABLE>
- --------
* Commencement of operations.
(a) Net of offering costs of $.13 per share.
(b) Based on average shares outstanding.
(c) Total investment return based on market value is calculated assuming a
purchase of common stock at the market price on the opening of the first
day and a sale at the market price on the closing of the last day of the
period reported and total investment return based on net asset value is
calculated based on the Fund's net asset value on such days. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to
be reinvested at prices obtained under the Fund's Dividend Reinvestment
Plan. Generally, total investment return based on net asset value will be
higher than total investment return based on market value in periods where
there is an increase in the discount or a decrease in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on net asset value will
be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of
the market value to the net asset value from the beginning to the end of
such periods. Total investment return calculated for a period of less than
one year is not annualized.
(d) Annualized.
11
<PAGE>
PERFORMANCE INFORMATION
The following unaudited table sets forth the average annual total return of
the Fund and that of the J.P. Morgan Emerging Market Bond Index (the "EMBI")
for the one- and three- year periods ended April 30, 1996 and for the period
from the commencement of the Fund's operations on November 2, 1992 through
April 30, 1996.
<TABLE>
<CAPTION>
THE FUND
-------------------------
PERIOD ENDED BASED ON NET BASED ON
APRIL 30, 1996 ASSET VALUE MARKET VALUE EMBI
-------------- ------------ ------------ -----
<S> <C> <C> <C>
One year...................................... 41.48% 27.89% 41.15%
Three years................................... 13.02% 11.90% 14.00%
Since November 2, 1992........................ 17.79% 14.54% 15.69%
</TABLE>
Total return of the Fund based on market value is calculated assuming a
purchase of Common Stock of the Fund at the market price on the opening of the
first day and a sale at the market price on the closing of the last day of the
period, and total return based on net asset value is calculated based on the
Fund's net asset value on such days. Dividends and distributions, if any, are
assumed to be reinvested at prices obtained under the Fund's dividend
reinvestment plan. See "Dividend Reinvestment Plan."
The EMBI is constructed by J.P. Morgan Securities Inc. as a total-return
index intended to create a benchmark that objectively reflects returns from
price gains or losses and interest income on a "passive" portfolio, considered
at all times to be fully invested, that tracks the traded market for U.S.
dollar-denominated Brady Bonds and similar sovereign restructured bonds. The
EMBI is market capitalization weighted based on publicly known amounts
outstanding and includes only available obligations with a minimum principal
amount of $500 million outstanding that meet a specified standard of
liquidity. Individual bond returns are calculated based on daily changes in
bid prices and on interest earned according to exact coupon accrued and
payment conventions.
The composition of the Fund's portfolio is not identical to the composition
of the EMBI. At April 30, 1996, the portfolio securities of the Fund had a
combined market value of $155,216,424 and included nineteen issues from twelve
countries including the United States. At April 30, 1996, the securities
included in the EMBI had a combined market capitalization of $86.85 billion
and included twenty-five issues from nine countries. Other differences between
the Fund's portfolio and the EMBI include the percentages invested in
obligations of particular countries, the EMBI's stricter limitation on
illiquid investments, the fact that the Fund invests in obligations other than
Brady Bonds and similar sovereign restructured bonds, the fact that the Fund
is limited in its ability to invest in uncollateralized Brady Bonds and the
fact that the Fund is not at all times fully invested.
THE FOREGOING TABLE IS PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY. IT IS NOT
INTENDED TO PREDICT THE FUTURE PERFORMANCE OF THE FUND'S PORTFOLIO OR AN
ANTICIPATED RETURN ON THE COMMON STOCK OF THE FUND. INVESTORS ARE CAUTIONED
THAT INVESTMENT IN THE EMBI IS NOT POSSIBLE AND THAT THE EMBI DOES NOT TAKE
INTO ACCOUNT TRANSACTION AND OTHER EXPENSES TYPICALLY ASSOCIATED WITH AN
INVESTMENT IN A CLOSED-END INVESTMENT COMPANY.
12
<PAGE>
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its shareholders to increase the assets of the
Fund available for investment, thereby enabling the Fund to more fully take
advantage of available investment opportunities consistent with the Fund's
investment objective of seeking high current income by investing exclusively
in fixed income securities denominated in U.S. dollars. In reaching its
decision, the Board of Directors was advised by Alliance that the raising of
new assets would enable the Fund to take advantage of current opportunities in
emerging market sovereign debt markets. More specifically, Alliance advised
the Board of Directors at a May 17, 1996 special meeting that relatively high
yields then available on Brady Bonds of emerging market countries provided an
attractive investment opportunity. In Alliance's view, these high yields were
evidenced by the "spread" between the yield on 30-year U.S. Treasury bonds and
yields on Brady Bonds of emerging market countries, which increased following
the decline in value of the Mexican currency in late 1994 and subsequent
related events. Alliance was also of the view that the relatively high yields
on Brady Bonds of emerging market countries could be expected to decline as
conditions in the market for such Brady Bonds stabilize, thus tending to
increase the market values of the Brady Bonds of emerging market countries and
thereby affording the Fund the opportunity to realize capital gains. Alliance
also cited the improving credit quality of many emerging market countries that
issue Sovereign Debt Obligations.
The following table, which sets forth the reported average yields during the
calendar quarters specified of the securities that constitute the EMBI and 30-
year U.S. Treasury bonds and the spread between those yields, is intended to
illustrate the changes in those spreads during the existence of the Fund.
<TABLE>
<CAPTION>
30-YEAR U.S.
QUARTER ENDED EMBI TREASURY BOND SPREAD
------------- ----- ------------- ------
<S> <C> <C> <C>
December 1992.................................. 12.24% 7.40% 4.84%
March 1993..................................... 11.40 6.93 4.47
June 1993...................................... 10.60 6.67 3.93
September 1993................................. 9.72 6.03 3.69
December 1993.................................. 8.69 6.36 2.33
March 1994..................................... 11.99 7.10 4.89
June 1994...................................... 13.45 7.62 5.83
September 1994................................. 13.01 7.82 5.19
December 1994.................................. 15.11 7.88 7.23
March 1995..................................... 17.12 7.45 9.67
June 1995...................................... 13.60 6.65 6.95
September 1995................................. 13.21 6.50 6.71
December 1995.................................. 12.04 5.95 6.09
March 1996..................................... 12.57 6.67 5.90
</TABLE>
THIS TABLE IS PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY AND DOES NOT REFLECT
ANY PAST OR PRESENT, AND IS NOT INTENDED TO PREDICT ANY FUTURE, YIELD OF THE
FUND. NOTHING IN THIS TABLE IS MEANT TO BE, NOR SHOULD BE INTERPRETED AS,
PREDICTIVE OF ANY FUTURE PERFORMANCE OF THE FUND. U.S. TREASURY BONDS ARE
DIRECT OBLIGATIONS OF, AND ARE GUARANTEED AS TO PRINCIPAL AND INTEREST BY, THE
UNITED STATES. FOR A DESCRIPTION OF THE EMBI AND THE LIMITATIONS OF DRAWING
COMPARISONS THERETO, SEE "FINANCIAL HIGHLIGHTS--PERFORMANCE INFORMATION."
In addition, in making its determination the Board of Directors took into
account the fact that a well-subscribed rights offering may reduce the Fund's
expense ratio, which may be of long-term benefit to shareholders, although no
assurance can be given that this result will be achieved. In addition, the
Board of Directors considered that such a rights offering could result in an
improvement in the liquidity of the trading market for shares of the Fund's
Common Stock on the New York Stock Exchange, where the shares are listed
13
<PAGE>
and traded, although no assurance can be given that this result will be
achieved. The Board of Directors also considered alternatives to the Offer,
including an underwritten offering of shares and an offering of transferable
rights to purchase shares, as well as the proposed terms of the Offer, the
estimated expenses of the Offer, its dilutive effect, including its effect on
shareholders of the Fund who do not exercise their Rights, and its
implications for the Fund's dividend. The Board also considered the possible
impact of the Offer on the trading price of the Fund's shares of Common Stock,
the benefits and costs of utilizing a dealer manager and soliciting brokers,
the experience and capabilities of the Dealer Manager, and the treatment of
foreign shareholders under the Offer. In its deliberations, the Board
recognized that Alliance was subject to a conflict of interest in recommending
approval of the Offer. After careful consideration, the Board of Directors
unanimously voted to approve the Offer.
Alliance's view as to current investment opportunities available in the
sovereign debt markets is based on prevailing market conditions. There can be
no assurance that these conditions will not materially change prior to the
investment of the proceeds of the offering or thereafter, in which case the
benefits expected to be derived from the offering may not be realized. The
Board of Directors of the Fund may, at any time prior to the issuance and sale
of Shares by the Fund, determine to take such actions, which may include
withdrawal or cancellation of the offering, as it deems appropriate in light
of then prevailing market conditions. See "--Terms of the Offer."
Alliance will benefit from the Offer because its advisory and administrative
fees are based on the average weekly net assets of the Fund. See "Management
of the Fund--Advisory Agreement," and "--Administration Agreement."
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms that
may or may not be similar to the Offer. Any such future rights offerings will
be made in accordance with the Investment Company Act of 1940, as amended (the
"1940 Act").
TERMS OF THE OFFER
The Fund is issuing to holders of its common stock, par value $.01 per share
(the "Common Stock"), of record on June 21, 1996 non-transferable Rights to
subscribe for an aggregate of 2,884,235 Shares (3,605,293 Shares if the Fund
increases the number of Shares available by up to 25% pursuant to the Over-
Subscription Privilege). Each shareholder is being issued one Right for each
whole share of Common Stock held on the Record Date. The Rights entitle the
holders thereof to subscribe for one Share for every three Rights held (1 for
3). Fractional Shares will not be issued upon the exercise of Rights;
accordingly, Rights will be exercisable only in integral multiples of three.
Rights may be exercised at any time during the Subscription Period, which
commences on June 21, 1996 and ends at 5:00 p.m., Eastern time, on July 19,
1996, unless extended by the Fund until 5:00 p.m., Eastern time, on a date not
later than July 26, 1996. A shareholder's right to acquire during the
Subscription Period at the Subscription Price one Share for every three Rights
held is hereinafter referred to as the "Primary Subscription."
Any shareholder who fully exercises all Rights issued to such shareholder
pursuant to the Primary Subscription will be entitled to request additional
Shares at the Subscription Price pursuant to the terms of the "Over-
Subscription Privilege" (as described below). Shares available, if any,
pursuant to the Over-Subscription Privilege are subject to allotment and may
be subject to increase, as is more fully discussed below under "Over-
Subscription Privilege." For purposes of determining the maximum number of
Shares a shareholder may acquire pursuant to the Offer, broker-dealers whose
Shares are held of record by Cede & Co. ("Cede"), the nominee for The
Depository Trust Company, or by any other depository or nominee, will be
deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf.
As fractional Shares will not be issued, shareholders who receive fewer than
three Rights or have fewer than three Rights remaining will be unable to
purchase Shares upon the exercise of such Rights and will not be entitled to
receive any cash in lieu thereof, although such shareholders may request
Shares pursuant to the Over-Subscription Privilege.
Shareholders will have no right to rescind their subscriptions after receipt
of their payment for Shares by the Subscription Agent.
14
<PAGE>
The issuance and sale of the shares of Common Stock offered hereby is
subject to the withdrawal or cancellation of the offering by the Fund at any
time prior to 5:00 p.m. Eastern time on the Confirmation Date (as defined
herein). In the event the Common Stock offered hereby is not issued and sold
by the Fund, amounts paid for Shares will be returned to subscribing
shareholders. No interest will be paid to shareholders with respect to such
amounts.
OVER-SUBSCRIPTION PRIVILEGE
To the extent shareholders do not exercise all Rights issued to them
pursuant to the Primary Subscription, any underlying Shares represented by
Rights will be offered by means of the Over-Subscription Privilege to
shareholders who have exercised all the Rights issued to them (other than
those Rights that cannot be exercised because they represent the right to
acquire less than one share) and who desire to acquire additional Shares at
the Subscription Price. Only shareholders who exercise all Rights issued to
them may indicate on the Subscription Certificate (as defined below) the
number of additional Shares desired pursuant to the Over-Subscription
Privilege. If sufficient Shares remain as a result of unexercised Rights, all
over-subscription requests will be honored in full. If sufficient Shares are
not available to honor all over-subscription requests, the Fund may, at its
discretion, issue up to an additional 25% of the Shares available pursuant to
the Offer (up to 721,058 additional Shares) in order to cover such over-
subscription requests. Regardless of whether the Fund issues the additional
Shares, to the extent Shares are not available to honor all over-subscription
requests, the available Shares will be allocated among those who over-
subscribe based on the number of Rights originally issued to them by the Fund,
so that the number of Shares issued to shareholders who subscribe pursuant to
the Over-Subscription Privilege will generally be in proportion to the number
of Shares held by them on the Record Date. The allocation process may involve
a series of allocations in order to assure that the total number of Shares
available for over-subscription requests is distributed on a pro rata basis.
The issuance of Shares in the Primary Subscription and pursuant to the Over-
Subscription Privilege is subject to certain conditions with respect to any
"Principal Shareholder" of the Fund described in "Description of Common
Stock--Certain Anti-Takeover Provisions of the Articles of Incorporation and
Bylaws."
The Fund will not offer or sell any Shares that are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price per Share for the Shares to be issued pursuant to the
Offer will be 95% of the lower of (i) the average of the last reported sale
prices of shares of the Fund's Common Stock on the New York Stock Exchange on
the date of the expiration of the Offer (the "Pricing Date") and on the four
preceding business days and (ii) the net asset value per share as of the close
of business on the Pricing Date. For example, if the average of the last
reported sale prices on the New York Stock Exchange on the Pricing Date and on
the four preceding business days of a share of the Fund's Common Stock is
$12.00, and the net asset value is $10.00, the Subscription Price will be
$9.50 (95% of $10.00). If, however, the average of the last reported sale
prices of shares on that exchange on the Pricing Date and on the four
preceding business days is $12.00, and the net asset value as of the close of
business on the Pricing Date is $14.00, the Subscription Price will be $11.40
(95% of $12.00). See "Description of Common Stock."
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on May 17, 1996. The net asset values per share of Common Stock
at the close of business on May 17, 1996 and June 21, 1996 were $13.56 and
$13.29, respectively, and the last reported sale price of shares of the Fund's
Common Stock on the New York Stock Exchange on each of those dates was $12.50.
On June 21, 1996, the Fund's Common Stock was trading at a discount to its net
asset value.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock
Exchange or any other exchange. However, the Shares issued pursuant to the
exercise of Rights and the Over-Subscription Privilege will be authorized for
listing on the New York Stock Exchange, subject to official notice of
issuance.
15
<PAGE>
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., Eastern time, on July 19, 1996, unless
extended by the Fund until 5:00 p.m., Eastern time, to a date not later than
July 26, 1996. The Rights will expire on the Expiration Date and thereafter
may not be exercised. Any extension of the Offer will be followed as promptly
as practicable by announcement thereof. Without limiting the manner in which
the Fund may choose to make such announcement, the Fund will not, unless
otherwise required by law, have any obligation to publish, advertise or
otherwise communicate any such announcement other than by making a release to
the Dow Jones News Service or such other means of announcement as the Fund
deems appropriate.
SUBSCRIPTION AGENT
The Subscription Agent is First Data Investor Services Group, Inc., which
will receive, for its administrative, processing, invoicing and other services
as subscription agent, a fee estimated to be $38,000, plus reimbursement for
out-of-pocket expenses expected to be $2,000. Shareholder communications
should be directed to First Data Investor Services Group, Inc., 53 State
Street, Stop Code BOS 850, Boston, Massachusetts 02109 (telephone (800) 331-
1710). Shareholders may also consult their brokers or nominees for
information. SIGNED SUBSCRIPTION CERTIFICATES MUST BE SENT TO FIRST DATA
INVESTOR SERVICES GROUP, INC., by one of the methods described below.
Alternatively, a Notice of Guaranteed Delivery may also be sent to any of the
addresses listed below. The Fund will accept only Subscription Certificates or
Notices of Guaranteed Delivery received prior to 5:00 p.m., Eastern time, on
the Expiration Date. See "--Method of Exercise of Rights" below.
(1) BY FIRST CLASS MAIL:
The Subscription Agent for Alliance World Dollar Government Fund, Inc.
Corporate Reorganization
P.O. Box 9061
Boston, MA 02205-8686
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
The Subscription Agent for Alliance World Dollar Government Fund, Inc.
Corporate Reorganization
Two Heritage Drive
North Quincy, MA 02171
(3) BY HAND:
The Subscription Agent for Alliance World Dollar Government Fund, Inc.
c/o BancBoston Trust Company of New York
55 Broadway
3rd Floor
New York, NY 10006
(4) BY FACSIMILE:
FOR NOTICE OF GUARANTEED DELIVERY ONLY
(617) 774-4519, with the original Subscription Certificateto be sent by
one of the methods described in (1), (2) or (3)
Confirm facsimile by telephone to: (617) 774-4511
DELIVERY TO AN ADDRESS OTHER THAN THOSE ABOVE DOES NOT CONSTITUTE VALID
DELIVERY.
METHOD OF EXERCISE OF RIGHTS
The Rights are evidenced by subscription certificates ("Subscription
Certificates"), which will be mailed to shareholders as of the Record Date,
except as discussed below under "Foreign Restrictions." If a shareholder's
16
<PAGE>
shares are held by Cede or any other depository or nominee on his or her
behalf, the Subscription Certificates will be mailed to Cede or such
depository or nominee. Rights may be exercised by completing and signing the
Subscription Certificate and mailing or otherwise delivering it to the
Subscription Agent at one of the addresses set forth above together with
payment for the Shares as described below under "--Payment for Shares." A
shareholder may also exercise Rights by contacting his or her broker, banker
or trust company, which can arrange, on the shareholder's behalf, to guarantee
delivery of payment and of a properly completed and executed Subscription
Certificate ("Notice of Guaranteed Delivery"). Fractional Shares will not be
issued, and shareholders who receive, or who have remaining, fewer than three
Rights will not be able to purchase any Shares upon the exercise of such
Rights (although such shareholders may subscribe for Shares pursuant to the
Over-Subscription Privilege). Completed Subscription Certificates or Notices
of Guaranteed Delivery must be received by the Subscription Agent prior to
5:00 p.m., Eastern time, on the Expiration Date at one of the offices of the
Subscription Agent at one of the addresses set forth above.
Shareholders Who Are Registered Record Owners. Shareholders who are
registered record owners can choose between either option set forth under "--
Payment for Shares" below. If a shareholder who is a registered record owner
chooses option (2) below, an additional fee may be charged by the firm
guaranteeing delivery for this service. If time is of the essence, option (2)
will permit delivery of the Subscription Certificate and payment after the
Expiration Date.
Shareholders Whose Shares Are Held By A Nominee. Shareholders whose shares
are held by a nominee, such as a broker or trustee, must contact that nominee
to exercise their Rights. In that case, the nominee will complete the
Subscription Certificate on behalf of the investor and arrange for proper
payment by one of the methods set forth under "--Payment for Shares" below.
Nominees. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares of the Offer as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment by one of the methods described under "--Payment
for Shares" below.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to shareholders whose addresses
are outside the United States (for these purposes the United States includes
its territories and possessions). The Rights to which those Subscription
Certificates relate will be held by the Subscription Agent for such
shareholders' accounts until instructions are received to exercise the Rights,
subject to applicable law. If no instructions are received prior to 5:00 p.m.
Eastern Time on the Expiration Date, such Rights will expire.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its address or telephone number listed below:
THE INFORMATION AGENT FOR THE OFFER IS:
SHAREHOLDER
COMMUNICATIONS CORPORATION
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, Extension 347
or
Call Collect: (212) 805-7000
Shareholders may also contact their brokers or nominees for information with
respect to the Offer.
17
<PAGE>
The Information Agent will receive a fee for its services as information
agent estimated to be $10,000, plus reimbursement for its out-of-pocket
expenses related to the Offer expected to be $20,000.
PAYMENT FOR SHARES
Shareholders who acquire Shares during the Primary Subscription or pursuant
to the Over-Subscription Privilege may choose between the following methods of
payment:
(1) A shareholder can send the Subscription Certificate, together with
payment for the Shares acquired during the Primary Subscription and for
additional Shares requested pursuant to the Over-Subscription Privilege to
the Subscription Agent, calculating the total payment on the basis of an
estimated Subscription Price of $11.88 per Share. To be accepted, such
payment, together with the properly completed and executed Subscription
Certificate, must be received by the Subscription Agent at one of the
Subscription Agent's offices at the addresses set forth above prior to 5:00
p.m., Eastern time, on the Expiration Date. A PAYMENT PURSUANT TO THIS
METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A
BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO ALLIANCE WORLD DOLLAR
GOVERNMENT FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED
SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, subscription instructions will be accepted by the
Subscription Agent if, prior to 5:00 p.m., Eastern time, on the Expiration
Date, the Subscription Agent has received a Notice of Guaranteed Delivery
by facsimile or otherwise from a bank, trust company, or New York Stock
Exchange member guaranteeing delivery to First Data Investor Services
Group, Inc. of (i) payment of the full Subscription Price for the Shares
subscribed for during the Primary Subscription and any additional Shares
subscribed for pursuant to the Over-Subscription Privilege, and (ii) a
properly completed and executed Subscription Certificate. The Subscription
Agent will not honor a Notice of Guaranteed Delivery if a properly
completed and executed Subscription Certificate and full payment for the
shares are not received by the Subscription Agent by the close of business
on July 24, 1996, the third business day after the Expiration Date, unless
the Offer is extended.
On the ninth business day following the Expiration Date (the "Confirmation
Date"), August 1, 1996, unless the Offer is extended, a confirmation notice
will be sent by the Subscription Agent to each participating shareholder (or,
if the shareholder's Shares are held by Cede or any other depository or
nominee, to Cede or such depository or nominee), showing (i) the number of
Shares acquired pursuant to the Primary Subscription, (ii) the number of
Shares, if any, allocated pursuant to the Over-Subscription Privilege, (iii)
the per Share and total purchase price for the Shares, and (iv) any additional
amount payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder, in each case based on the Subscription Price as
determined on the Pricing Date. If any shareholder exercises the right to
acquire Shares pursuant to the Over-Subscription Privilege, any such excess
payment that would otherwise be refunded to him will be applied by the Fund
toward payment for Shares acquired pursuant to exercise of the Over-
Subscription Privilege. Any additional payment required from a shareholder
must be received by the Subscription Agent within ten business days after the
Confirmation Date, August 15, 1996, unless the offer is extended. Any excess
payment to be refunded by the Fund to shareholders will be mailed by the
Subscription Agent to them promptly. All payments by a shareholder must be in
U.S. dollars by money order or check drawn on a bank located in the United
States of America and payable to ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
The Subscription Agent will deposit all checks received by it prior to the
final due date into a segregated interest bearing account (which interest will
accrue to the benefit of the Fund regardless of whether Shares are issued and
sold by the Fund) at The Bank of New York pending distribution of the Shares.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks
and actual payment pursuant to any Notice of Guaranteed Delivery.
SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTIONS AFTER RECEIPT
OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.
18
<PAGE>
If a shareholder who acquires Shares pursuant to the Primary Subscription or
Over-Subscription Privilege does not make payment of any additional amounts
due, the Fund reserves the right to take any or all of the following actions:
(i) sell such subscribed and unpaid-for Shares to other shareholders, (ii)
apply any payment actually received by it toward the purchase of the greatest
whole number of Shares that could be acquired by such holder upon exercise of
the Primary Subscription and/or Over-Subscription Privilege, and/or (iii)
exercise any and all other rights or remedies to which it may be entitled,
including, without limitation, set-off against payments actually received by
it with respect to such subscribed Shares and/or to enforce the relevant
guaranty of payment.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY
TO THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT,
BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations
will be final and binding. The Fund in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Fund determines in its sole discretion. The Fund will not be under any duty to
give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, pursuant to the Securities and Exchange Commission's
regulatory requirements, undertaken that, if subsequent to June 21, 1996, the
effective date of the Fund's Registration Statement, the Fund's net asset
value declines more than 10% from its net asset value as of that date, the
Fund will suspend the Offer until it amends this Prospectus. In such event,
the Fund will notify shareholders of any such decline and thereby permit them
the opportunity to cancel their subscription prior to the extended expiration
date as defined herein.
DELIVERY OF SHARE CERTIFICATES
Except as noted below in this paragraph, share certificates for all Shares
acquired during the Primary Subscription and pursuant to the Over-Subscription
Privilege will be mailed promptly after the expiration of the Offer and full
payment for the Shares subscribed for has been received and cleared.
Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will have
any Shares acquired during the Primary Subscription or pursuant to the Over-
Subscription Privilege credited to their shareholder dividend reinvestment
accounts in the Plan. Share certificates will not be issued for Shares
credited to Plan accounts. Shareholders whose shares of Common Stock are held
of record by Cede or by any other depository or nominee on their behalf or
their broker-dealers' behalf will have any Shares acquired during the Primary
Subscription or pursuant to the Over-Subscription Privilege credited to the
account of Cede or such other depository or nominee.
FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
For U.S. federal income tax purposes, neither the receipt nor the exercise
of the Rights by shareholders will result in taxable income to holders of
Common Stock, and no loss will be realized if the Rights expire without
exercise. A shareholder's holding period for a Share acquired upon exercise of
a Right begins with the date of exercise. Assuming that the fair market value
of the Rights on the date of distribution is less than 15% of the fair market
value of the shares of Common Stock on that date, and that a shareholder does
not make the election described below, a shareholder's basis for determining
gain or loss upon the sale of a Share acquired upon the
19
<PAGE>
exercise of a Right will be equal to the sum of the Subscription Price per
Share and any servicing fee charged to the shareholder by the shareholder's
broker, bank or trust company. A shareholder's gain or loss recognized upon a
sale of a Share acquired upon the exercise of a Right will be capital gain or
loss (assuming the Share is held as a capital asset at the time of sale) and
will be long-term capital gain or loss if the Share has been held at the time
of sale for more than one year.
The following portion of this discussion assumes that the fair market value
of the Rights upon the date of distribution will be less than 15% of the fair
market value of the shares of Common Stock outstanding on that date. In these
circumstances, a shareholder's basis in the Rights received in the Offer will
be zero unless the shareholder elects to allocate his basis in those Shares of
the Fund which he originally owned between such shares and the Rights issued
in the Offer. This allocation is based upon the relative fair market values of
such shares and of the Rights as of the date of issuance of the Rights. Thus,
if such an election is made, the shareholder's basis in the shares originally
owned will be reduced by an amount equal to the basis allocated to the Rights.
This election must be made in a statement attached to the shareholder's
federal income tax return for the year in which the Rights are received.
However, if an electing shareholder does not exercise the Rights, no loss will
be recognized and no portion of the shareholder's basis in the Shares will be
allocated to the unexercised Rights. If an electing Shareholder does exercise
the Rights, the basis of any Shares acquired through exercise of the Rights
will be increased by the basis allocated to such Rights. Accordingly,
shareholders should consider the advisability of making the election described
above if the shareholder intends to exercise the Rights.
The foregoing is a general summary of the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and U.S. Treasury
regulations currently in effect, and does not cover state or local taxes. The
Code and regulations are subject to change by legislative or administrative
action. Shareholders should consult their tax advisors regarding specific
questions as to federal, state or local taxes. See "Taxation" below in this
Prospectus and in the SAI.
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including 401(k)
plans, as well as individual retirement accounts ("IRAs") and other plans
eligible for special tax treatment under the Code or subject to Section 4975
of the Code (each a "Plan"), should be aware that additional contributions to
the Plan (other than rollover contributions or trustee-to-trustee transfers
from another Plan) in order to exercise Rights, when taken together with
contributions previously made, may result in the imposition of an excise tax
for excess or nondeductible contributions. In the case of Plans qualified
under Section 401(a) of the Code and certain other Plans, additional cash
contributions could also cause the maximum contribution limitations of Section
415 of the Code or other qualification rules to be violated. Plans and certain
other tax exempt entities, including governmental plans, should also be aware
that if they borrow in order to finance their exercise of Rights, they become
subject to the tax on unrelated business taxable income under Section 511 of
the Code. If any portion of an IRA is used as security for a loan, the portion
so used is also treated as distributed to the IRA depositor. Plan counsel
should be consulted if additional contributions or borrowing to exercise
Rights are contemplated. Plan counsel should also be consulted concerning the
ERISA fiduciary responsibility requirements, and ERISA and Code prohibited
transaction rules, that may affect a Plan's exercise of Rights.
DILUTION AND EFFECT OF NON-PARTICIPATION IN THE OFFER
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would
be the case if the Offer had not been made. In addition, because the
Subscription Price of each Share will be less than the net asset value per
share of the Fund's Common Stock and because the Fund will incur expenses in
connection with the Offer, the Offer will result in a dilution of net asset
value per share for all shareholders, which will disproportionately affect
shareholders who do not exercise their Rights. Although it is not possible to
state precisely the amount of such decrease in net asset value because it is
not known at the date of this Prospectus how many Shares will be subscribed
for, or what the Subscription Price
20
<PAGE>
will be, such dilution might be substantial. For example, assuming all Rights
are exercised at the estimated Subscription Price per Share, including up to
an additional 25% of the Shares which may be issued to satisfy over-
subscription requests, and after deducting all expenses related to the Offer,
the Fund's net asset value as of June 21, 1996 of $13.29 per share would be
reduced by approximately $0.59, or 4.44%. Expenses related to the Offer will
be borne by the Fund and will reduce the net asset value of the Fund's Common
Stock.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date.............................. June 21, 1996
Subscription Period...................... June 21, 1996 through July 19, 1996*
Expiration Date and Pricing Date......... July 19, 1996*
Subscription Certificates and Payment for
Shares Due** ........................... July 19, 1996*
Notices of Guaranteed Delivery Due**..... July 19, 1996*
Payment for Guarantees of Delivery Due... July 24, 1996*
Confirmation to Participants............. August 1, 1996*
Final Payment for Shares................. August 15, 1996*
</TABLE>
- --------
* Unless the Offer is extended to a date not later than July 26, 1996.
** A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and Payment for Shares or (ii) a Notice of Guaranteed Delivery
by the Expiration Date.
DIVIDENDS PAYABLE WITH RESPECT TO OFFERED SHARES
It is expected that no dividends or other distributions will be payable with
respect to the Shares offered hereby until September 1996. The Board of
Directors is expected to act in July 1996 to declare a dividend to be payable
in August to shareholders of record as of July 31, 1996. As the Confirmation
Date of the Offer, which is the date of issuance of the Shares for which
subscriptions are received, is August 1, 1996 (or a later date if the Offer is
extended), the dividend to be payable in August will not be payable with
respect to the Shares offered hereby, notwithstanding that the dividend will
be paid after the issuance of such Shares.
Based upon Alliance's analysis of current market conditions and the
expectation that the Fund will begin investing the net proceeds of the
offering on the Confirmation Date (subject to any extension of the Offer), it
is not anticipated that the dilution in the net asset value per share as a
result of the Offer will result in any dilution in the level of monthly
distributions per share paid with respect to the Fund's shares of Common
Stock, although there can be no assurance that no such dilution will result.
See "The Offer--Dilution and Effect of Non-Participation in the Offer."
THE FUND
Alliance World Dollar Government Fund, Inc. is a non-diversified, closed-end
management investment company. The Fund's investment objective is to seek high
current income by investing exclusively in fixed income securities denominated
in U.S. dollars. In seeking to achieve this objective, the Fund invests
substantially all of its assets in Sovereign Debt Obligations and Zero Coupon
Obligations. Under normal circumstances, the Fund invests at least 75% of its
total assets in (i) Collateralized Brady Bonds and (ii) Zero Coupon
Obligations. The Fund, which emphasizes investments in the Sovereign Debt
Obligations of countries that are considered emerging market countries at the
time of purchase, will not invest 25% or more of its total assets in the
Sovereign Debt Obligations of any one country. The Fund may invest up to 50%
of its assets in securities that are not readily marketable. At April 30,
1996, 69.9% of the Fund's total assets were invested in Sovereign Debt
Obligations, including Collateralized Brady Bonds that represented 51.6% of
the Fund's total assets. At that date
21
<PAGE>
the Fund was invested in the obligations of a total of twelve countries. Those
countries, and the corresponding percentage of the market value of the Fund's
investments in debt obligations as of April 30, 1996 represented by the
obligations of each, are as follows:
<TABLE>
<S> <C>
Algeria............................................................. 0.9%
Argentina........................................................... 8.2%
Brazil.............................................................. 12.7%
Bulgaria............................................................ 7.8%
Ecuador............................................................. 6.9%
Mexico.............................................................. 5.1%
Morocco............................................................. 5.6%
Nigeria............................................................. 4.9%
Panama.............................................................. 4.4%
Poland.............................................................. 6.6%
Venezuela........................................................... 10.2%
United States*...................................................... 26.7%
------
Total............................................................. 100.0%
======
</TABLE>
- --------
* Consisted solely of Zero Coupon Obligations.
Alliance Capital Management L.P., a Delaware limited partnership listed on
the New York Stock Exchange, serves as investment adviser and administrator to
the Fund. Alliance is a leading international investment manager supervising
client accounts with assets as of March 31, 1996 totaling more than $163
billion. See "Management of the Fund--Adviser and Administrator."
The Fund was incorporated under the laws of the State of Maryland on August
20, 1992 and is registered under the 1940 Act. It commenced investment
operations on November 2, 1992 after an initial public offering of 7,250,000
shares of Common Stock. The net proceeds of the offering were approximately
$101,137,500. The Fund's outstanding Common Stock is listed and traded on the
New York Stock Exchange under the symbol "AWG". For the six months ended April
30, 1996 the average weekly trading volume of the Fund's shares was 156,154
shares and the aggregate net assets of the Fund at April 30, 1996 were
$114,212,201. There are currently 8,652,707 shares of Common Stock
outstanding. The Fund's principal office is located at 1345 Avenue of the
Americas, New York, New York 10105 and its telephone number is (800) 247-4154.
USE OF PROCEEDS
Assuming all Shares offered hereby are sold at the Estimated Subscription
Price of $11.88 per Share, the net proceeds of the Offer are estimated to be
$32,429,785 after payment of the Dealer Manager and soliciting fees and
estimated offering expenses. Expenses related to the issuance of the Shares
will be borne by the Fund and will reduce the net asset value of the Common
Stock. If the Fund increases the number of Shares subject to the Offer by 25%,
or 721,058 Shares, in order to satisfy over-subscriptions, the additional net
proceeds will be approximately $8,244,938. The net proceeds will be invested
within approximately one month following receipt by the Fund of payment for
the Shares in accordance with the Fund's investment objective and policies.
Pending such investment, the proceeds may be invested in U.S. dollar-
denominated bank deposits, short-term debt or money market instruments rated
high quality by any nationally recognized statistical rating service, or if
not so rated, of equivalent investment quality as determined by Alliance. All
proceeds of the Offer will be paid to the Fund in U.S. dollars.
22
<PAGE>
NET ASSET VALUE AND MARKET PRICE INFORMATION
The outstanding shares of Common Stock of the Fund are listed on the New
York Stock Exchange and the Shares issued in the Offer will be authorized for
listing on that exchange, subject to official notice of issuance. The
following table shows, for each fiscal quarter for the two most recently
completed fiscal years and the current fiscal year, (i) the high and low sale
prices per share of Common Stock of the Fund, as reported in the consolidated
transaction reporting system, (ii) the net asset value per share of the Fund
as determined on the date closest to each quotation, and (iii) the percentage
by which the shares of Common Stock of the Fund traded at a premium over or
discount from the Fund's net asset value per share, represented by the
quotation.
<TABLE>
<CAPTION>
PREMIUM (OR
DISCOUNT) AS A
PERCENTAGE OF
MARKET PRICE NET ASSET VALUE NET ASSET VALUE
--------------- --------------- ----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ------- ------- --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1994.............. $22.500 $17.500 $ 22.41 $ 17.29 0.40% 1.21%
April 30, 1994................ 18.250 14.000 17.25 11.60 5.80 20.69
July 31, 1994................. 15.250 13.000 12.59 11.19 21.13 16.18
October 31, 1994.............. 13.875 13.000 11.96 11.07 16.01 17.43
January 31, 1995.............. 13.000 9.875 11.13 9.35 16.80 5.61
April 30, 1995................ 11.375 9.000 10.25 8.41 10.98 7.02
July 31, 1995................. 11.875 11.000 11.89 10.78 -0.13 2.04
October 31, 1995.............. 11.875 10.750 12.06 11.16 -1.53 -3.67
January 31, 1996.............. 13.750 11.375 14.00 11.64 -1.79 -2.28
April 30, 1996................ 14.000 11.875 14.27 12.26 -1.89 -3.14
July 31, 1996*................ 13.250 12.375 13.56 12.87 -2.29 -3.85
</TABLE>
- --------
* Through June 21, 1996.
The Fund's shares have generally traded at or near their net asset value per
share. At the close of business on June 21, 1996, the Fund's net asset value
was $13.29 per share while the closing market price of the Common Stock on the
New York Stock Exchange was $12.50 per share representing a 5.94% discount
from net asset value on such day.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Fund's investment objective is to seek high current income by investing
exclusively in fixed income securities denominated in U.S. dollars. In seeking
to achieve this objective, the Fund invests substantially all of its assets in
(i) U.S. dollar-denominated debt securities issued or guaranteed by foreign
governments, including participations in loans between foreign governments and
financial institutions, and interests in entities organized and operated for
the purpose of restructuring the investment characteristics of instruments
issued or guaranteed by foreign governments ("Sovereign Debt Obligations") and
(ii) zero coupon obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("Zero Coupon Obligations"). Under normal
circumstances, the Fund invests at least 75% of its total assets in (i)
Sovereign Debt 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 Obligations having the
same maturity ("Collateralized Brady Bonds") and (ii) Zero Coupon Obligations.
Sovereign Debt Obligations held by the Fund will take the form of bonds,
notes, bills, debentures, warrants, short-term paper, loan participations,
loan assignments and interests issued by entities organized and operated for
the purpose of restructuring the investment characteristics of other Sovereign
Debt Obligations. Sovereign Debt Obligations held by the Fund generally are
not traded on a securities exchange. The Fund is not subject to restrictions
on the maturities of the Sovereign Debt Obligations it holds.
23
<PAGE>
The Fund's investment objective and its policy of under normal circumstances
investing at least 75% of its total assets in Collateralized Brady Bonds and
Zero Coupon Obligations are fundamental and cannot be changed without the
approval of a majority of the Fund's outstanding voting securities, which, as
used in this Prospectus, means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are present in
person or represented by proxy and (ii) more than 50% of the outstanding
shares. The Fund's other investment policies, which are not designated as
fundamental policies, may be changed without shareholder approval. The Fund
will not change its non-fundamental investment policies without
contemporaneous notice to its shareholders. The Fund is designed primarily for
long-term investment, and investors should not consider it a trading vehicle.
As with all investment companies, there can be no assurance that the Fund's
investment objective will be achieved.
The Fund emphasizes investments in the Sovereign Debt Obligations of
countries that are considered emerging market countries at the time of
purchase. As used in this Prospectus, an "emerging market country" is any
country that is considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (more commonly referred
to as the "World Bank"). In selecting and allocating assets among the
countries in which the Fund will invest, Alliance develops a long-term view of
those countries and engages in an analysis of sovereign risk by focusing on
factors such as a country's public finances, monetary policy, external
accounts, financial markets, stability of exchange rate policy and labor
conditions. The Fund is not required to invest any specified minimum amount of
its total assets in Sovereign Debt Obligations of issuers located in any
particular country. The Fund will not invest 25% or more of its total assets
in the Sovereign Debt Obligations of any one country. Substantially all of the
Fund's assets may be invested in high yield, high risk debt securities that
are low-rated (i.e., below investment grade) or unrated and in both cases that
are considered to be predominantly speculative as regards the issuer's
capacity to pay interest and repay principal. See "Special Risk
Considerations." The Fund may invest in other investment companies whose
investment objectives and policies are consistent with those of the Fund.
A substantial portion of the Fund's investments (including certain Brady
Bonds and all Zero Coupon Obligations) will be in (i) securities that were
initially issued at a discount from their face value (collectively, "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." Under
current federal tax law and in furtherance of its investment objective of
seeking high current income, the Fund accrues as current income each year a
portion of the original issue and/or market discount at which each such
obligation is purchased by the Fund even though the Fund does not receive
during the year cash interest payments on the obligation corresponding to the
accrued discount. Under the minimum distribution requirements of the Code, the
Fund may be required to pay out as an income distribution each year an amount
significantly greater than the total amount of cash interest that the Fund has
actually received as interest during the year. Such distributions will be made
from the cash assets of the Fund, from borrowings or by liquidation of
portfolio securities, if necessary. The risks associated with holding
securities not readily marketable may be accentuated at such times. See
"Investment Objective and Policies--Borrowing," "Special Risk Considerations--
Securities Not Readily Marketable" below and "Taxation--United States Federal
Income Taxation of the Fund--Zero Coupon and Other Discount Obligations" in
the SAI.
For temporary defensive purposes, the Fund may vary from its investment
policies during periods in which conditions in the securities markets for
Collateralized Brady Bonds and Zero Coupon Obligations or other economic or
political conditions warrant. Under such circumstances, the Fund may reduce
its position in Collateralized Brady Bonds or Zero Coupon Obligations and
invest in (i) debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("U.S. Government Securities") other than Zero
Coupon Obligations, and (ii) the following U.S. dollar-denominated
investments: (a) indebtedness rated Aa or better by Moody's Investors Service,
Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Service ("S&P"),
or if not so rated, of equivalent investment quality as determined by
Alliance, (b) 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 and (c)
commercial paper of prime quality rated
24
<PAGE>
Prime 1 or better by Moody's or A-1 or better by S&P or, if not so rated,
issued by companies which have an outstanding debt issue rated Aa or better by
Moody's or AA or better by S&P. The Fund may also at any time temporarily
invest funds awaiting reinvestment or held for reserves for dividends and
other distributions to shareholders in such U.S. dollar-denominated money
market instruments.
BRADY BONDS
The Fund may invest in certain debt obligations customarily referred to as
"Brady Bonds," which are debt obligations created through the exchange of
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 dollar-denominated) and they
are actively traded in the over-the-counter secondary market.
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 which
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 or, in the case of floating rate bonds, initially is equal
to at least one year's 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 three
or four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
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 which 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.
As of April 30, 1996, Brady Plan debt restructurings totaling more than $120
billion have been implemented in Argentina, Bolivia, Brazil, Bulgaria, Costa
Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, the
Philippines, Poland, Uruguay and Venezuela with the largest proportion of
Brady Bonds having been issued to date by Argentina, Brazil, Mexico and
Venezuela.
Most Argentine, Brazilian, Dominican Republic and Mexican Brady Bonds and a
significant portion of the Venezuelan Brady Bonds issued to date are
Collateralized Brady Bonds with interest coupon payments collateralized on a
rolling-forward basis by funds or securities held in escrow by an agent for
the bondholders. Of the other issuers of Brady Bonds, Bolivia, Bulgaria,
Jordan, Nigeria, the Philippines, Poland and Uruguay have to date issued
Collateralized Brady Bonds.
STRUCTURED SECURITIES
The Fund may invest up to 25% of its total assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of Sovereign Debt Obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified
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instruments (such as commercial bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of securities ("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 of the type in which the
Fund anticipates it will invest typically involve no credit enhancement, their
credit risk generally will be equivalent to that of the underlying
instruments.
The Fund is permitted to invest in a class of Structured Securities that is
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.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of Sovereign Debt Obligations
and one or more financial institutions ("Lenders"). The Fund's investments in
Loans are expected in most instances to be in the form of participations in
Loans ("Participations") and assignments of all or a portion of Loans
("Assignments") from third parties. The Fund may invest up to 25% of its total
assets in Participations and Assignments. The government that is the borrower
on the Loan will be considered by the Fund to be the issuer of a Participation
or Assignment for purposes of the Fund's fundamental investment policy that it
will not invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry (for this
purpose, each foreign government is treated as a separate industry). The
Fund's investment in Participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower. The
Fund will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan
agreement relating to the Loan, nor any rights of set-off against the
borrower, and the Fund may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a result, the Fund
may be subject to the credit risk of both the borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the
borrower. Certain Participations may be structured in a manner designed to
avoid purchasers of Participations being subject to the credit risk of the
Lender with respect to the Participation, but even under such a structure, in
the event of the Lender's insolvency, the Lender's servicing of the
Participation may be delayed and the assignability of the Participation
impaired. The 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 (i.e., Baa or higher by Moody's or BBB or higher by
S&P).
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the 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 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. The Fund may have
difficulty disposing of Assignments and Participations because there is no
liquid market for such interests. The lack of a liquid secondary market may
have an adverse impact on the value of such securities and the Fund's ability
to dispose of particular Assignments or Participations when necessary to meet
the Fund's liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to these interests for purposes of
valuing the Fund's portfolio and calculating its net asset value.
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ZERO COUPON OBLIGATIONS
The Zero Coupon Obligations in which the Fund may invest include Treasury
bills and the principal components of U.S. Treasury bonds, U.S. Treasury notes
and obligations of U.S. government agencies or instrumentalities. A Zero
Coupon Obligation pays no interest to its holder during its life. An investor
acquires a Zero Coupon Obligation at a price that is generally an amount based
upon its present value, and that, depending upon the time remaining until
maturity, may be significantly less than its face value (sometimes referred to
as a "deep discount" price). Upon maturity of the Zero Coupon Obligation, the
investor receives the face value of the security. Zero Coupon Obligations do
not entitle the holder to any periodic payments of interest prior to maturity.
Accordingly, such obligations usually trade at a deep discount from their face
or par value and are subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities under which periodic distributions of interest are made. On the
other hand, because there are no periodic interest payments to be reinvested
prior to maturity, Zero Coupon Obligations eliminate reinvestment risk and
lock in a rate of return to maturity. For a discussion of the tax treatment of
Zero Coupon Obligations, see "Taxation--United States Federal Income Taxation
of the Fund--Zero Coupon and Other Discount Obligations" in the SAI.
Currently, the only U.S. Treasury obligation issued without coupons is the
Treasury bill. The U.S. government agencies and instrumentalities that have
issued zero coupon obligations include the Financing Corporation and the
Student Loan Marketing Association. The Zero Coupon Obligations purchased by
the Fund may consist of principal components held in STRIPS form issued
through the U.S. Treasury's STRIPS program, which permits the beneficial
ownership of the component to be recorded directly in the Treasury book-entry
system. In addition, in the last few years a number of banks and brokerage
firms have separated the principal components from the coupon components of
the U.S. Treasury bonds and notes and sold them separately in the form of
receipts or certificates representing undivided interests in these instruments
(which instruments are generally held by a bank in a custodial or trust
account). The staff of the Securities and Exchange Commission has indicated
that, in its view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and, therefore,
unlike those obligations issued under the U.S. Treasury's STRIPS program,
should not be included in the Fund's categorization of Zero Coupon Obligations
for purposes of the Fund's policy of investing at least 75% of its assets in
Collateralized Brady Bonds and Zero Coupon Obligations. The Fund disagrees
with the staff's interpretation but has undertaken that it will not include
these obligations as Zero Coupon Obligations for purposes of the 75% policy
until final resolution of the issue.
OPTIONS
The Fund may write covered put and call options and purchase put and call
options that are traded on U.S. and foreign securities exchanges and over-the-
counter, including options on market indices. The Fund may also write call
options for cross-hedging purposes. There are no specific limitations on the
Fund's writing and purchasing of options.
The 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." The Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
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.
In purchasing a call option, the Fund would be in a position to realize a
gain if, during the option period, the price of the underlying security
increased by an amount in excess of the premium paid. It would realize a loss
if the price of the underlying security declined or remained the same or did
not increase during the period by at least the amount of the premium. In
purchasing a put option, the Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the underlying security increased or remained the same or
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did not decrease during that period by at least the amount of the premium. If
a put or call option purchased by the Fund were permitted to expire without
being sold or exercised, its premium would be lost by the Fund.
If a put option written by the Fund were exercised the Fund would be
obligated to purchase the underlying security at the exercise price. If a call
option written by the Fund were exercised the Fund would be obligated to sell
the underlying security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value of the
underlying security. If this occurred, the option could be exercised and the
underlying security would then be sold by the option holder to the Fund at a
higher price than its current market value. The risk involved in writing a
call option is that there could be an increase in the market value of the
underlying security. If this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering into a closing
transaction. The Fund retains the premium received from writing a put or call
option whether or not the option is exercised.
The Fund may purchase or write options on securities of the types in which
it is permitted to invest in privately negotiated transactions. The Fund will
effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions)
deemed creditworthy by Alliance, and Alliance has adopted procedures for
monitoring the creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may not be possible
for the Fund to effect a closing transaction at a time when Alliance believes
it would be advantageous to do so.
An option on a securities index is similar to an option on a security except
that, rather than the right to take or make 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.
WARRANTS
The Fund may invest in warrants, which are securities permitting, but not
obligating, their holder to subscribe for other securities. The Fund may
invest in warrants for debt securities or warrants for equity securities that
are acquired as units with debt instruments. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that
they entitle their holder to purchase, and they do not represent any rights in
the assets of the issuer. As a result, an investment in warrants may be
considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date. The Fund does not intend to retain in
its portfolio any common stock received upon the exercise of a warrant and
will sell any such common stock as promptly as practicable and in a manner
that it believes will reduce its risk of a loss in connection with the sale.
The Fund does not intend to retain in its portfolio any warrant for equity
securities acquired as a unit with a debt instrument if the warrant begins to
trade separately from the related debt instrument.
SECURITIES NOT READILY MARKETABLE
The Fund may invest up to 50% of its total assets in securities that are not
readily marketable. These securities include, among others, (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., 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),
and (ii) repurchase agreements not terminable within seven days. Securities
eligible for resale under Rule 144A under the Securities Act, that have legal
or contractual restrictions on resale but have a readily available market are
not deemed securities not readily marketable for purposes of this limitation.
Alliance will monitor such securities and in reaching decisions concerning
their marketability will consider, among other things, the following factors:
(i) the frequency of trades and quotations 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
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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 transfer); and (vi) any applicable
Securities and Exchange Commission interpretation or position with respect to
such type of securities.
Direct placements of debt securities have frequently resulted in higher
yields and restrictive covenants providing greater protection for the
purchaser. An issuer is often willing to create more attractive features in
its securities issued privately because it has averted the expense and delay
involved in a public offering of its securities. Also, adverse conditions in
the public securities markets may at certain times preclude a public offering
of an issuer's securities.
ADDITIONAL INVESTMENT POLICIES
Interest Rate Transactions. The Fund may enter into interest rate swaps and
may purchase or sell (i.e., write) 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.
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 usually enters 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 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 rated in the highest rating category of at least
one nationally recognized rating organization at the time of entering into the
transaction. Alliance monitors the creditworthiness of counterparties to the
Fund's interest rate swap, cap and floor transactions on an ongoing basis. If
there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. 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. Alliance has determined
that, as a result, the swap market has become relatively liquid. 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 Alliance is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment
performance of the Fund will diminish compared with what it would have been if
these investment techniques had not been utilized. Moreover, even if Alliance
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 make, if any. If
the other party to an interest rate swap defaults, the Fund's risk of loss is
the net amount of interest payments that the Fund contractually is entitled to
receive, if any. The Fund may purchase and sell caps and floors without
limitation, subject to the maintenance, if any, of a segregated account as
described under "Maintenance of Segregated Account" in the SAI.
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
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"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 debt restructuring (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price, which
generally is 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, the settlement date occurs within two months after the transaction,
but 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 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 of a
"when, as and if issued" security is cancelled in the event that the required
condition does not occur and the trade is cancelled.
The use of forward commitments enables the Fund to protect against
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling bond prices, the Fund might sell securities
in its portfolio on a forward commitment basis to limit its exposure to
falling bond prices. In periods of falling interest rates and rising bond
prices, the Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment basis, thereby
obtaining the benefit of prevailing higher cash yields. However, if Alliance
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 prevailing 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 enters into forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. 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 may 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.
Loans of Portfolio Securities. The Fund may make secured loans of its
portfolio securities to entities with which it can enter into repurchase
agreements, provided that cash and/or U.S. Government Securities equal to at
least 100% of the market value of the securities loaned are deposited and
maintained by the borrower with the Fund. See "Repurchase Agreements" below.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular
borrower, Alliance (subject to review by the Board of Directors of the Fund)
considers all relevant facts and circumstances, including the creditworthiness
of the borrower. When securities are on loan, the borrower pays 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 does not lend portfolio securities in excess
of 30% of the value of its total assets, nor lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or Alliance. The
Fund's Board of Directors monitors the Fund's lending of portfolio securities.
Repurchase Agreements. The Fund may enter into repurchase agreements
pertaining to the types of securities in which it invests with member banks of
the Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York) in securities in which the Fund may invest. The Fund
may enter into repurchase agreements with respect to up to 35% of its total
assets. The Fund currently 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 the
security to the vendor
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at an agreed-upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an agreed-upon
interest rate which is effective for the period of time the buyer's money is
invested in the security and which is related to the current market rate
rather than the coupon rate on the purchased security. Such agreements permit
the Fund to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The Fund
requires continual maintenance by its custodian for its account in the Federal
Reserve/Treasury Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. 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 Alliance 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 as part of its investment
strategy. 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 otherwise obtaining the cash.
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 (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes 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 (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
securities the Fund is obligated to repurchase under the agreement may decline
in value 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 or dollar
roll 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 of at least 300% of
all borrowings. The Fund does not engage in reverse repurchase agreements and
dollar rolls with respect to greater than 33% of its total assets less
liabilities (other than the amount borrowed).
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the 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, which is typically approximately 0.5% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund enters into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price that
are considered advantageous to the Fund and that are unavailable on a firm
commitment basis. The Fund will not enter into a standby commitment with a
remaining term in excess of 45 days and will limit its investment in such
commitments so that the aggregate purchase price of the securities subject to
the commitments, together with the value of portfolio securities that are not
readily marketable, will not exceed 50% of its assets taken at the time of
acquisition of such commitment of security.
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There can be no assurance that the securities subject to a standby
commitment will be issued and 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 underlying the commitment is at the option of the issuer, the
Fund bears the risk of 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.
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 and the commitment fee recorded as income if the required conditions
did not occur and the trade were canceled.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner, the Fund may
not achieve the anticipated benefits of these practices or may realize losses
and, thus, be in a worse position than if such strategies had not been used.
In addition, the correlation between movements in the prices of such
instruments and movements in the price of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
Future Developments. The Fund may, following written notice to its
shareholders, take advantage of other investment practices that are not at
present contemplated for use by the Fund or that currently are not available
but may be developed, to the extent such investment practices are both
consistent with the Fund's investment objective and legally permissible for
the Fund. Such investment practices, if they are used, may involve risks that
exceed those involved in the activities described above.
BORROWING
The Fund may borrow from a bank or other entity in a privately arranged
transaction to the maximum extent permitted under the 1940 Act, but only in
order to finance the repurchase and/or tenders of its shares or to pay
distributions for purposes of complying with the Code. See "Special Risk
Considerations--Borrowing," "Tender Offers and Share Repurchases; Conversion
to Open-End Status" and "Taxation--United States Federal Income Taxes--
General" in the SAI. The 1940 Act requires the Fund to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness" as those terms are defined and used in the 1940 Act. In
addition, the Fund may not pay any cash dividend or make any cash distribution
to shareholders if, after the dividend or distribution, there would be less
than 300% asset coverage of a senior security representing indebtedness for
borrowings (excluding for this purpose certain evidences of indebtedness made
to a bank or other entity and privately arranged, and not intended to be
publicly distributed). If, as a result of the foregoing restriction or
otherwise, the Fund were unable to distribute at least 90% of its investment
company taxable income in any year, it would lose its status as a regulated
investment company for such year and become liable at the corporate level for
federal income taxes on its income for such year. See "Taxation--United States
Federal Income Taxes--General" in the SAI.
The Fund may also borrow for temporary purposes in an amount not exceeding
5% of the value of the total assets of the Fund. Such borrowings are not
subject to the asset coverage restrictions set forth in the preceding
paragraph. See "Investment Restrictions" in the SAI.
PORTFOLIO TURNOVER
The Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities, to seek short-term profits
during periods of fluctuating interest rates or for other reasons. Such
trading will increase the Fund's rate of turnover and the incidence of short-
term capital gain taxable as ordinary income. Alliance anticipates that the
annual turnover in the Fund will not be in excess of 500% (excluding turnover
of securities having a maturity of one year or less). An annual turnover rate
of 500% occurs, for
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example, when all of the securities in the Fund's portfolio are replaced five
times in a period of one year. Such a high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which expenses must be
borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains. In
order to continue to qualify as a regulated investment company for federal tax
purposes, less than 30% of the annual gross income of the Fund must be derived
from the sale of securities held by the Fund for less than three months. See
"Taxation--United States Federal Income Taxes--General" in the SAI.
SPECIAL RISK CONSIDERATIONS
Investment in the Fund involves special risk considerations, such as those
described below.
Debt Securities. The net asset value of the Fund's shares will change as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio of debt securities, such as that of the Fund's, can be
expected to rise. Conversely, when interest rates rise, the value of such a
portfolio can be expected to decline. Debt securities purchased at a discount
tend to be subject to greater price fluctuations in response to interest rate
changes than are ordinary interest-paying debt securities with similar
maturities. Prices of longer-term debt securities tend to be subject to
greater fluctuations in response to interest rate changes than those of
shorter-term debt securities.
Economic and Political Factors. By investing in Sovereign Debt Obligations,
the Fund will be exposed to the direct or indirect consequences of political,
social and economic changes in various countries. Political changes in a
country may affect the willingness of a foreign government to make or provide
for timely payments of its obligations. The country's economic status, as
reflected, among other things, in its inflation rate, the amount of its
external debt and its gross domestic product, will also affect the
government's ability to honor its obligations.
Many countries providing investment opportunities for the Fund have
experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have adverse effects on the economies and
securities markets of certain of these countries. In an attempt to control
inflation, wage and price controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves economic and political
risks. The Sovereign Debt Obligations in which the Fund invests are in most
cases those of governments of countries that are among the world's largest
debtors to commercial banks, foreign governments, international financial
organizations and other financial institutions. In recent years, some of these
governments 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.
Central banks and other governmental authorities that control the servicing
of Sovereign Debt Obligations may not be willing or able to permit the payment
of the principal or interest when due in accordance with the terms of the
obligations. As a result, issuers of Sovereign Debt Obligations may default on
their obligations. Defaults on certain Sovereign Debt Obligations have
occurred in the past. Holders of certain Sovereign Debt Obligations may be
requested to participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The interests of
holders of Sovereign Debt Obligations can be adversely affected in the course
of restructuring arrangements or by certain other factors referred to below.
Moreover, some of the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in
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negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.
The ability of a government to make timely payments on its obligations is
likely to be influenced strongly by the country's balance of payments,
including export performance, and its access to international credits and
investments, fluctuations in interest rates and the extent of its foreign
reserves. A country whose exports are concentrated in a few commodities or
whose economy depends on certain strategic imports could be vulnerable to a
decline in the international prices of one or more of those commodities or
imports. Increased protectionism on the part of a country's trading partners
could also adversely affect the country's exports and diminish its trade
account surplus, if any. 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, multilateral
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.
Another factor bearing on the ability of a country to repay Sovereign Debt
Obligations is the level of the country's international reserves. Fluctuations
in the level of these reserves, including those as a result of currency
devaluations, can affect the amount of foreign exchange readily available for
external debt payments and, thus, could have a bearing on the capacity of the
country to make payments on its Sovereign Debt Obligations.
Expropriation, confiscatory taxation, seizure or nationalization of assets,
establishment of exchange controls, political, economic or social instability
or other similar developments, such as military coups, have occurred in the
past in countries in which the Fund will invest and could adversely affect
payment due on securities held by the Fund and the value of the Fund's assets
should these conditions or events recur. Other investment risks arising from
differences between U.S. and foreign securities markets include lower volume,
greater price volatility and relative illiquidity of foreign securities
markets, different trading and settlement practices, less governmental
supervision and regulation, the lack of extensive operating experience of
eligible foreign subcustodians and legal limitations on the ability of a fund
to recover assets held in custody by a foreign subcustodian in the event of
the subcustodian's bankruptcy. Countries in which the Fund may invest have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate trade difficulties and extreme
poverty and unemployment.
Investment Controls and Repatriation. Foreign investment in certain
Sovereign Debt Obligations is restricted or controlled to varying degrees.
These restrictions or controls may at times limit or preclude foreign
investment in certain Sovereign Debt Obligations and increase the costs and
expenses of the Fund.
Certain countries in which the Fund will invest require governmental
approval prior to investments by foreign persons, limit the amount of
investment by foreign persons in a particular issuer, limit the investment by
foreign persons only to a specific class of securities of an issuer that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on foreign
investors.
Certain countries may require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on foreign capital
remittances. The Fund could be adversely affected by delays in, or a refusal
to grant, any required governmental approval for repatriation of capital, as
well as by the application to the Fund of any restrictions on investments.
Investing in
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local markets may require the Fund to adopt special procedures, seek local
government approvals or take other actions, each of which may involve
additional costs to the Fund.
Other Characteristics of Investment in Foreign Issuers. Foreign issuers are
subject to accounting, auditing and financial standards and requirements that
differ, in some cases significantly, from those applicable to U.S. issuers. In
particular, financial records of a foreign governmental issuer may not reflect
its financial position or receipts or expenditures in the way they would be
reflected had the financial statements been prepared in accordance with U.S.
generally accepted accounting principles. In addition, for an issuer that
keeps accounting records in local currency, inflation accounting rules in some
of the countries in which the Fund will invest require, for both tax and
accounting purposes, that certain amounts be restated on the issuer's
financial records in order to express items in terms of currency of constant
purchasing power. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition
of those issuers and securities markets. Substantially less information is
publicly available about certain non-U.S. issuers than is available about U.S.
issuers.
The Fund is permitted to invest in Sovereign Debt Obligations that are not
current in the payment of interest or principal or are in default, so long as
Alliance believes that doing so is consistent with the Fund's investment
objective. The Fund may have limited legal recourse in the event of a default
with respect to certain Sovereign Debt Obligations it holds. For example,
remedies from defaults on certain Sovereign Debt Obligations, unlike those on
private debt, must, in some cases, be pursued in the courts of the defaulting
party itself. Legal recourse therefore may be significantly diminished.
Bankruptcy, moratorium and other similar laws applicable to issuers of
Sovereign Debt Obligations may be substantially different from those
applicable to issuers of private debt obligations. The political context,
expressed as the willingness of an issuer of Sovereign Debt Obligations to
meet the terms of the debt obligation, for example, is of considerable
importance. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of securities
issued by foreign governments in the event of default under commercial bank
loan agreements.
Income from certain investments held by the Fund could be reduced by foreign
income taxes, including withholding taxes. It is impossible to determine the
effective rate of foreign tax in advance. The Fund's net asset value may also
be affected by changes in the rates or methods of taxation applicable to the
Fund or to entities in which the Fund has invested. The Adviser generally will
consider the cost of any taxes in determining whether to acquire any
particular investments, but can provide no assurance that the tax treatment of
investments held by the Fund will not be subject to change.
Extent of Trading Markets. No established secondary markets may exist for
many of the Sovereign Debt Obligations in which the Fund invests. Reduced
secondary market liquidity can have an adverse effect on the market price and
the Fund's ability to dispose of particular instruments when necessary to meet
its liquidity requirements or in response to specific economic events such as
a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain Sovereign Debt Obligations may also make it more
difficult for the Fund to obtain accurate market quotations for purposes 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.
Low Rated and Unrated Instruments. The Fund is permitted to invest
substantially all of its assets in high-yield, high-risk debt securities that
are rated in the lower rating categories (i.e., below investment grade) or
that are unrated but are of comparable quality as determined by Alliance.
There is no minimum rating requirement applicable to the Fund's investment in
lower rated Sovereign Debt Obligations. Currently, Sovereign Debt Obligations
of the type in which the Fund invests substantially all of its assets are
generally considered to have a credit quality below investment grade. For the
fiscal year ended October 31, 1995, the percentages of the Fund's assets
invested in securities rated (or considered by Alliance to be of equivalent
quality to securities rated) in particular rating categories were 29.1% in A
and above, 15.2% in Ba or BB, 23.9% in B, 0% in Caa or CCC and 31.8% in non-
rated. Debt securities rated below investment grade, i.e., those rated Ba1 or
lower by
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Moody's or BB+ or lower by S&P, are considered by those organizations to be
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal, which may in any
case decline during sustained periods of deteriorating economic conditions or
rising interest rates. Certain of the Sovereign Debt Obligations in which the
Fund invests may be considered comparable to securities having the lowest
ratings for non-subordinated debt instruments assigned by Moody's or S&P
(i.e., rated C by Moody's or CCC or lower by S&P). 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.
Lower-rated securities generally are considered to be subject to greater
market risk than higher-rated securities in times of deteriorating economic
conditions. In addition, lower-rated securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The market for lower-rated securities may be
thinner and less active than that for higher-quality 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, Alliance may experience difficulty in valuing such securities and,
in turn, the Fund's assets. In addition, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on fundamental
analysis, may tend to decrease the market value and liquidity of such lower-
rated securities. Transaction costs with respect to lower-rated securities may
be higher, and in some cases information may be less available, than is the
case with investment grade securities.
The ratings of debt securities by Moody's and S&P 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. See the Appendix hereto
for a description of such ratings.
Alliance will try to reduce the risk inherent in the Fund's investment
approach through credit analysis, diversification and attention to current
developments and trends in interest rates and economic conditions. However,
there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-quality securities, Alliance's research and credit
analysis are a correspondingly important aspect of its program for managing
the Fund's securities. In considering investments for the Fund, Alliance will
attempt to identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is expected to
improve in the future. Alliance's analysis focuses on relative values based on
such factors as interest or dividend coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer.
In seeking to achieve the Fund's primary objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset
value of the Fund.
Securities Not Readily Marketable. The Fund may invest up to 50% of its
total assets in securities that are not readily marketable. Because of the
absence of a trading market for these investments, the Fund may not be able to
realize their value upon sale. The risks associated with these investments
will be accentuated in situations in which the Fund's operations require cash,
such as when the Fund tenders for its shares of Common Stock or pays
distributions, and could result in the Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of these investments.
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Non-Diversified Status. The Fund is a "non-diversified" investment company.
However, the 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 "Taxation--United States Federal
Income Taxes--General." To so qualify, among other requirements, the Fund will
limit its investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's total assets
will be invested in the securities of a single issuer, and (ii) with respect
to 50% of the market value of its total assets, not more than 5% of the market
value of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. Investments in U.S. Government Securities are
not subject to these limitations. Because the Fund, as a non-diversified
investment company, may invest in a smaller number of individual issuers than
a diversified investment company, an investment in the Fund may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified investment company.
Securities issued or guaranteed by foreign governments 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
Participations may be treated as separate issuers for purposes of these tests.
Discount from Net Asset Value. Shares of closed-end investment companies
frequently trade at a discount from net asset value. Since the commencement of
operations of the Fund in November 1992, the Fund's shares have traded at
different times at a discount from and at a premium above their net asset
value. During the fifty-two week period ended June 21, 1996, the Fund's shares
traded at an average discount from net asset value of 2.98%. The Fund cannot
predict whether its shares will in the future trade at a premium above or
discount from net asset value. The risk of its shares trading at a discount is
a risk separate from the risk of a decline in net asset value. See "Net Asset
Value and Market Price Information" in this Prospectus.
Borrowing. The Fund may borrow from a bank or other entity in a privately
arranged transaction to the maximum extent permitted under the 1940 Act, but
only in order to finance the repurchase and/or tenders of its shares or to pay
distributions for purposes of complying with the Code. Such borrowings involve
additional risk to the Fund, since the interest expense may be greater than
the income from or appreciation of the securities carried by the borrowings
and since the value of the securities carried may decline below the amount
borrowed.
The 1940 Act requires the Fund to maintain "asset coverage" of not less than
300% of its "senior securities representing indebtedness," as those terms are
defined and used in the 1940 Act. In addition, the Fund may not make any cash
distributions to its shareholders if, after the distribution, there would be
less than 300% asset coverage of a senior security representing indebtedness
for borrowings (excluding for this purpose certain evidences of indebtedness
made by a bank or other entity and privately arranged, and not intended to be
publicly distributed). See "Investments Restrictions" in the SAI. This
limitation on the Fund's ability to make distributions could under certain
circumstances impair the Fund's ability to maintain its qualification for
taxation as a "regulated investment company". See "Taxation--United States
Federal Income Taxes" in the SAI.
The Fund may also borrow for temporary purposes in an amount not exceeding
5% of the value of the total assets of the Fund. Such borrowings are not
subject to the asset coverage restrictions set forth in the preceding
paragraph. See "Investment Restrictions" in the SAI. The Fund may also borrow
through the use of reverse repurchase agreements and dollar rolls. See
"Investment Objective and Policies."
Any investment gains made with the proceeds obtained from borrowings in
excess of interest paid on the borrowings will cause the net income per share
and the net asset value per share of the Fund's shares to be greater than
would otherwise be the case. On the other hand, if the investment performance
of the additional securities purchased fails to cover their cost (including
any interest paid on the money borrowed) to the Fund, then the net income per
share and net asset value per share of the Fund's shares will be less than
would otherwise be the case.
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Borrowing can pose certain risks for the Fund's shareholders, including the
possibility of higher volatility of both the net asset value and market value
of the Fund's shares. There can be no assurance that the Fund will be able to
realize a higher net return on its investment portfolio than the then current
interest rate on any borrowing. Any decline in the value of the Fund's assets
will be borne entirely by the Fund's shareholders in the form of reductions in
the Fund's net asset value, and any requirement that the Fund sell assets at a
loss in order to repay any borrowing or for other reasons would make it more
difficult for the net asset value to recover. Accordingly, the use of
borrowing in a declining market may result in a greater decline in the net
asset value of the Fund's shares than if the Fund had not borrowed, which may
be reflected in a greater decline in the market price of the Fund's shares.
TENDER OFFERS AND SHARE REPURCHASES; CONVERSION TO OPEN-END STATUS
REPURCHASE OF SHARES
Shares of closed-end investment companies frequently trade at a discount
from net asset value but may trade at a premium. Since the Fund's commencement
of operations in November, 1992, the Fund's shares have traded at different
times at a discount and at a premium in relation to net asset value. See "Net
Asset Value and Market Price Information." In recognition of the fact that the
Fund's shares have at times traded at a discount and the possibility that the
Fund's shares may trade at a discount in the future, the Fund's Board of
Directors has determined that it would be in the interest of shareholders for
the Fund to have the ability to take action to attempt to reduce or eliminate
market value discounts from net asset value. To that end, the Board
contemplates that the Fund may from time to time take action either (i) to
repurchase shares of its Common Stock in the open market or (ii) to make an
offer to purchase its shares of Common Stock from all beneficial holders of
its shares at a price per share equal to the net asset value per share of the
Common Stock determined at the close of business on the day the offer
terminates (a "Tender Offer"). The Board has each quarter considered, and
intends to continue each quarter to consider, the making of a Tender Offer or
open market repurchases of the Fund's shares. The Board may at any time,
however, decide that the Fund should not make a Tender Offer or repurchase its
shares in the open market. The Fund's shares have historically traded at or
near their net asset value. For example, during the fifty-two weeks ended June
21, 1996, the Fund's shares traded at an average discount from net asset value
of 2.98%. To date, the Board has determined that the Fund not conduct a Tender
Offer or make open-market share repurchases.
In addition, the Fund will commence a Tender Offer during the fourth
quarters of each of 1997 (the "1997 Tender Offer") and 2002 (the "2002 Tender
Offer"). However, the Board has established a policy that, if shares of the
Fund's Common Stock are traded on the principal securities exchange where
listed at or above net asset value or at an average discount from net asset
value of less than 5%, determined on the basis of the discount as of the last
trading day in each week during a period of 12 calendar weeks prior to
September 1, 1997 or September 1, 2002, the Fund will not proceed with either
the 1997 Tender Offer or the 2002 Tender Offer, as the case may be. In the
event the Fund commences the 1997 Tender Offer or the 2002 Tender Offer, if
the Board of Directors determines not to purchase shares of Common Stock
pursuant to either Tender Offer for any of the reasons set forth below, the
Fund will commence one or more additional offers to purchase its shares (a
"Subsequent Offer"). Notwithstanding the possibility of the commencement of
more than one Tender Offer, the Fund intends to consummate only one Tender
Offer during any given calendar year. Subject to the Fund's investment
restriction with respect to borrowings, the Fund may borrow money to finance
repurchases of shares or Tender Offers or any Subsequent Offer. See
"Investment Objective and Policies--Borrowing" and "Investment Restrictions."
Interest on any such borrowings will reduce the Fund's net income.
Even if a Tender Offer or Subsequent Offer has been made, it is the Board's
announced policy, which may be changed by the Board, not to purchase shares
pursuant to a Tender Offer or any Subsequent Offer or effect share repurchases
if (i) such transactions, if consummated, would (a) result in the delisting of
the Fund's Common Stock from the New York Stock Exchange (the New York Stock
Exchange having advised the Fund that it would consider delisting if the
aggregate market value of the Fund's outstanding publicly held Common
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Stock is less than $5,000,000, the number of publicly held shares of Common
Stock falls below 600,000 or the number of round-lot holders falls below
1,200) or (b) impair the Fund's status as a regulated investment company under
the Code (which would make the Fund a taxable entity, causing the Fund's
income to be taxed at the corporate level in addition to the taxation of
shareholders who receive dividends from the Fund); (ii) the Fund would not be
able to liquidate portfolio securities in an orderly manner and consistent
with the Fund's investment objective and policies in order to purchase Common
Stock tendered pursuant to the Tender Offer or any Subsequent Offer; or (iii)
there is any (a) material legal action or proceeding instituted or threatened
that challenges, in the Board's judgment, the Tender Offer or any Subsequent
Offer or otherwise materially adversely affects the Fund, (b) suspension of or
limitation on prices for trading securities generally on the New York Stock
Exchange or any foreign exchange on which portfolio securities of the Fund are
traded, (c) declaration of a banking moratorium by Federal, state or foreign
authorities or any suspension of payment by banks in the United States, New
York State or in a foreign country which is material to the Fund, (d)
limitation that affects the Fund or the issuers of its portfolio securities
imposed by Federal, state or foreign authorities on the extension of credit by
lending institutions or on the exchange of foreign currencies, (e)
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or any foreign
country which is material to the Fund, or (f) other event or condition that,
in the Board's judgment, would have a material adverse effect on the Fund or
its shareholders if shares of Common Stock tendered pursuant to the Tender
Offer or any Subsequent Offer were purchased. The Board of Directors may
modify these conditions in light of experience.
If the Fund has not purchased all shares tendered pursuant to the 1997
Tender Offer or any Subsequent Offer with respect to the 1997 Tender Offer by
March 31, 1998, the Fund's Articles of Incorporation require the Board of
Directors to submit to shareholders by no later than July 31, 1998 a proposal
to convert the Fund to an open-end investment company. Assuming that the Fund
continues as a closed-end investment company and that the Fund commences the
2002 Tender Offer, if the Fund has not purchased all shares tendered pursuant
to the 2002 Tender Offer or any Subsequent Offer with respect to the 2002
Tender Offer by March 31, 2003, the Fund's Articles of Incorporation require
the Board of Directors to submit to shareholders by no later than July 31,
2003 another proposal to convert the Fund to an open-end investment company.
In the event shareholder approval of a proposal to convert the Fund to an
open-end investment company is not obtained, the Fund will continue as a
closed-end investment company.
Tender Offers and any Subsequent Offers will be made and shareholders
notified in accordance with the requirements of the Securities Exchange Act of
1934, as amended, and the 1940 Act, either by publication or mailing or both.
The offering documents will contain such information as is prescribed by such
laws and the rules and regulations promulgated thereunder. A shareholder
wishing to accept a Tender Offer or any Subsequent Offers will be required to
tender all (but not less than all) of the shares owned by such shareholder (or
shares attributed to the shareholder for federal income tax purposes under
section 318 of the Code). Persons tendering shares may be required to pay a
service charge by check payable to the Fund to help defray the costs
associated with such Offers. If a service charge is imposed, it will be
imposed upon each tendering shareholder any of whose tendered shares are
purchased in the offer and will be imposed regardless of the number of shares
purchased. During the period of a Tender Offer or any Subsequent Offer, the
Fund's shareholders will be able to obtain the Fund's current net asset value
by use of a toll-free telephone number.
The Fund will repurchase shares of the Fund's Common Stock in the open
market only when it can do so at prices below the then current net asset value
per share. Although the Board of Directors believes that share repurchases
generally would have a favorable effect on the market price of the Fund's
shares of Common Stock, it should be recognized that the acquisition of shares
by the Fund will decrease its total assets and therefore may increase the
Fund's expense ratio.
General. The fact that the Fund's shares may be the subject of share
repurchases or one or more Tender Offers may enhance their attractiveness to
investors, thereby reducing the spread between market price and net asset
value that might otherwise exist. Sellers may be less inclined to accept a
significant discount if they have
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some prospect of being able to receive net asset value in conjunction with a
possible Tender Offer. There can be no assurance that repurchases of the
Fund's shares of Common Stock or the prospect of Tender Offers or any
Subsequent Offer will result in the shares of Common Stock trading at a price
equal to their net asset value. The market price of the Fund's shares of
Common Stock has varied, and the Fund expects that such price will continue to
vary, from net asset value from time to time. The market price of the Fund's
shares of Common Stock is determined by, among other things, the relative
demand for and supply of such shares in the market, the Fund's investment
performance, the Fund's dividends and yield, and investor perception of the
Fund's overall attractiveness as an investment as compared with other
investment alternatives.
Shares of Common Stock repurchased by the Fund pursuant to a Tender Offer, a
Subsequent Offer or otherwise, will be retired and will be authorized and
unissued shares.
To consummate a Tender Offer or any Subsequent Offer in order to repurchase
its shares of Common Stock, the Fund may be required to liquidate portfolio
securities, and realize gains or losses, at a time when Alliance would
otherwise consider it disadvantageous to do so. In such event, gains may be
realized on securities held for less than three months. In order to qualify as
a regulated investment company under the Code the Fund must limit such gains
and, accordingly, the amount of gain that the Fund could realize in the
ordinary course of its portfolio management from sales of other securities
held for less than three months would be reduced. This may adversely affect
the Fund's yield. See "Taxation--United States Federal Income Taxation--
General."
The Securities and Exchange Commission has adopted a rule under the 1940 Act
to permit closed-end investment companies under certain circumstances and
subject to certain conditions to repurchase their shares at fixed intervals.
The Fund reserves the right to take advantage of such rule provided that (i)
the Fund's Board of Directors has determined that such action would be in the
best interests of the Fund's shareholders and (ii) the Fund's shareholders
approve such action.
CONVERSION TO OPEN-END STATUS
Conversion of the Fund to an open-end investment company would require an
amendment to the Articles of Incorporation. Prior to October 1, 1997, such an
amendment would require the affirmative vote of the holders of at least 75% of
the outstanding shares of the Fund or a majority of such shares if the
amendment has been approved by two-thirds of the total number of directors
fixed in accordance with the Bylaws. After September 30, 1997 and prior to
January 1, 1999, such an amendment would require the affirmative vote of the
holders of a majority of the Fund's outstanding shares. If the Fund continues
as a closed-end investment company after December 31, 1998, subsequent to that
date and prior to October 1, 2002, an amendment to convert the Fund to an
open-end investment company would require the affirmative vote of the holders
of at least 75% of the outstanding shares of the Fund or a majority of such
shares if the amendment has been approved by two-thirds of the total number of
directors fixed in accordance with the Bylaws. After September 30, 2002 and
prior to January 1, 2004, such an amendment would require the affirmative vote
of the holders of a majority of the Fund's outstanding shares. If the Fund
continues as a closed-end investment company after December 31, 2003,
conversion of the Fund to an open-end investment company would require the
affirmative vote of the holders of at least 75% of the outstanding shares of
the Fund or a majority of such shares if the amendment has been approved by
two-thirds of the total number of directors fixed in accordance with the
Bylaws.
The 1940 Act also requires conversion of the Fund to an open-end investment
company to be voted upon by shareholders and requires approval of the
conversion by a majority of the Fund's outstanding voting securities. See
"Investment Objective and Policies."
Shareholders of an open-end investment company may require the company to
redeem shares at any time (except in certain circumstances as authorized by or
under the 1940 Act) at their next determined net asset value, less such
redemption charges, if any, as might be in effect at the time of a redemption.
All redemptions will be made in cash. If the Fund is converted to an open-end
investment company, it could be required to liquidate portfolio securities to
meet requests for redemption and the shares of the Fund would no longer be
listed on the
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New York Stock Exchange. Conversion to an open-end company would also require
changes in certain of the Fund's investment policies and restrictions, such as
those relating to the borrowing of money and the purchase of securities that
are not readily marketable.
The Board of Directors has determined that the 75% voting requirements
described above, which are greater than the minimum requirement under Maryland
law or the 1940 Act, are in the best interest of shareholders generally.
Reference should be made to the Articles of Incorporation and Bylaws on file
with the Securities and Exchange Commission for the full text of these
provisions to which the foregoing description is subject.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The management of the Fund, including general supervision of the duties
performed by Alliance is the responsibility of its Board of Directors. For
certain information regarding the Directors and officers of the Fund, see
"Management of the Fund--Directors and Officers" in the SAI.
ADVISER AND ADMINISTRATOR
Alliance Capital Management L.P., a New York Stock Exchange listed company
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 serve as investment adviser and under an administration
agreement (the "Administration Agreement") to serve as administrator to the
Fund. Wayne D. Lyski has been principally responsible for the Fund's portfolio
investment decisions since the Fund's inception. Mr. Lyski is an Executive
Vice President of Alliance Capital Management Corporation, the general partner
of Alliance, with which he has been associated since 1983.
Alliance is a leading international investment manager supervising client
accounts with assets as of March 31, 1996 of more than $163 billion (of which
more than $53 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 and included, as of March 31, 1996, 34 of the FORTUNE 100
Companies. As of that date, Alliance and its subsidiaries employed
approximately 1,350 employees operating out of domestic offices and the
offices of subsidiaries in Bombay, Istanbul, London, Paris, Sao Paolo, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 50 registered
investment companies comprising 107 separate investment portfolios managed by
Alliance currently have more than two million shareholders.
Alliance Capital Management Corporation, the sole general partner of, and
the owner of a 1% general partnership interest in, 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 and a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. As of March 31, 1996, ACMC, Inc. and Equitable Capital Management
Corporation, each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57.6% of the
issued and outstanding units representing assignments of beneficial ownership
of limited partnership interests in Alliance ("Units"). As of March 31, 1996,
approximately 32.4% and 10.0% of the Units were owned by the public and
employees of Alliance and its subsidiaries, respectively, including employees
of Alliance who serve as Directors of the Fund.
ADVISORY AGREEMENT
The Advisory Agreement between the Fund and Alliance provides that Alliance
will furnish investment advice and recommendations to the Fund and will
provide office space in New York, order placement facilities and persons
satisfactory to the Fund's Board of Directors to act as officers of the Fund.
Such officers, as well as
41
<PAGE>
certain Directors of the Fund, may be employees of Alliance or directors,
officers or employees of its affiliates. Under the Advisory Agreement, the
Fund pays monthly to Alliance a fee at an annualized rate of 1.00% of the
Fund's average weekly net assets. For purposes of the calculation of the fee
payable to Alliance, average weekly net assets are determined on the basis of
the average net assets of the Fund for each weekly period (ending on Friday)
ending during the month. The net assets for each weekly period are determined
by averaging the net assets on Friday of such weekly period with the net
assets on Friday of the immediately preceding weekly period. When a Friday is
not a Fund business day, then the calculation will be based on the net assets
of the Fund on the Fund business day immediately preceding such Friday. The
fee is in excess of the management fees paid by most U.S. registered
investment companies investing exclusively in securities of U.S. issuers,
although Alliance believes the fee is generally comparable to the management
fees paid by other closed-end companies that invest in the securities of
foreign issuers, and Alliance believes the fee is justified by the special
care that must be given to the selection and supervision of the particular
types of securities in which the Fund invests.
The Advisory Agreement was approved by the Fund's Board of Directors and its
initial shareholder. The Advisory Agreement by its terms continues in effect
from year to year if such continuance is specifically approved, at least
annually, by a majority vote of the Directors who neither are interested
persons of the Fund nor have any direct or indirect financial interest in the
Advisory Agreement, cast in person at a meeting called for the purpose of
voting on such approval. Most recently, continuance of the Advisory Agreement
through September 30, 1996 was approved by the Board of Directors.
ADMINISTRATION AGREEMENT
Under the Administration Agreement, Alliance furnishes the Fund with
administrative, accounting, internal auditing services and certain other
services required by the Fund. For these services the Fund pays Alliance a
monthly fee at an annualized rate of .15% of the value of the Fund's average
weekly net assets and reimburses certain of Alliance's out-of-pocket expenses.
NET ASSET VALUE
The Fund calculates and makes available for weekly publication the net asset
value of its shares of Common Stock. Net asset value per share of Common Stock
is determined by adding the market value of all securities in the Fund's
portfolio and other assets, subtracting liabilities incurred or accrued, and
dividing the net amount so determined by the total number of the Fund's shares
of Common Stock then outstanding.
For purposes of this computation, portfolio securities that are actively
traded on the over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by the
principal market makers. Publicly traded Sovereign Debt Obligations are
typically traded internationally on the over-the-counter market. Because of
the nature of the markets for Sovereign Debt Obligations, quotations from
several sources will be obtained so that the Fund's portfolio investments will
not generally be priced by a single source. Any security for which the primary
market is on an exchange is valued at the last sale price on such exchange on
the day of valuation or, if there is no sale on such day, the last bid price
quoted on such day. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board. However, readily marketable Sovereign Debt
Obligations may be valued on the basis of prices provided by a pricing service
when such prices are believed by Alliance to reflect the fair market value of
such securities. The prices provided by a pricing service take into account
institutional size trading in similar groups of securities and any
developments related to specific securities. U.S. Government Securities and
other debt instruments having 60 days or less remaining until maturity are
stated at amortized cost if the 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
determines that this method does not represent fair value).
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes all its net investment income. Dividends from such net
investment income are declared and paid monthly to shareholders. All net
realized long- or short-term capital gains, if any, are distributed to
shareholders at least annually. To the extent practicable, the Fund attempts
to maintain a constant level of monthly distributions to shareholders although
there can be no assurance that it will be able to do so. In order to maintain
such monthly distributions, short-term capital gains may from time to time be
included in monthly distributions. From time to time, the Fund also may pay
out less than the entire amount of net investment income and net realized
short-term capital gains earned in any particular period. Any such amount
retained by the Fund would be available to stabilize future distributions. As
a result, the distributions paid by the Fund for any particular month may be
more or less than the amount of net investment income and net realized short-
term capital gains actually earned by the Fund during such period. However,
with respect to any taxable year, the Fund does not intend to pay
distributions in excess of net investment income and net realized capital
gains earned through such year.
DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan") all
shareholders whose shares are registered in their own names have all
distributions reinvested automatically in additional shares of the Fund by
First Data Investor Services Group, Inc. (in such capacity, the "Agent"), as
agent under the Plan, unless a shareholder elects to receive cash.
Shareholders whose shares are held in the name of a broker or nominee will
automatically have distributions reinvested by the broker or the nominee in
additional shares under the Plan, unless the shareholder elects to receive
distributions in cash. If the service is not available, such distributions
will be paid in cash. See "Dividend Reinvestment Plan" in the SAI.
The Agent has furnished each shareholder with written information relating
to the Plan. Included in such information are procedures for electing to
receive dividends and distributions in cash (or, in the case of shares held in
the name of a broker or a nominee who does not participate in the Plan, for
electing to participate in the Plan). Shareholders whose shares are held in
the name of a broker or nominee should contact the broker or nominee for
details. All distributions to investors who elect not to participate in the
Plan will be paid by check mailed directly to the record holder by or under
the direction of First Data Investor Services Group, Inc., as the dividend-
paying agent.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the
shares may have elected, non-participants in the Plan receive cash and
participants in the Plan receive the equivalent in shares of the Fund valued
as follows:
(i) If the shares are trading at net asset value or at a premium above
net asset value at the time of valuation, the Fund issues new shares at the
greater of net asset value or 95% of the then current market price.
(ii) If the shares are trading at a discount from net asset value at the
time of valuation, the Agent receives the dividend or distribution in cash
and applies it to the purchase of the Fund's shares in the open market, on
the New York Stock Exchange or elsewhere, for the participants' accounts.
Such purchases are made on or shortly after the payment date for such
dividend or distribution and in no event more than 30 days after such date
except where temporary curtailment or suspension of purchase is necessary
to comply with Federal securities laws. If, before the Agent has completed
its purchases, the market price exceeds the net asset value of a share of
Common Stock, the average purchase price per share paid by the Agent may
exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend or distribution had been
in shares issued by the Fund.
There is no charge to participants for reinvesting dividends and capital
gains distributions. The fees of the Agent for handling the reinvestment of
dividends and capital gains distributions are paid by the Fund. There are
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<PAGE>
no brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in shares or
in cash. However, each participant bears a pro-rata share of brokerage
commissions incurred with respect to the Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions
paid in cash.
The automatic reinvestment of income and capital gains distributions does
not relieve participants of any income tax that may be payable on such income
and capital gains distributions. The federal income tax treatment of
reinvestment is described in the SAI under "Taxation."
All correspondence concerning the Plan should be directed to the Agent at
First Data Investor Services Group, Inc., P.O. Box 1376, Boston, Massachusetts
02104. For a more complete description of the Plan, see "Dividend Reinvestment
Plan" in the SAI.
TAXATION
The Fund intends to continue to qualify and elect to be treated as a
"regulated investment company" under the Code. The Fund intends to make timely
distributions of the Fund's taxable income (including any net capital gain) so
that the Fund will not be subject to federal income or excise taxes. However,
exchange control or other regulations on the repatriation of investment
income, capital or the proceeds of securities sales, if any exist or are
enacted in the future, may limit the Fund's ability to make distributions
sufficient in amount to avoid being subject to one or both of such federal
taxes. It is anticipated that substantially all of the Fund's distributions of
dividend and interest income and any net short-term capital gain will be
taxable as ordinary income to shareholders. Distributions of the Fund's net
capital gain (which will be designated as capital gain dividends by the Fund)
will be taxable to shareholders as long-term capital gain, regardless of the
length of time a shareholder has held his shares. After the end of each
taxable year, the Fund will notify shareholders of the United States federal
income tax status of any distributions made by the Fund to such shareholder
during that year.
Income received by the Fund may also be subject to foreign income taxes,
including withholding taxes. The United States has entered into tax treaties
with many foreign countries which entitle the Fund to a reduced rate of such
taxes or exemption from taxes on such income. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known. If more than 50%
of the value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal Revenue Service to
pass through to its shareholders the amount of foreign taxes paid by the Fund.
However, there can be no assurance that the Fund will be able to do so. The
federal income tax status of each year's distributions by the Fund will be
reported to shareholders and to the Internal Revenue Service. The foregoing is
only a general description of the treatment of foreign taxes under the United
States federal income tax laws. Because of the availability of a foreign tax
credit or deduction will depend on the particular circumstances of each
shareholder, potential investors are advised to consult their own tax
advisers.
DESCRIPTION OF COMMON STOCK
The Fund is authorized to issue 100,000,000 shares of Common Stock, par
value $.01 per share, of which 8,652,707 shares were outstanding as of June
21, 1996. The Fund's shares of Common Stock have no preemptive, conversion,
exchange or redemption rights. Each share of Common Stock has equal voting,
dividend, distribution and liquidation rights. The shares of Common Stock
outstanding are, and the Shares when issued will be, fully paid and
nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of Directors are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Directors then
nominated for election if they choose to do so and, in such event, the holders
of the remaining shares of Common Stock will not be able to elect any
Directors. The foregoing description and the description under "Certain Anti-
Takeover Provisions of the Articles of Incorporation and Bylaws" are subject
to the provisions contained in the Fund's Articles of Incorporation and
Bylaws.
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The Fund has no present intention of offering additional shares of Common
Stock, except under the Plan and in connection with the Offer. See "Dividend
Reinvestment Plan." Other offerings of the Fund's shares of Common Stock, if
made, will require approval of the Board of Directors. Any additional offering
of Common Stock will be subject to the requirement of the 1940 Act that shares
may not be sold at a price below the then current net asset value, exclusive
of sales load, except in connection with an offering to existing shareholders
or with the consent of the holders of a majority of the Fund's outstanding
voting securities.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
The Fund has provisions in its Articles of Incorporation and Bylaws
(together, the "Charter Documents") that are intended to limit (i) the ability
of other entities or persons to acquire control of the Fund, (ii) the Fund's
freedom to engage in certain transactions and (iii) the ability of the Fund's
Directors or shareholders to amend the Charter Documents or effect changes in
the Fund's management. These provisions of the Charter Documents may be
regarded as "anti-takeover" provisions. The Board of Directors is divided into
three classes, each having a term of three years. At each annual meeting of
shareholders, the term of one class of Directors expires. Accordingly, only
those Directors in one class may be changed in any one year, and it would
require two years to change a majority of the Board of Directors (although
under Maryland law procedures are available for the removal of Directors even
if they are not then standing for re-election). Such system of electing
Directors is intended to have the effect of maintaining the continuity of
management and, thus, make it more difficult for the Fund's shareholders to
change the majority of Directors. A Director may be removed from office only
by a vote of at least 75% of the outstanding shares of Common Stock of the
Fund entitled to vote for the election of Directors.
Under Maryland law and the Fund's Articles of Incorporation, the affirmative
vote of the holders of a majority of the votes entitled to be cast is required
for the consolidation of the Fund with another corporation, a merger of the
Fund with or into another corporation (except for certain mergers in which the
Fund is the successor), a statutory share exchange in which the Fund is not
the successor, a sale or transfer of all or substantially all of the Fund's
assets, the dissolution of the Fund and any amendment to the Fund's Articles
of Incorporation. The affirmative vote of 75% (which is higher than that
required under Maryland law or the 1940 Act) of the outstanding shares of
Common Stock of the Fund is required to authorize the liquidation or
dissolution of the Fund in the absence of approval of the liquidation or
dissolution by a majority of the Continuing Directors of the Fund (defined for
this purpose as those Directors who were either members of the Board of
Directors on the date of closing of the initial offering of the shares of the
Fund's Common Stock (November 5, 1992) or subsequently became Directors and
whose election or nomination was approved by a majority of the Continuing
Directors then on the Board). In addition, the affirmative vote of 75% (which
is higher than that required under Maryland law or the 1940 Act) of the
outstanding shares of Common Stock of the Fund is required generally to
authorize any of the following transactions involving a corporation, person or
entity that is directly, or indirectly through affiliates, the beneficial
owner of more than 5% of the outstanding shares of the Fund (a "Principal
Shareholder"), or to amend the provisions of the Articles of Incorporation
relating to such transactions:
(i) merger, consolidation or statutory share exchange of the Fund with or
into any Principal Shareholder;
(ii) issuance of any securities of the Fund to any Principal Shareholder
for cash except upon reinvestment of dividends pursuant to a dividend
reinvestment plan of the Fund;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities of
the Fund, of any assets of any Principal Shareholder (except assets having
an aggregate fair market value of less than $1,000,000).
However, such vote would not be required when, under certain conditions, the
Continuing Directors approve the transactions described in (i) through (iv)
above, although in certain cases involving merger, consolidation or
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<PAGE>
statutory share exchange or sale of all or substantially all of the Fund's
assets, the affirmative vote of a majority of the outstanding shares of Common
Stock of the Fund would nevertheless be required. Except as described above
under "Tender Offers and Shares Repurchases; Conversion to Open-End Status--
Conversion to Open-End Status," the affirmative vote of 75% (which is higher
than that required under Maryland law or the 1940 Act) of the outstanding
shares of Common Stock of the Fund is required to convert the Fund to an open-
end investment company and to amend the Fund's Articles of Incorporation to
effect any such conversion. For the full text of these provisions, reference
is made to the Articles of Incorporation and Bylaws of the Fund, on file with
the Securities and Exchange Commission. See "Available Information."
The provisions of the Charter Documents described above could have the
effect of depriving the owners of shares of Common Stock of opportunities to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund in a tender offer or
similar transaction. See "Repurchase of Shares." The overall effect of these
provisions is to render more difficult the accomplishment of a merger or the
assumption of control by a Principal Shareholder. The Board of Directors of
the Fund has considered the foregoing anti-takeover provisions and concluded
that they are in the best interests of the Fund and its shareholders.
DISTRIBUTION ARRANGEMENTS
The Dealer Manager is Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013. Under the terms and subject to the conditions contained in a
Dealer Manager Agreement dated the date hereof, the Dealer Manager will
provide financial advisory services and marketing assistance in connection
with the Offer and will solicit the exercise of Rights by Record Date
shareholders. The Fund has agreed to pay the Dealer Manager a fee equal to
1.25% of the aggregate Subscription Price per Share for Shares issued upon
exercise of the Rights and the Over-Subscription Privilege for financial
advisory services and marketing assistance, including advice with respect to
the advisability, timing, size and Subscription Price of the Offer and the
coordination of soliciting efforts of any soliciting dealers, the Subscription
Agent and the Information Agent. The Fund has agreed to pay broker-dealers,
including the Dealer Manager, fees for their soliciting efforts (the
"Soliciting Fees") of 2.50% of the Subscription Price per Share for each Share
issued upon exercise of the Rights and the Over-Subscription Privilege. In
addition, the Fund has agreed to reimburse the Dealer Manager up to $100,000
for its reasonable expenses incurred in connection with the Offer. Soliciting
Fees will be paid to the broker-dealer designated on the applicable portion of
the Subscription Certificates or, if no broker-dealer is so designated, to the
Dealer Manager.
The Fund and Alliance have each agreed to indemnify the Dealer Manager or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act. The Dealer Manager Agreement also provides that, in
rendering the services contemplated by the Dealer Manager Agreement, the
Dealer Manager will not be subject to any liability to the Fund except in
instances involving the Dealer Manager's gross negligence or willful
misconduct, or for any act or omission on the part of any broker-dealer (other
than the Dealer Manager or any of its affiliates) or any other person. The
staff of the Securities and Exchange Commission has advised the Fund and the
Dealer Manager that the staff is considering whether a dealer manager is an
underwriter for purposes of the Securities Act and the 1940 Act.
The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity related securities of the Fund or securities
convertible into such securities for a period of 180 days after the date of
the Dealer Manager Agreement without the prior consent of the Dealer Manager
except for the Shares and Common Stock issued in reinvestment of dividends or
distributions.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, New York 10286, serves as
custodian for the Fund.
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TRANSFER AGENT, DIVIDEND-PAYING AGENT AND REGISTRAR
First Data Investor Services Group, Inc., 53 State Street, Boston,
Massachusetts 02109, acts as the Fund's transfer agent, dividend-paying agent
and registrar.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the Fund
by Seward & Kissel, New York, New York. Certain legal matters will be passed
upon for the Dealer Manager by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), New York, New York. Seward & Kissel and
Simpson Thacher & Bartlett will rely upon the opinion of Venable, Baetjer and
Howard, LLP, Baltimore, Maryland, for matters relating to Maryland law.
EXPERTS
The audited financial statements included in this Prospectus have been so
included in reliance on the report by Ernst & Young LLP, independent auditors,
given on the authority of such firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission. Any such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048 and Chicago Regional
Office, Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the public
reference section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports, proxy
statements and other information concerning the Fund can also be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Additional information regarding the Fund and the Shares is contained in the
Registration Statement on Form N-2, including amendments, exhibits and
schedules thereto, relating to the Shares filed by the Fund with the
Securities and Exchange Commission, Washington, D.C. This Prospectus and the
SAI do not contain all of the information set forth in the Registration
Statement, including any amendments, exhibits and schedules thereto. For
further information with respect to the Fund and the Shares, reference is made
to the Registration Statement. Statements contained in this Prospectus and the
SAI as to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
the Securities and Exchange Commission upon the payment of certain fees
prescribed by the Securities and Exchange Commission.
A copy of the Fund's annual report for the fiscal year ended October 31,
1995 was mailed to shareholders in December 1995.
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TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Investment Practices............................................... 2
Investment Restrictions.................................................... 3
Management of the Fund..................................................... 5
Brokerage and Portfolio Transactions....................................... 11
Dividend Reinvestment Plan................................................. 12
Taxation................................................................... 12
Certain Owners of Record................................................... 19
Financial Statements....................................................... 20
</TABLE>
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APPENDIX
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING--When no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
A-1
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
CCC the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
C1--The rating C1 is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-)--The Ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
A-2
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND THE SAI AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND,
ALLIANCE OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS
REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Information........................................................ 3
Prospectus Summary......................................................... 4
Financial Highlights....................................................... 11
The Offer.................................................................. 13
The Fund................................................................... 21
Use of Proceeds............................................................ 22
Net Asset Value and Market Price Information............................... 23
Investment Objective and Policies.......................................... 23
Special Risk Considerations................................................ 33
Tenders Offers and Share Repurchases; Conversion to Open-End Status........ 38
Management of the Fund..................................................... 41
Net Asset Value............................................................ 42
Dividends and Distributions................................................ 43
Dividend Reinvestment Plan................................................. 43
Taxation................................................................... 44
Description of Common Stock................................................ 44
Distribution Arrangements.................................................. 46
Custodian.................................................................. 46
Transfer Agent, Dividend-Paying Agent and Registrar........................ 47
Legal Matters.............................................................. 47
Experts.................................................................... 47
Available Information...................................................... 47
Table of Contents of Statement of Additional Information................... 48
Appendix--Bond Ratings..................................................... A-1
</TABLE>
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ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
2,884,235 SHARES OF
COMMON STOCK
ISSUABLE UPON EXERCISE
OF RIGHTS TO SUBSCRIBE
FOR SUCH SHARES OF
COMMON STOCK
-------
PROSPECTUS
JUNE 21, 1996
-------
SMITH BARNEY INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-04015 and 811-01708.
<PAGE>
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
________________________
STATEMENT OF ADDITIONAL INFORMATION
Alliance World Dollar Government Fund, Inc. (the "Fund")
is a non-diversified, closed-end management investment
company. The Fund's investment objective is to seek high
current income by investing exclusively in fixed income
securities denominated in U.S. dollars. In seeking to
achieve this objective, the Fund invests substantially all
of its assets in (i) U.S. dollar-denominated debt
obligations issued or guaranteed by foreign governments,
including participations in loans between foreign
governments and financial institutions, and interests in
entities organized and operated for the purpose of
restructuring the investment characteristics of instruments
issued or guaranteed by foreign governments ("Sovereign Debt
Obligations") and (ii) zero coupon obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities ("Zero Coupon Obligations"). Under normal
circumstances, the Fund invests at least 75% of its total
assets in (i) Sovereign Debt 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
Obligations having the same maturity ("Collateralized Brady
Bonds") and (ii) Zero Coupon Obligations. There can be no
assurance that the Fund's investment objective will be
achieved.
This Statement of Additional Information ("SAI") is not
a prospectus, but should be read in conjunction with the
Prospectus for the Fund dated June 21, 1996 (the
"Prospectus"). This SAI does not include all information
that a prospective investor should consider before
purchasing shares of the Fund and investors should obtain
and read the Prospectus prior to purchasing shares. A copy
of the Prospectus may be obtained without charge by calling
(800) 227-4618. This SAI incorporates by reference the
entire Prospectus. Defined terms used herein shall have the
same meaning as provided in the Prospectus.
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
Certain Investment Practices ............................. 2
Investment Restrictions .................................. 3
Management of the Fund ................................... 5
Brokerage and Portfolio Transactions ..................... 11
Dividend Reinvestment Plan ............................... 12
Taxation ................................................. 12
Certain Owners of Record ................................. 19
Financial Statements ..................................... 20
<PAGE>
CERTAIN INVESTMENT PRACTICES
The following information supplements the section "Investment
Objective and Policies" in the Prospectus and should be read only
in connection with that section of the Prospectus.
STRUCTURED SECURITIES
Certain issuers of Structured Securities may be deemed to be
"investment companies" as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). As a result, the Fund's
investment in these Structured Securities may be limited by the
restrictions contained in the 1940 Act described in the next
paragraph under "Investment in Other Investment Companies."
INVESTMENT IN OTHER INVESTMENT COMPANIES
In accordance with the 1940 Act, the Fund may invest up to
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 acquires 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).
OPTIONS
A put option gives the purchaser of such option, upon payment
of a premium, the right to deliver a specified amount of a
security to the writer of the option on or before a fixed date at
a predetermined price. A call option gives the purchaser of the
option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by
the Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security in the same principal amount as
the call written and the exercise price of the call held (a) is
equal to or less than the exercise price of the call or (b) is
greater than the exercise price of the call written and the
difference is maintained by the Fund in cash and liquid high-
grade debt securities in a segregated account with its custodian.
A put option written by the Fund is "covered" if the Fund
2
<PAGE>
maintains cash not available for investment or liquid high-grade
debt securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the
same security in the same principal amount as the put written and
the exercise price of the put held is equal to or greater than
the exercise price of the put written. The premium paid by the
purchaser of an option reflects, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates.
MAINTENANCE OF SEGREGATED ACCOUNT
The Fund may determine to maintain a segregated account with
its custodian consisting of cash, U.S. Government Securities or
high-grade debt obligations in connection with certain
transactions that otherwise may result in the issuance of a
"senior security" within the meaning of the 1940 Act. See
"Investment Objective and Policies--Borrowing" in the Prospectus.
These transactions include uncovered options, interest rate swaps
(other than those entered into on a net basis), reverse
repurchase agreements, dollar rolls, standby commitments to
purchase securities, forward commitments to purchase or sell
securities and sales of interest rate caps and floors.
Maintenance of such a segregated account may have the effect of
limiting the Fund's ability to engage in such transactions.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions,
which may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities as defined
in "Investment Objective and Policies--General" in the
Prospectus. The percentage limitations set forth below apply
only at the time an investment is made or other relevant action
is taken by the Fund.
The Fund will not:
1. Invest 25% or more of its total assets (valued at
the time of investment) in securities of issuers conducting
their principal business activities in the same industry,
except that this restriction does not apply to U.S.
Government Securities;
2. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and
policies; (ii) the lending of portfolio securities; or
(iii) the use of repurchase agreements;
3
<PAGE>
3. Borrow money or issue senior securities, except
that the Fund may borrow from a bank or other entity in a
privately arranged transaction for (i) the repurchase and/or
tenders for its shares or to pay dividends for purposes of
complying with the Internal Revenue Code of 1986, as amended,
if after such borrowing there is asset coverage of at least
300% as defined in the 1940 Act and (ii) temporary purposes
in an amount not exceeding 5% of the value of the total
assets of the Fund;
4. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;
5. Invest in companies for the purpose of exercising
control;
6. 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 being 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); or
7. (i) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in
real estate or interests therein and securities that are
secured by real estate, provided such securities are
Sovereign Debt Obligations; (ii) invest in interests in oil,
gas, or other mineral exploration or development programs;
(iii) purchase securities on margin, except for such short-
term credits as may be necessary for the clearance of
transactions; and (iv) act as an underwriter of securities,
except that the Fund may acquire restricted securities under
circumstances in which, if such securities were sold, the
Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933.
In addition, the Fund has adopted a policy which may be
changed by the action of the Fund's Board of Directors without
shareholder approval that it will not purchase or sell
commodities or commodity contracts.
4
<PAGE>
MANAGEMENT OF THE FUND
The Directors and officers of the Fund and their principal
occupations during the past five years are set forth below. The
Directors and officers also serve as directors, trustees or
officers of other registered investment companies sponsored by
Alliance Capital Management L.P. ("Alliance").
Age, Principal Occupations
During Past Five Years
Name and Address Office and Other Affiliations
________________ ______ ______________________
John D. Carifa* Director and 51, President, Chief Operating
1345 Avenue of the Americas Chairman Officer and a Director of Alliance
New York, NY 10105 Capital Management Corporation
("ACMC").**
Ruth Block Director 65, Formerly an Executive Vice
P.O. Box 4653 President and Chief Insurance
Stamford, CT 06903 Officer of The Equitable Life
Assurance Society of the United
States. She is a Director of
Ecolab Incorporated (specialty
chemicals) and Amoco Corporation
(oil and gas).
David H. Dievler Director 66, Independent consultant. He
P.O. Box 167 was formerly a Senior Vice
Spring Lake, NJ 07762 President of ACMC until December
1994.
John H. Dobkin Director 54, President of Historic Hudson
105 West 55th Street Valley (historic preservation)
New York, NY 10019 since 1991. He was formerly
Director of the National Academy
of Design. From 1987 to 1992 he
was a director of ACMC.
William H. Foulk, Jr. Director 63, An investment adviser and
2 Hekma Road independent consultant. He was
Greenwich, CT 06831 formerly Senior Manager of Barrett
Associates, Inc., a registered
investment adviser, since 1986.
Dr. James M. Hester Director 72, President of The Harry Frank
45 East 89th Street Guggenheim Foundation. He was
New York, NY 10128 formerly President of New York
University and The New York
Botanical Garden and Rector of The
United Nations University. He is
5
<PAGE>
also a Director of Union Carbide
Corporation.
Clifford L. Michel Director 56, Partner in the law firm of
St. Bernard's Road Cahill Gordon & Reindel. He is
Gladstone, NJ 07934 Chief Executive Officer of Wenonah
Development Company (investments)
and a Director of Placer Dome,
Inc. (mining).
_______________________________________________________________
* An "interested person," as defined in the 1940 Act, of the Fund.
** For the purpose of this SAI, ACMC refers to Alliance Capital Management
Corporation, the sole general partner of Alliance, and to the predecessor
general partner of Alliance of the same name.
6
<PAGE>
Age, Principal Occupations
During Past Five Years
Name and Address Office and Other Affiliations
________________ ______ ______________________
Robert C. White Director 75, Formerly Assistant
30835 River Crossing Treasurer of Ford Motor Company
Bingham Farms, MI 48025 and, until September 30, 1994,
Vice President and Chief Financial
Officer of the Howard Hughes
Medical Institute.
Wayne D. Lyski President 54, Executive Vice President of
1345 Avenue of the Americas ACMC, with which he has been
New York, NY 10105 associated since prior to 1991.
Kathleen A. Corbet Senior Vice 36, Senior Vice President of ACMC
1345 Avenue of the Americas President since July 1993. Previously, she
New York, NY 10105 held various responsibilities as
head of Equitable Capital
Management Corporation's Fixed
Income Management Department,
Private Placement, Secondary
Trading and Fund Management since
prior to 1991.
Paul J. DeNoon Vice President 34, Vice President of ACMC, with
1345 Avenue of the Americas which he has been associated
New York, NY 10105 since 1992. Previously, he was a
Vice President of Manufacturers
Hanover Trust Company since prior
to 1991.
Vicki L. Fuller Vice President 39, Senior Vice President of ACMC
1345 Avenue of the Americas since July 1993. Previously, she
New York, NY 10105 was a Managing Director of High
Yield of Equitable Capital
Management Corporation since prior
to 1991.
Mark D. Gersten Treasurer and 45, Senior Vice President of
500 Plaza Drive Chief Financial Alliance Fund Services, Inc.
Secaucus, NJ 07094 Officer ("AFS"), with which he has been
associated since prior to 1991.
Edmund P. Bergan, Jr. Secretary 46, Senior Vice President and the
1345 Avenue of the Americas General Counsel of Alliance Fund
New York, NY 10105 Distributors, Inc. and AFS and a
Vice President and Assistant
General Counsel of ACMC, with
7
<PAGE>
which he has been associated since
prior to 1991.
Joseph J. Mantineo Controller 37, Vice President of AFS, with
500 Plaza Drive which he has been associated since
Secaucus, NJ 07094 prior to 1991.
The Board of Directors is divided into three classes, each
class having a term of three years. Each year the term of one
class expires. See "Description of Common Stock--Certain Anti-
Takeover Provisions of the Articles of Incorporation and Bylaws"
in the Prospectus.
The Fund does not pay any fees to, or reimburse expenses of,
its Directors who are considered "interested persons" of the
Fund. The aggregate compensation paid by the Fund to each of the
Directors during its fiscal year ended October 31, 1995, the
aggregate compensation paid to each of the Directors during
calendar year 1995 by all of the funds to which Alliance provides
investment advisory services (collectively, the "Alliance Fund
Complex") and the total number of registered investment 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 other fund 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 of Funds
Total in the Alliance Fund
Compensation Complex, Including
Aggregate from the Alliance the Fund, as to which
Name of Director Compensation Fund Complex, the Director is a
of the Fund from the Fund Including the Fund Director
________________ _____________ __________________ _____________________
John D. Carifa $-0- $ -0- 49
Ruth Block $3,467 $159,000 36
David H. Dievler $2,717 $179,200 42
John H. Dobkin $3,729 $117,200 29
William H. Foulk, Jr. $3,729 $143,500 30
Dr. James M. Hester $3,467 $156,000 37
Clifford L. Michel $3,217 $131,500 36
Robert C. White $3,467 $133,200 36
As of June 17, 1996, the Directors and officers of the Fund
as a group owned less than 1% of the outstanding shares of Common
Stock of the Fund.
8
<PAGE>
ADVISER AND ADMINISTRATOR; ADVISORY ARRANGEMENTS
Alliance Capital Management L.P., a New York Stock Exchange
listed company 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 serve
as investment adviser and under an administration agreement to
serve as administrator to the Fund. Alliance Capital Management
Corporation, 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 and a wholly-owned subsidiary of
The Equitable Companies Incorporated ("ECI"), a holding company
controlled by AXA, a French insurance holding company. As of
March 31, 1996, ACMC, Inc. and Equitable Capital Management
Corporation, each a wholly-owned direct or indirect subsidiary of
Equitable, together with Equitable, owned in the aggregate
approximately 57.6% of the issued and outstanding units
representing assignments of beneficial ownership of limited
partnership interests in Alliance ("Units"). As of March 31,
1996, approximately 32.4% and 10.0% of the Units were owned by
the public and employees of Alliance and its subsidiaries,
respectively, including employees of Alliance who serve as
Directors of the Fund.
AXA and its subsidiaries own approximately 63.9% of the
issued and outstanding shares of capital stock of ECI. AXA is
the holding company for an international group of insurance and
related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty
insurance and reinsurance. The insurance operations are diverse
geographically, with activities in France, the United States,
Australia, the United Kingdom, Canada and other countries,
principally in Europe and the Asia Pacific area. AXA is also
engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services
activities in the United States, Europe and the Asia Pacific
area. Based on information provided by AXA, as of March 31,
1996, 42.1% of the issued ordinary shares (representing 53.4% of
the voting power) of AXA were owned by Midi Participations, a
French holding company ("Midi"). The shares of Midi were, in
turn, owned 61.4% (representing 62.5% of the voting power) by
Finaxa, a French holding company, and 38.6% (representing 37.5%
of the voting power) by subsidiaries of Assicurazioni Generali
S.p.A., an Italian corporation (one of which, Belgica Insurance
Holding S.A., a Belgian corporation, owned 30.8%, representing
33.1% of the voting power). As of March 31, 1996, 61.1% of the
voting shares (representing 73.4% of the voting power) of Finaxa
were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
9
<PAGE>
owned 34.7% of the voting shares representing 40.4% of the voting
power), and 25.5% of the voting shares (representing 16% of the
voting power) of Finaxa were owned by Banque Paribas, a French
bank. Including the ordinary shares owned by Midi, as of
March 31, 1996, the Mutuelles AXA directly or indirectly owned
51% of the issued ordinary shares (representing 64.7% of the
voting power) of AXA. Acting as a group, the Mutuelles AXA
control AXA, Midi and Finaxa.
The Advisory Agreement between the Fund and Alliance provides
that Alliance will furnish investment advice and recommendations
to the Fund and will provide office space in New York, order
placement facilities and persons satisfactory to the Fund's Board
of Directors to act as officers of the Fund. Such officers, as
well as certain Directors of the Fund, may be employees of
Alliance or directors, officers or employees of its affiliates.
Under the Advisory Agreement, the Fund pays monthly to Alliance a
fee at an annualized rate of 1.00% of the Fund's average weekly
net assets. For purposes of the calculation of the fee payable
to Alliance, average weekly net assets are determined on the
basis of the average net assets of the Fund for each weekly
period (ending on Friday) ending during the month. The net
assets for each weekly period are determined by averaging the net
assets on Friday of such weekly period with the net assets on
Friday of the immediately preceding weekly period. When a Friday
is not a Fund business day, then the calculation will be based on
the net assets of the Fund on the Fund business day immediately
preceding such Friday. The fee is in excess of the management
fees paid by most U.S. registered investment companies investing
exclusively in securities of U.S. issuers, although Alliance
believes the fee is generally comparable to the management fees
paid by other closed-end companies that invest in the securities
of foreign issuers, and Alliance believes the fee is justified by
the special care that must be given to the selection and
supervision of the particular types of securities in which the
Fund invests. For the Fund's fiscal years ended in 1995, 1994,
and 1993, the Fund paid $915,252, $1,165,088, $1,227,705,
respectively, to Alliance pursuant to the Advisory Agreement.
The Fund has entered into a Shareholder Inquiry Agency
Agreement (the "Inquiry Agreement") with AFS, an indirect wholly-
owned subsidiary of Alliance, pursuant to which AFS has agreed to
act as shareholder inquiry agent to the Fund for the purpose of
responding to telephone inquiries concerning the Fund and matters
relating thereto from shareholders of the Fund and others. Under
the Inquiry Agreement, the Fund reimburses AFS for its costs of
responding to such inquiries. During 1995, the Fund reimbursed
AFS $3,995 pursuant to the Inquiry Agreement.
Alliance has entered into a written agreement (the "Economic
Consulting Agreement") under which it pays out of its own
10
<PAGE>
resources a monthly fee at an annualized rate of .10% of the
Fund's average weekly net assets in consideration of the
provision by Lehman Brothers, Inc. of research regarding global
economic conditions and economic conditions in the specific
countries in which the Fund invests as well as statistical
services. In rendering such services, Lehman Brothers, Inc. does
not give advice or make recommendations regarding the purchase or
sale by the Fund of specific portfolio securities. For the
Fund's fiscal years ended in 1995, 1994, and 1993, Alliance paid
$91,525, $116,507, and $122,771, respectively, pursuant to the
Economic Consulting Agreement.
Certain other clients of Alliance or of its affiliates may
have investment objectives and policies similar to those of the
Fund. Alliance and any of its affiliates 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
Alliance and any of its affiliates to allocate advisory
recommendations and the placing of orders in a manner that is
deemed equitable by Alliance to the accounts involved, including
the Fund. When two or more clients of Alliance and any of its
affiliates (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.
CUSTODIAN
The Bank of New York (the "Bank"), 48 Wall Street, New York,
New York 10286, serves as custodian for the Fund. In this
capacity, the Bank maintains custody of the securities and cash
of the Fund in compliance with the 1940 Act.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, serves as independent auditors of the Fund. In this
capacity, Ernst & Young LLP audits the accounts of the Fund.
BROKERAGE AND PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors
of the Fund, Alliance 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 and major dealers acting as principals.
Such transactions are normally on a net basis which do not
involve payment of brokerage commissions. The cost of securities
11
<PAGE>
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.
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 execution for its transactions. Where best
execution may be obtained from more than one dealer, Alliance
may, in its discretion, purchase and sell securities through
dealers who provide research, statistical and other information
to Alliance. These services are used by Alliance for all of its
investment advisory accounts and, accordingly, not all of the
services are used by Alliance in connection with the Fund. The
supplemental information received from a dealer is in addition to
the services required to be performed by Alliance under the
Advisory Agreement, and the expenses of the Alliance will not
necessarily be reduced as a result of the receipt of such
information. Portfolio securities will not be purchased from or
sold to Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of Alliance, or any other subsidiary or affiliate of
Equitable.
DIVIDEND REINVESTMENT PLAN
Certain brokers or nominees may require a shareholder to
elect to participate in the Dividend Reinvestment Plan (the
"Plan") to the extent such shareholder desires to participate.
First Data Investors Services Group, Inc. (in this capacity, the
"Agent") maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the
account, including information needed by shareholders for
personal and tax records. Shares in the account of each Plan
participant are held by the Agent in the name of the participant
and each shareholder's proxy includes those shares purchased
pursuant to the Plan. Share certificates are not issued in the
name of individual Plan participants.
Experience under the Plan may indicate that changes are
desirable. Accordingly, the Fund reserves the right to amend or
terminate the Plan as applied to any income or capital gains
distribution paid subsequent to written notice of the change sent
to the Plan participant at least 90 days before the date of such
income or capital gain distribution. The Plan may also be
amended or terminated by the Agent, with the Fund's prior
consent, on at least 90 days' written notice to Plan
participants. All correspondence concerning the Plan should be
directed to First Data Investor Services Group, Inc., P.O. Box
1376, Boston, MA 02104 or by phone at (800) 331-1710.
12
<PAGE>
TAXATION
The following summary addresses the principal United States
and foreign income tax considerations regarding the purchase,
ownership and disposition of shares in the Fund. The Fund and
its shareholders may also be subject to other federal, state,
local and foreign taxes.
IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH
SHAREHOLDER IS ADVISED TO CONSULT THE SHAREHOLDER'S OWN TAX
ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF BEING A
SHAREHOLDER OF THE FUND, INCLUDING THE EFFECT AND APPLICABILITY
OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES THEREIN.
The statements regarding taxation set out below are based on
those laws that are in force on the date of this Prospectus and
are subject to any subsequent changes therein.
UNITED STATES FEDERAL INCOME TAXES
The following discussion of United States federal income
taxes is based upon the advice of Seward & Kissel, counsel for
the Fund.
GENERAL. The Fund intends to continue to qualify and elect
to be treated as a "regulated investment company" under sections
851 through 855 of the Internal Revenue Code of 1986, as amended
(the "Code"). To so qualify, the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or
securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; (ii) derive less than
30% of its gross income in each taxable year from the sale or
other disposition within three months of their acquisition by the
Fund of stocks, securities, options, futures or forward contracts
and foreign currencies (or options, futures or forward contracts
on foreign currencies) that are not directly related to the
Fund's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities); and
(iii) diversify its holdings so that, at the end of each quarter
of its taxable year, the following two conditions are met: (a) at
least 50% of the value of the Fund's assets is represented by
cash, U.S. Government securities, securities of other regulated
investment companies and other securities with respect to which
the Fund's investment is limited, in respect of any one issuer,
to an amount not greater than 5% of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (b) not
13
<PAGE>
more than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment
companies). These requirements will limit the Fund's ability to
purchase or sell forward contracts, to enter into interest rate
swaps and to purchase or sell interest rate caps or floors.
If the Fund qualifies as a regulated investment company for
any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net short-
term capital loss), it will not be subject to federal income tax
on the portion of its taxable income for the year (including any
net capital gain) that it distributes to shareholders.
The Fund will also avoid the 4% federal excise tax that would
otherwise apply to certain undistributed income for a given
calendar year if it makes timely distributions to the
shareholders equal to the sum of (i) 98% of its ordinary income
for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 (or November 30 if elected by the Fund) of that year;
and (iii) any ordinary income or capital gain net income from the
preceding calendar year that was not distributed during that
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 of a given year but actually paid during the immediately
following January will be treated as if paid by the Fund on
December 31 of that calendar year, and will be taxable to these
shareholders for the year declared, and not for the year in which
the shareholders actually receive the dividend.
DISTRIBUTIONS. Distributions payable by the Fund either in
cash or in additional shares to its shareholders will be subject
to United States federal income taxes. Shareholders electing to
receive such distributions in the form of additional shares will
be treated as receiving a distribution in an amount equal to the
fair market value, determined as of the payment date, of the
shares received. The shareholder's cost basis in the shares
received will equal the amount recognized as a taxable
distribution. Distributions to shareholders of the Fund's
dividend and interest income and of any net short-term capital
gain in any year will be taxable as ordinary income to such
shareholders to the extent of the Fund's taxable income (without
regard to any net capital gain) for that year.
14
<PAGE>
It is anticipated that substantially all of the Fund's
distributions of dividend and interest income and any net short-
term capital gain will be taxable as ordinary income to
shareholders. Distributions which are so taxable will constitute
dividends for federal income tax purposes but will not be
eligible for the dividends-received deduction for corporations.
To the extent that such distributions to a shareholder in any
year are not taxable as ordinary income, they will be treated as
a nontaxable return of capital and will reduce the shareholder's
basis in his shares. The amount of such distributions, if any,
in excess of the shareholder's basis in his shares, will be
treated as a gain from the sale of shares, as discussed below.
Distributions of the Fund's net capital gain (which will be
designated as capital gain dividends by the Fund) will be taxable
to shareholders as long-term capital gain, regardless of the
length of time a shareholder has held his shares.
After the end of the taxable year, the Fund will notify
shareholders of the United States federal income tax status of
any distributions made by the Fund to such shareholders during
that year.
SALES, REDEMPTIONS AND OFFERS TO PURCHASE SHARES. A
shareholder may recognize taxable gain or loss if the shareholder
sells or redeems shares of the Fund or, pursuant to a Tender
Offer or a Subsequent Offer, tenders all of his shares. Any gain
or loss arising from such a sale, redemption or tender generally
will be capital gain or loss except in the case of a dealer or
certain financial institutions and will be long-term capital gain
or loss if the shareholder has held such shares for more than one
year at the time of the sale, redemption or tender; otherwise it
will be short-term capital gain or loss. However, any capital
loss arising from the sale, redemption or tender of shares held
for six months or less by a shareholder will be treated as a
long-term capital loss to the extent of the amount of capital
gain dividends received by the shareholder. In determining the
holding period of such shares for this purpose, any period during
which a shareholder's risk of loss is offset by means of options,
short sales or similar transactions is not counted.
If a shareholder who tenders shares pursuant to a Tender
Offer or a Subsequent Offer fails to comply with the terms of the
Offer and tenders less than all the shares owned by and
attributed to such shareholder, and if the distribution to the
shareholder does not otherwise qualify as an exchange, the
proceeds received may be taxable as described above under
"Distributions." Also, there is a risk that non-tendering
shareholders may be considered to have received a deemed
distribution which may also be taxable as described above.
15
<PAGE>
Any loss realized by a shareholder on a sale or exchange of
shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan will constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
FOREIGN TAX CREDITS. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a shareholder will be required to (i) include in gross
income (in addition to taxable dividends actually received) his
pro rata share of foreign taxes paid by the Fund, (ii) treat his
pro rata share of such foreign taxes as having been paid by him,
and (iii) either deduct such pro rata share of foreign taxes in
computing his taxable income or treat such foreign taxes as a
credit against United States federal income taxes. Shareholders
who are not liable for federal income taxes, such as retirement
plans qualified under section 401 of the Code, will not be
affected by any such pass through of taxes by the Fund. No
deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition,
certain individual shareholders may be subject to rules which
limit or reduce their availability to fully deduct their pro rata
share of the foreign taxes paid by the Fund. Each shareholder
will be notified within 60 days after the close of the Fund's
taxable year as to whether the foreign taxes paid by the Fund
will pass through for that year and, if so, such notification
will designate (i) the shareholder's portion of the foreign taxes
paid to each such country and (ii) the portion of dividends that
represents income derived from sources within each such country.
Generally, a credit for foreign taxes may not exceed the
shareholder's United States tax attributable to the shareholder's
total foreign source taxable income. Generally, the source of
the Fund's income flows through to its shareholders. The overall
limitation on a foreign tax credit is also applied separately to
specific categories of foreign source income, including foreign
source "passive income," including dividends, interest and
capital gains. Further, the foreign tax credit is allowed to
offset only 90% of any alternative minimum tax to which a
shareholder may be subject. As a result of these rules, certain
shareholders may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the
Fund. If a Shareholder could not credit his full share of the
16
<PAGE>
foreign tax paid, double taxation of such income could be
mitigated only by deducting the foreign tax paid, which may be
subject to limitation as described above.
The federal income tax status of each year's distributions by
the Fund will be reported to shareholders and to the Internal
Revenue Service. The foregoing is only a general description of
the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax
credit or deduction will depend on the particular circumstances
of each shareholder, potential investors are advised to consult
their own tax advisers.
BACKUP WITHHOLDING. The Fund may be required to withhold
United States 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
United States 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.
PASSIVE FOREIGN INVESTMENT COMPANIES. Certain of the Fund's
investments in Structured Securities may constitute, for federal
income tax purposes, investments in shares of foreign
corporations. If the Fund owns shares in a foreign corporation
that constitutes a "passive foreign investment company" (a
"PFIC") for federal income tax purposes and the Fund does not
elect to treat the foreign corporation as a "qualified electing
fund" within the meaning of the Code, the Fund may be subject to
United States federal income taxation on a portion of any "excess
distribution" it receives from the PFIC or any gain it derives
from the disposition of such shares, even if such income is
distributed as a taxable dividend by the Fund to its United
States shareholders. The Fund may also be subject to additional
interest charges in respect of deferred taxes arising from such
distributions or gains. Any tax paid by the Fund as a result of
its ownership of shares in a PFIC will not give rise to any
deduction or credit to the Fund or to any shareholder. A PFIC
17
<PAGE>
means any foreign corporation if, for the taxable year involved,
either (i) it derives at least 75 percent of its gross income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) at least 50
percent of the value (or adjusted tax basis, if elected) of the
assets held by the corporation produce "passive income." The
Treasury has issued proposed regulations which would provide a
"mark-to-market" election solely with respect to gain inherent in
PFIC stock held by a regulated investment company, such as the
Fund, which does not elect to treat the PFIC as a "qualified
electing fund." If the proposed regulations are adopted in final
form and the election provided therein were to be made by the
Fund, the Fund would recognize as gain as of the last business
day of its taxable year the excess of the fair market value of
each share of stock in the PFIC over the Fund's adjusted tax
basis in that share. This gain, which would be treated as
derived from securities held by the Fund for at least three
months, generally would not be subject to the deferred tax and
interest charge amounts to which it might otherwise be subject,
as discussed above, in the event of an "excess distribution" or
gain with regard to shares of a PFIC. If the Fund purchases
shares in a PFIC and the Fund does elect to treat the foreign
corporation as a "qualified electing fund" under the Code, the
Fund will be required to include in its income each year a
portion of the ordinary income and net capital gains of the
foreign corporation, even if this income is not distributed to
the Fund. Any such income would be subject to the 90 percent and
calendar year distribution requirements described above.
ZERO COUPON AND OTHER DISCOUNT OBLIGATIONS. Under current
federal tax law, the Fund will include in income as interest each
year, in addition to stated interest received on obligations held
by the Fund, amounts attributable to the Fund from holding
(i) securities (including certain Brady Bonds and all Zero Coupon
Obligations) which were initially issued at a discount from their
face value (collectively, "Discount Obligations") and
(ii) securities (including many Brady Bonds) 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." Current
federal tax law requires that a holder (such as the Fund) of a
Discount Obligation accrue as income each year a portion of the
discount at which the obligation was purchased by the Fund even
though the Fund does not receive interest payments in cash on the
security during the year which reflect the accrued discount. The
Fund will elect to likewise accrue and include in income each
year a portion of the market discount with respect to a Discount
Obligation or other obligation even though the Fund does not
receive interest payments in cash on the securities which reflect
that accrued discount.
18
<PAGE>
As a result of the applicable rules, in order to make the
[6~distributions necessary for the Fund not to be subject to
federal income or excise taxes, the Fund may be required to pay
out as an income distribution each year an amount significantly
greater than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be
made from the cash assets of the Fund, from borrowings or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, Alliance 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 sales, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such sales.
TAX STRADDLES. Any forward contract or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. The Treasury has recently issued
regulations which treat interest rate swaps, caps and floors
entered into or purchased by the Fund as positions which may also
constitute part of a straddle for federal income tax purposes.
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.
TAXATION OF FOREIGN SHAREHOLDERS
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their own counsel for further information as to the
United States federal income tax consequences of receipt of
income from the Fund.
OTHER TAXES
As noted above, the Fund may be subject to other state, local
and foreign taxes. The Fund intends to conduct its business
activities so that it will qualify to do business in the
Commonwealth of Pennsylvania and, accordingly, expects to be
subject to the Pennsylvania foreign franchise and corporate net
income tax in respect of its business activities in Pennsylvania
for its initial fiscal year and subsequent years. Accordingly,
it is expected that shares of the Fund will be exempt from
Pennsylvania personal property taxes. The Fund anticipates that
it will continue such business activities but reserves the right
19
<PAGE>
to suspend them at any time, resulting in the termination of the
exemption.
CERTAIN OWNERS OF RECORD
Set forth below is certain information as to all persons
known by the Fund to have owned of record 5% or more of the
outstanding shares of Common Stock of the Fund as of the close of
business on June 4, 1996:
Percent of
Outstanding
Name and Address Number of Shares Common Stock
The Depository Trust Company 7,835,657 90.56%
55 Water Street
New York, NY 10041
20
00250230.AL8
<PAGE>
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $VALUE
- - ------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS99.6%
COLLATERALIZED BRADY BONDS*73.6%
ARGENTINA11.2%
Republic of Argentina Euro Par Bonds
5.25%, 3/31/23(a)
(cost $11,760,866) $23,450 $12,794,906
BRAZIL17.3%
Republic of Brazil Par Bonds
4.25%, 4/15/24(a)
(cost $18,174,128) 37,500 19,746,094
BULGARIA8.7%
Republic of Bulgaria Discount Bonds FRN
6.25%, 7/28/24
(cost $9,406,086) 20,000 10,012,500
ECUADOR9.4%
Republic of Ecuador Discount Bonds FRN
6.0625%, 2/28/25
(cost $9,568,295) 19,000 10,651,875
MEXICO6.9%
United Mexican States Euro Pa
r Bonds
6.25%, 12/31/19
Series A 9,500 6,270,000
Series B 2,500 1,650,000
Total Mexican Securities
(cost $7,245,237) 7,920,000
NIGERIA6.7%
Central Bank of Nigeria Par Bonds
6.25%, 11/15/20(a)
(cost $7,175,837) 14,500 7,594,375
POLAND4.4%
Republic of Poland Par Bonds
2.75%, 10/27/24(a)
(cost $4,319,745) 10,000 4,990,600
VENEZUELA9.0%
Republic of Venezuela Par Bonds
6.750%, 3/31/20
Series W-A 11,000 6,455,625
Series W-B 6,500 3,814,687
Total Venezuelan Securities
(cost $9,303,812) 10,270,312
Total Collateralized Brady Bonds
(cost $76,954,006) 83,980,662
NON-COLLATERALIZED BRADY BONDS14.9%
BULGARIA1.
8%
FLIRB FRN
2.00%, 7/28/12
(cost $2,426,640) 7,000 2,091,250
PANAMA5.9%
Republic of Panama
IRB
3.50%, 6/30/14(a)(b)(c) 10,000 5,150,000
PDI Bonds FRN
6.50%, 6/30/16(b) 3,000 1,631,250
Total Panama Securities
(cost $5,547,500) 6,781,250
POLAND2.3%
Republic of Poland PDI Bonds FRN
3.25%, 10/27/14
(cost $2,391,817) 3,500 2,678,603
3
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $VALUE
- - -------------------------------------------------------------------------
VENEZUELA4.9%
Republic of Venezuela DCB FRN
6.5
625%, 12/18/07
(cost $5,239,817) $ 8,500 $ 5,567,500
Total Non-Collateralized Brady Bonds
(cost $15,605,774) 17,118,603
LOAN PARTICIPATIONS & ASSIGNMENTS8.9%
ALGERIA1.3%
Algeria Refinancing Trust
Loan Assignment Series B
7.00%, 3/04/97
(cost $2,797,249) 3,000 1,470,000
MOROCCO7.6%
Kingdon of Morocco
Loan Participation FRN
6.59375%, 1/01/09
(cost $5,804,826) 12,000 8,640,000
Total Loan Participations & Assignments
(cost $8,602,075) 10,110,000
Sovereign Debt-Related-2.2%
Morgan Guaranty Trust Co. Spread Note(d)
U.S. Treasury Bond 5.875%, 11/25 vs.
Poland PDI Bonds 3.75%, 10/27/14
10.00%, 7/25/96
(cost $1,600,000) 1,600 2,547,309
Total Sovereign Debt Obligations
(cost $102,761,855) 113,756,574
TREASURY S
ECURITY36.3%
U.S. Treasury Strip Zero coupon, 5/15/99
(cost $41,807,738) 50,000 41,459,850
TOTAL INVESTMENTS135.9%
(cost $144,569,593) 155,216,424
Other assets less liabilities(35.9%) (41,004,223)
NET ASSETS-100% $114,212,201
* Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations which have the same maturity as the Brady Bond.
(A) Coupon will increase periodically based upon a predetermined schedule.
Stated interest rate in effect at April 30, 1996.
(B) When and if issued.
(C) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold normally to qualified institutional
buyers. At April 30, 1996, this security amounted to $5,150,000, or 4.5% of net
assets.
(D) The redemption val
ue of this security is indexed to the spread between the
referenced treasury yield and the referenced emerging market debt yield.
Glossary of Terms:
FLIRB Front Loaded Interest Reduction Bonds.
FRN Floating Rate Note. Coupon will fluctuate based upon an interest
rate index. Stated interest rate in effect April 30, 1996.
DCB Debt Conversion Bond.
IRB Interest Rate Option Bond.
PDI Past Due Interest.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $144,569,593) $155,216,424
Cash 5,150,974
Interest receivable 2,221,376
Receivable for investment securities sold 10
1,688
Deferred organization expenses and other assets 60,288
Total assets 162,750,750
LIABILITIES
Payable for investment securities purchased 47,259,500
Unrealized depreciation on interest rate swap contract 1,059,600
Advisory fee payable 94,458
Administrative fee payable 14,169
Accrued expenses and other liabilities 110,822
Total liabilities 48,538,549
NET ASSETS $114,212,201
COMPOSITION OF NET ASSETS
Capital stock, at par $ 86,527
Additional paid-in capital 119,218,745
Undistributed net investment income 795,398
Accumulated net realized lo
ss on investments (15,475,700)
Net unrealized appreciation of investments and other assets 9,587,231
$114,212,201
NET ASSET VALUE PER SHARE
(based on 8,652,707 shares outstanding) $13.20
See notes to financial statements.
5
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 6,886,388
EXPENSES
Advisory fee $559,805
Administrative fee 83,971
Transfer agency 51,786
Custodian 47,864
Audit and legal 46,583
Printing
11,505
Directors' fees 10,048
Amortization of organization expenses 8,918
Registration 7,984
Miscellaneous 13,622
Total expenses 842,086
Net investment income 6,044,302
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 5,056,933
Net change in unrealized appreciation of investments
and other assets 6,367,841
Net gain on investments 11,424,774
NET INCREASE IN NET ASSETS FROM OPERATIONS $17,469,076
See notes to financial statements.
6
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE WORLD DOLL
AR GOVERNMENT FUND, INC.
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
APRIL 30,1996 OCTOBER 31,
(UNAUDITED) 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 6,044,302 $ 12,920,751
Net realized gain (loss) on investment
transactions 5,056,933 (10,415,111)
Net change in unrealized appreciation of
investments and other assets 6,367,841 16,574,731
Net increase in net assets from operations 17,469,076 19,080,371
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (6,013,633) (12,156,022)
COMMON STOCK TRANSACTIONS
Reinvestme
nt of dividends resulting in
issuance of Common Stock -0- 2,304,564
Total increase 11,455,443 9,228,913
NET ASSETS
Beginning of year 102,756,758 93,527,845
End of period (including undistributed net
investment income of $795,398 and $764,729
at April 30, 1996 and October 31, 1995,
respectively) $114,212,201 $102,756,758
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance World Dollar Government Fund, Inc. (the 'Fund') was incorporated under
the laws of the State of Maryland on August 20, 1992 and is registered under
the Investment Company Act of 1940, as a non-diversified, closed-end management
inves
tment company. 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 valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Listed securities not
traded and securities traded in the over-the-counter market, including listed
debt securities whose primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked price
provided by the principal market makers. Publicly traded Sovereign Debt
Obligations are typically traded internationally on the over-the-counter
market. Because of the nature of the markets for Sovereign Debt Obligations,
quotations from several sources will be obtained so that the Fund's portfolio
investments will not generally be priced by a single source. Readily marketable
Sovereign Debt Obligations may be valued on the
basis of prices provided by a
pricing service when such prices are believed by the Adviser to reflect the
fair value of such securities.
Securities for which market quotations are not readily available and restricted
securities which are subject to limitations as to their resale are valued in
good faith, at fair value, using methods determined by the Board of Directors.
Securities which mature in 60 days or less are valued at amortized cost, which
approximates fair value, unless this method does not represent fair value.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $90,000 have been deferred and are being
amortized on a straight-line basis through November, 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 applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
req
uired.
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 discounts as
adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
NOTE B: ADVISORY AND ADMINISTRATIVE FEES
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the 'Adviser') a monthly fee equal to the annualized
rate of 1% of the Fund's average weekly net assets.
Under the terms of an Administrative Agreement, the Fund pays Alliance Capital
Management L.P., (the 'Administrator') a monthly fee equal to the annualized
rate of .15 of 1% of the Fund's average weekly net assets.
The Administrator provides administrative functions to the F
und as well as
other clerical services. The Administrator also prepares financial and
regulatory reports for the Fund.
8
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $205,968,730 and $197,757,814, respectively, for the six months
ended April 30, 1996.
At April 30, 1996, the cost of investments for federal income tax purposes was
$146,219,635. Accordingly, gross unrealized appreciation of investments was
$12,574,069 and gross unrealized depreciation of investments was $3,577,280
resulting in net unrealized appreciation of $8,996,789 (excluding swap
contracts). At October 31, 1995, the Fund had a capital loss carryforward of
$18,376,086 which expires in the year 2003.
NOTE D: INTEREST RATE SWAP AGREEMENT
The Fund enters into swaps on sovereign debt obligations
to protect itself from
interest rate fluctuations on the underlying floating rate debt instruments and
for investment purposes. A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals based upon or calculated
by reference to changes in specified prices or rates for a specified amount of
an underlying asset. The payment flows are usually netted against each other,
with the difference being paid by one party to the other.
Risks may arise as a result of the failure of another party to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value o
f the underlying securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the value
of swap contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation on swap contracts.
At April 30, 1996, the Fund had an outstanding interest rate swap contract with
the following terms:
<TABLE>
<CAPTION
RATE TYPE
---------------------------------
SWAP NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
COUNTERPARTY AMOUNT DATE BY THE FUND BY THE FUND DEPRECIATION
- - ------------ -------------- ----------- ------------- ----------------- ------------
<S>
<C> <C> <C> <C> <C>
Morgan US$ 12,000,000 1/01/09 LIBOR+ 6.8526% $1,059,600
Guaranty
</TABLE>
NOTE E: CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value Common Stock authorized.
Of the 8,652,707 shares outstanding at April 30, 1996, the Adviser owned 7,200
shares. During the six months ended April 30, 1996 and the year ended October
31, 1995, the Fund issued -0- and 212,897 shares, respectively, in connection
with the Fund's dividend reinvestment plan.
+ LIBOR (London Interbank Offered Rate).
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include revaluation of currencies and future adverse political and economic
developments. Moreover, s
ecurities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States government. The Fund invests in the sovereign debt obligations of
countries that are considered emerging market countries at the time of
purchase. Therefore, the Fund is susceptible to governmental factors and
economic and debt restructuring developments adversely affecting the economies
of these emerging market countries. In addition, these debt obligations may be
less liquid and subject to greater volatility than debt obligations of more
developed countries.
10
FINANCIAL HIGHLIGHTS ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, NOV. 2,1992*
APRIL
30,1996 ------------------------ TO
(UNAUDITED) 1995 1994 OCT. 31,1993
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.88 $11.08 $22.09 $13.82(a)
INCOME FROM INVESTMENT OPERATIONS
Net investment income .70 1.51(b) 1.32 1.54
Net realized and unrealized gain (loss)
on investments 1.32 .71 (5.66) 8.19
Net increase (decrease) in net asset
value from operations 2.02 2.22 (4.34) 9.73
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.70) (1.42) (1.39) (1.46)
Distributions from net realized gains -0- -0-
(4.96) -0-
Distributions in excess of net realized
gains -0- -0- (.09) -0-
Tax return of capital distribution -0- -0- (.23) -0-
Total distributions (.70) (1.42) (6.67) (1.46)
Net asset value, end of period $13.20 $11.88 $11.08 $22.09
Market value, end of period $12.875 $11.75 $13.00 $20.375
TOTAL RETURN
Total investment return based on: (c)
Market value 15.64% 2.78% (7.52)% 59.14%
Net asset value 17.26% 21.92% (27.29)% 72.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $114,212 $102,757 $93,528 $164,622
Ratio of expenses to average net assets 1.52%(d) 1.55% 1.43% 1.44%(d)
Ratio of net investm
ent income to average
net assets 10.88%(d) 14.12% 9.08% 9.79%(d)
Portfolio turnover rate 134% 441% 395% 417%
</TABLE>
* Commencement of operations.
(A) Net of offering costs of $.13.
(B) Based on average shares outstanding.
(C) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
the period reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Conversely, total investment return
based on net asset
value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of
such periods. Total investment return calculated for a period of less than one
year is not annualized.
(D) Annualized.
11
21
00250230.AL8
<PAGE>
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S.$VALUE
- ----------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS-95.5%
COLLATERALIZED BRADY BONDS*-71.2%
ARGENTINA-8.1%
Republic of Argentina Euro Par Bonds
5.00%, 3/31/23(a)
(cost $8,053,702) $17,450 $8,348,734
BRAZIL-18.7%
Republic of Brazil Par Bonds Series ZL
4.25%, 4/15/24(a)
(cost $18,240,086) 39,500 19,231,563
BULGARIA-9.9%
Republic of Bulgaria Discount Bonds FRN
6.75%, 7/28/24(b)
(cost $9,396,541) 20,000 10,125,000
ECUADOR-9.2%
Republic of Ecuador Discount Bonds FRN
6.8125%, 2/28/25(b)
(cost $9,556,497) 19,000 9,458,390
MEXICO-5.4%
United Mexican States
Euro Par Bonds Series A
6.25%, 12/31/19
(cost $5,593,875) 9,500 5,593,125
NIGERIA-5.7%
CCentral Bank of Nigeria Par Bonds
6.25%, 11/15/20(a)
(cost $5,385,541) 12,500 5,859,375
PHILLIPINES-4.5%
Central Bank of the Phillipines Par Bonds
5.75%, 12/01/17(a)
(cost $4,645,968) 6,250 4,587,891
POLAND-4.3%
Republic of Poland Par Bonds
2.75%, 10/27/24(a)
(cost $4,292,199) $10,000 $4,425,000
VENEZUELA-5.4%
Republic of Venezuela Par Bonds
6.75%, 3/31/20
Series W-A 4,250 2,196,719
Series W-B 6,500 3,359,687
Total Venezuelan Securities
(cost $5,484,291) 5,556,406
Total Collateralized Brady Bonds
(cost $70,648,700) 73,185,484
NON-COLLATERALIZED BRADY BONDS-6.3%
ECUADOR-0.1%
Republic of Ecuador PDI Bonds FRN
6.8125%, 2/27/15(b)(c)(d)
(cost $59,448) 228 75,171
POLAND-6.2%
Republic of Poland PDI Bonds
3.75%, 10/27/14(a)
(cost $5,977,536) 10,000 6,437,500
Total Non-Collateralized Brady Bonds
(cost $6,036,984) 6,512,671
LOAN PARTICIPATIONS & ASSIGNMENTS-14.4%
ALGERIA-1.1%
Algeria Refinancing Trust Loan Assignment
Series B 7.1875%, 3/04/97
(cost $2,688,947) 3,000 1,110,000
3
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S.$VALUE
- ----------------------------------------------------------------------
MOROCCO-7.0%
Kingdom of Morocco Loan Participation FRN
6.6875%, 1/01/09(b)
(cost $5,740,207) $12,000 $7,155,000
RUSSIA-6.3%
Vneshekonombank Loan Assignment(e)
(cost $6,361,975) 20,000 6,487,500
Total Loan Participations & Assignments
(cost $14,791,129) 14,752,500
OTHER SOVEREIGN DEBT-RELATED-3.6%
Bayerische Landesbank Spread Note
U.S. Treasury Bond 7.825%, 2/15/25 vs.
Brazil Par Bonds 4.00%, 4/15/24
9.125%, 3/28/96(f) 2,000 1,729,800
Morgan Guaranty Trust Co.
Spread Note
U.S. Treasury Bond 6.25%, 8/15/23
vs. Argentina Par Bonds 5.00%,
3/31/23 9.00%, 1/19/96(f) 671 407,132
Indexed Notes(g)
Indexed to Ivory Coast Restructured
Loan Assignment 9.00%, 12/19/95 $ 1,393 $1,391,473
Indexed to Ivory Coast Unrestructured
Loan Assignment 9.00%, 12/19/95 180 172,859
Total Other Sovereign Debt-Related
(cost $4,243,453) 3,701,264
Total Sovereign Debt Obligations
(cost $95,720,266) 98,151,919
TREASURY SECURITY-36.5%
U.S. Treasury Bond Zero coupon, 2/15/03
(cost $36,577,913) 57,500 37,452,050
TIME DEPOSIT-2.8%
Bank of New York
5.6875%, 11/01/95
(cost $2,863,000) 2,863 2,863,000
TOTAL INVESTMENTS-134.8%
(cost $135,161,179) 138,466,969
Other assets less liabilities-(34.8%) (35,710,211)
NET ASSETS-100% $102,756,758
* Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations which have the same maturity as the Brady Bond.
(a) Coupon will increase periodically based upon a predetermined schedule.
Stated interest rate in effect at October 31, 1995.
(b) Coupon will fluctuate based upon an interest rate index. Stated interest
rate in effect at October 31, 1995.
(c) Coupon consists of 3.00% cash payment and 3.8125% paid-in-kind.
(d) Restricted security.
(e) Non-income producing security.
(f) The redemption value of these securities is indexed to the spread between
the referenced treasury yield and the referenced emerging market debt yield.
(g) The redemption value of these securities is linked to the change in the
bid price of the referenced emerging market debt.
Glossary of Terms:
FRN - Floating rate note.
PDI - Past due interest.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995 ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $135,161,179) $138,466,969
Interest receivable 2,204,044
Deferred organization expenses and other assets 40,546
Total assets 140,711,559
LIABILITIES
Payable for investment securities purchased 37,661,258
Unrealized depreciation on interest rate swap contract 86,400
Advisory fee payable 86,213
Administrative fee payable 12,932
Accrued expenses and other liabilities 107,998
Total liabilities 37,954,801
NET ASSETS (equivalent to $11.88 per share, based on 8,652,707
shares outstanding) $102,756,758
COMPOSITION OF NET ASSETS
Capital stock, at par $ 86,527
Additional paid-in capital 119,218,745
Undistributed net investment income 764,729
Accumulated net realized loss on investments (20,532,633)
Net unrealized appreciation of investments and other assets 3,219,390
$102,756,758
NET ASSET VALUE PER SHARE $11.88
See notes to financial statements.
5
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995 ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
INVESTMENT INCOME
Interest $14,335,477
EXPENSES
Advisory fee $915,252
Administrative fee 137,289
Audit and legal 91,841
Custodian 78,689
Transfer agency 73,539
Printing 32,036
Directors' fees 25,718
Registration 17,974
Amortization of organization expenses 17,885
Miscellaneous 24,503
Total expenses 1,414,726
Net investment income 12,920,751
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions (10,415,111)
Net change in unrealized depreciation of
investments and other assets 16,574,731
Net gain on investments 6,159,620
NET INCREASE IN NET ASSETS FROM OPERATIONS $19,080,371
See notes to financial statements.
6
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 12,920,751 $10,733,241
Net realized loss on investment transactions (10,415,111) (9,633,653)
Net change in unrealized appreciation
(depreciation) of investments and other assets 16,574,731 (37,262,374)
Net increase (decrease) in net assets from
operations 19,080,371 (36,162,786)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Dividends from net investment income (12,156,022) (11,284,327)
Distributions from net realized gains -0- (36,979,502)
Distributions in excess of net realized gains -0- (752,869)
Tax return of capital distribution -0- (1,930,057)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance
of Common Stock 2,304,564 16,015,296
Total increase (decrease) 9,228,913 (71,094,245)
NET ASSETS
Beginning of year 93,527,845 164,622,090
End of year(including undistributed net investment
income of $764,729 at October 31, 1995) $102,756,758 $93,527,845
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995 ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance World Dollar Government Fund, Inc. (the 'Fund') was incorporated under
the laws of the State of Maryland on August 20, 1992 and is registered under
the Investment Company Act of 1940, as a non-diversified, closed-end management
investment company. 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 valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Listed securities not
traded and securities traded in the over-the-counter market, including listed
debt securities whose primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked price
provided by the principal market makers. Publicly traded Sovereign Debt
Obligations are typically traded internationally on the over-the-counter
market. Because of the nature of the markets for Sovereign Debt Obligations,
quotations from several sources will be obtained so that the Fund's portfolio
investments will not generally be priced by a single source. Readily marketable
Sovereign Debt Obligations may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to reflect the
fair value of such securities.
Securities for which market quotations are not readily available and restricted
securities which are subject to limitations as to their resale are valued in
good faith, at fair value, using methods determined by the Board of Directors.
Securities which mature in 60 days or less are valued at amortized cost, which
approximates fair value, unless this method does not represent fair value.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $90,000 have been deferred and are being
amortized on a straight-line basis through November, 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 applicable, 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 discounts as
adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
NOTE B: ADVISORY AND ADMINISTRATIVE FEES
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the 'Adviser') a monthly fee equal to the annualized
rate of 1% of the Fund's average weekly net assets.
Under the terms of an Admistrative Agreement, the Fund pays Alliance Capital
Management L.P., (the 'Administrator') a monthly fee equal to the annualized
rate of .15 of 1% of the Fund's average weekly net assets.
The Administrator provides administrative functions to the Fund as well as
other clerical services. The Administrator also prepares financial and
regulatory reports for the Fund.
8
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $537,138,805 and $541,686,835, respectively, for the year ended
October 31, 1995.
At October 31, 1995, the cost of investments for federal income tax purposes
was $136,833,857. Accordingly, gross unrealized appreciation of investments was
$4,378,183 and gross unrealized depreciation of investments was $2,745,071
resulting in net unrealized appreciation of $1,633,112 (excluding swap
contracts). At October 31, 1995, the Fund had a capital loss carryforward of
$18,376,086 which expires in the year 2003.
NOTE D: INTEREST RATE SWAP AGREEMENT
The Fund enters into interest rate swaps on sovereign debt obligations to
protect itself from interest rate fluctuations on the underlying floating rate
debt instruments. A swap is an agreement that obligates two parties to exchange
a series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of another party to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the underlying securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the value
of swap contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation on interest rate swap contracts.
At October 31, 1995, the Fund had an outstanding interest rate swap contract
with the following terms:
RATE TYPE
---------------------
PAYMENTS PAYMENTS
SWAP NOTIONAL TERMINATION MADE BY RECEIVED BY UNREALIZED
COUNTERPARTY AMOUNT DATE THE FUND THE FUND DEPRECIATION
- ------------ ------------- ----------- -------- ----------- ------------
Morgan US$12,000,000 1/01/09 Floating+ 6.8526% $86,400
Guaranty
NOTE E: CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value Common Stock authorized.
Of the 8,652,707 shares outstanding at October 31, 1995, the Adviser owned
7,200 shares. During the years ended October 31, 1995 and 1994, the Fund issued
212,897 and 985,961 shares, respectively, in connection with the Fund's
dividend reinvestment plan.
+ Floating is composed of LIBOR (London Interbank Offered Rate) plus a fixed
amount of .8125%.
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign governments and their
markets may be less liquid and their prices more volatile than those of the
United States government. The Fund invests in the sovereign debt obligations of
countries that are considered emerging market countries at the time of
purchase. Therefore, the Fund is susceptible to governmental factors and
economic and debt restructuring developments adversely affecting the economies
of these emerging market countries. In addition, these debt obligations may be
less liquid and subject to greater volatility than debt obligations of more
developed countries.
NOTE G: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE
NET REALIZED (DECREASE)
AND UNREALIZED IN NET ASSETS
NET INVESTMENT GAIN (LOSS) ON RESULTING FROM MARKET PRICE
INCOME INVESTMENTS OPERATIONS ON NYSE
---------------- ------------------- ------------------- -----------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE HIGH LOW
- ---------------- ------- ----- --------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 31, 1995 $ 3,075 $ .36 $ 5,381 $ .63 $ 8,456 $ .99 $11.875 $10.750
July 31, 1995 3,204 .37 7,517 .87 10,721 1.24 $11.875 $11.000
April 30, 1995 3,766 .44 2,102 .24 5,868 .68 $11.375 $ 9.000
January 31, 1995 2,876 .34 (8,841) (1.03) (5,965) (.69) $13.000 $ 9.875
$12,921 $1.51 $ 6,159 $ .71 $ 19,080 $ 2.22
October 31, 1994 $ 1,660 $ .20 $ 242 $ .04 $ 1,902 $ .24 $13.875 $13.000
July 31, 1994 3,600 .43 (4,126) (.49) (526) (.06) $15.250 $13.000
April 30, 1994 2,583 .31 (47,700) (5.78) (45,117) (5.47) $18.250 $14.000
January 31, 1994 2,890 .38 4,688 .57 7,578 .95 $22.500 $17.500
$10,733 $1.32 $(46,896) $(5.66) $(36,163) $(4.34)
</TABLE>
10
FINANCIAL HIGHLIGHTS ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED NOV.2,1992*
OCTOBER 31, OCTOBER 31, TO
1995 1994 OCT.31,1993
----------- ---------- ------------
Net asset value, beginning of period $11.08 $22.09 $13.82(a)
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.51(b) 1.32 1.54
Net realized and unrealized gain (loss)
on investments .71 (5.66) 8.19
Net increase (decrease) in net asset
value from operations 2.22 (4.34) 9.73
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (1.42) (1.39) (1.46)
Distributions from net realized gains -0- (4.96) -0-
Distributions in excess of net realized gains -0- (.09) -0-
Tax return of capital distribution -0- (.23) -0-
Total distributions (1.42) (6.67) (1.46)
Net asset value, end of period $11.88 $11.08 $22.09
Market value, end of period $11.75 $13.00 $20.375
TOTAL RETURN
Total investment return based on:
Market value 2.78%(c) (7.52)% 59.14%
Net asset value 21.92% (27.29)% 72.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $102,757 $93,528 $164,622
Ratio of expenses to average net assets 1.55% 1.43% 1.44%(d)
Ratio of net investment income to
average net assets 14.12% 9.08% 9.79%(d)
Portfolio turnover rate 441% 395% 417%
* Commencement of operations.
(a) Net of offering costs of $.13.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day of
the period reported. Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's Dividend Reinvestment Plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in
the premium of the market value to the net asset value from the beginning to
the end of such periods. Conversely, total investment return based on net asset
value will be lower than total investment return based on market value in
periods where there is a decrease in the discount or an increase in the premium
of the market value to the net asset value from the beginning to the end of
such periods. Total investment return calculated for a period of less than one
year is not annualized.
(d) Annualized.
11
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE WORLD DOLLAR GOVERNMENT FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance World Dollar Government Fund, Inc., including the portfolio of
investments, as of October 31, 1995, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance World Dollar Government Fund, Inc. at October 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for the
indicated periods, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
December 15, 1995
22
00250230.AL8
