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This is filed pursuant to Rule 497(c).
File Nos. 33-72460 and 811-08188.
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The Alliance Prospectus and Application
Bond Funds
November 1, 1999
The Alliance Bond Funds provide a U.S. Government Funds
broad selection of investment
alternatives to investors seeking o Alliance Short-Term U.S.
high current income. Government Fund
o Alliance U.S. Government
Portfolio
o Alliance Limited Maturity
Government Fund
Quality Bond Fund
o Alliance Quality Bond Portfolio
Mortgage Fund
o Alliance Mortgage Securities
Income Fund
Multi-Market Fund
o Alliance Multi-Market Strategy
Trust
Global Bond Funds
o Alliance North American
Government Income Trust
o Alliance Global Dollar
Government Fund
o Alliance Global Strategic
Income Trust
Corporate Bond Funds
o Alliance Corporate Bond
Portfolio
o Alliance High Yield Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Alliance Capital [LOGO](R)
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Investment Products Offered
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o Are Not FDIC Insured
o May Lose Value
o Are Not Bank Guaranteed
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TABLE OF CONTENTS
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Page
RISK/RETURN SUMMARY ........................................................ 3
U.S. Government Funds ...................................................... 4
Mortgage Fund .............................................................. 8
Multi-Market Fund .......................................................... 9
Global Bond Funds .......................................................... 10
Corporate Bond Funds ....................................................... 13
Summary of Principal Risks ................................................. 15
Principal Risks by Fund .................................................... 17
FEES AND EXPENSES OF THE FUNDS ............................................. 18
GLOSSARY ................................................................... 20
DESCRIPTION OF THE FUNDS ................................................... 21
Investment Objectives and Policies ......................................... 21
Description of Investment Practices ........................................ 28
Additional Risk Considerations ............................................. 39
MANAGEMENT OF THE FUNDS .................................................... 43
PURCHASE AND SALE OF SHARES ................................................ 45
How The Funds Value Their Shares ........................................... 45
How To Buy Shares .......................................................... 45
How To Exchange Shares ..................................................... 46
How To Sell Shares ......................................................... 46
DIVIDENDS, DISTRIBUTIONS AND TAXES ......................................... 46
DISTRIBUTION ARRANGEMENTS .................................................. 47
GENERAL INFORMATION ........................................................ 49
FINANCIAL HIGHLIGHTS ....................................................... 51
APPENDIX A: BOND RATINGS ................................................... 58
APPENDIX B: GENERAL INFORMATION ABOUT
CANADA, MEXICO AND ARGENTINA ............................................. 61
The Funds' investment adviser is Alliance Capital Management L.P., a global
investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance Bond
Funds. You will find additional information about each Fund, including a
detailed description of the risks of an investment in each Fund, after this
Summary.
The Risk/Return Summary describes the Funds' objectives, principal investment
strategies, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks is on pages 15-17.
More detailed descriptions of the Funds, including the risks associated with
investing in the Funds, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. Each of the Funds
may at times use certain types of investment derivatives such as options,
futures, forwards, and swaps. The use of these techniques involves special risks
that are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing its average
annual returns and a bar chart showing its annual returns. The table and the bar
chart provide an indication of the historical risk of an investment in each Fund
by showing:
o how the Fund's average annual returns for one, five, and 10 years (or over
the life of the Fund if the Fund is less than 10 years old) compare to
those of a broad based securities market index; and
o changes in the Fund's performance from year to year over 10 years (or over
the life of the Fund if the Fund is less than 10 years old).
A Fund's past performance, of course, does not necessarily indicate how it will
perform in the future. As with all investments, you may lose money by investing
in the Funds.
3
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U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer a selection of alternatives to investors seeking
high current income consistent with the preservation of capital through
investments primarily in U.S. Government securities.
Alliance Short-Term U.S. Government Fund
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OBJECTIVE:
The Fund's investment objective is high current income consistent with the
preservation of capital by investing primarily in a portfolio of U.S. Government
securities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests at least 65% of its total assets in U.S. Government securities,
including mortgage-related securities, repurchase agreements and forward
commitments relating to U.S. Government securities. The Fund also may invest a
portion of its assets in securities of non-governmental issuers. The Fund
normally maintains an average dollar-weighted maturity of not more than three
years.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
securities, it is subject to the risk that mortgage loans will be prepaid when
interest rates decline, forcing the Fund to reinvest in securities with lower
interest rates. For this and other reasons, mortgage-related securities may have
significantly greater price and yield volatility than traditional debt
securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year 5 Years Inception
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Class A -0.42% 2.79% 3.74%
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Class B 0.37% 2.97% 3.77%
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Class C 2.24% 2.93% 3.69%
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Lehman Brothers
1-3 Year
Government
Bond Index 6.97% 5.96% 5.99%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (5/4/92). Index returns are from month-end
following inception of Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(8/2/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its actual inception date was 2.89%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 5.86%.
BAR CHART
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The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 2.48%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 6.13 -1.70 7.22 4.66 4.54 3.95
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 2.35%, 1st quarter, 1995; and Worst quarter was down -1.62%,
1st quarter, 1994.
4
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Alliance U.S. Government Portfolio
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OBJECTIVE:
The Fund's investment objective is a high level of current income that is
consistent with prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in U.S. Government securities, including
mortgage-related securities, repurchase agreements and forward contracts
relating to U.S. Government securities. The Fund also may invest in non-U.S.
Government mortgage-related and asset-backed securities and in high grade debt
securities secured by mortgages on commercial real estate or residential rental
properties. The average weighted maturity of the Fund's investments varies
between one year or less and 30 years.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
and asset-backed securities, it is subject to the risk that mortgage loans or
other obligations will be prepaid when interest rates decline, forcing the Fund
to reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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1 Year 5 Years 10 Years
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Class A 3.94% 4.76% 7.51%
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Class B 4.80% 4.90% 7.29%
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Class C 6.80% 4.90% 7.29%
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Lehman Brothers
Government
Bond Index 9.85% 7.18% 9.17%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(9/30/91) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 6.38% and 5.12%, respectively. Index returns for the
comparable periods (which date from month-end following applicable Class
inception date) were 8.18% and 7.38%, respectively.
BAR CHART
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The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was -2.34%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
12.52 7.86 15.74 6.03 9.72 -4.38 16.58 0.34 8.55 8.60
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 7.69%, 2nd quarter, 1989; and Worst quarter was down -3.41%,
1st quarter, 1994.
5
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Alliance Limited Maturity Government Fund
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OBJECTIVE:
The Fund's investment objective is the highest level of current income
consistent with low volatility of net asset value.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in U.S. Government securities, including
mortgage-related securities and repurchase agreements relating to U.S.
Government securities. The Fund takes advantage of a wide range of maturities of
debt securities and adjusts the dollar-weighted average maturity of its
portfolio from time to time, depending on Alliance's assessment of relative
yields on securities of different maturities and the expected effect of changes
in interest rates on the market value of the Fund's portfolio. At all times,
however, each of the Fund's securities has either a remaining maturity of not
more than 10 years or a duration not exceeding that of a ten-year Treasury note.
The Fund also may invest up to 35% of its total assets in:
o high-quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private issuers;
o certificates of deposit, bankers' acceptances, and interest-bearing
savings deposits of banks with assets of more than $1 billion;
o higher quality commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding; and
o high-quality debt securities of corporate issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, liquidity risk and market risk. Because the Fund
may invest in mortgage-related and asset-backed securities, it is subject to the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year 5 Years Inception
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Class A 2.17% 4.07% 4.48%
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Class B 2.95% 4.21% 4.54%
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Class C 4.96% 4.22% 4.43%
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Lehman Brothers
Government
Bond Index 9.85% 7.18% 7.94%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (6/1/92). Index returns are from month-end of
inception of Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its actual inception date was 4.21%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 7.38%.
BAR CHART
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The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was -0.81%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 6.21 0.26 7.08 4.01 7.03 6.70
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 4.21%, 3rd quarter, 1998; and Worst quarter was down -0.65%,
4th quarter, 1994.
6
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QUALITY BOND FUND
The Quality Bond Fund offers investors seeking high current income the
alternative of investing in a diversified portfolio of investment grade
fixed-income securities.
Alliance Quality Bond Portfolio
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OBJECTIVE:
The Fund's investment objective is high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests in readily marketable securities that do not involve undue risk
of capital. The Fund normally invests all of its assets in securities that are
rated at least BBB- by S&P or, if unrated, are of comparable quality. The Fund
has the flexibility to invest in long- and short-term fixed-income securities
depending on Alliance's assessment of prospective cyclical interest rate
changes.
The Fund also may:
o use derivatives strategies;
o invest in convertible debt securities, preferred stock and dividend-paying
stocks;
o invest in U.S. Government obligations; and
o invest in foreign fixed-income securities.
The principal risks of investing in the Fund are interest rate risk, credit risk
and market risk. To the extent the Fund invests in foreign securities, it has
foreign risk and currency risk.
BAR CHART AND PERFORMANCE TABLE
There is no bar chart or performance table for the Fund because it has not
completed a full calendar year of operations.
7
<PAGE>
MORTGAGE FUND
The Mortgage Fund offers investors seeking high current income the alternative
of investing in a diversified portfolio of mortgage-related securities.
Alliance Mortgage Securities Income Fund
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OBJECTIVE:
The Fund's investment objective is a high level of current income to the extent
consistent with prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in a diversified portfolio of mortgage-related
securities, including collateralized mortgage obligations or CMOs. The Fund may
invest up to 20% of its total assets in lower-rated mortgage-related securities.
The average weighted maturity of the Fund's portfolio of debt securities is
expected to vary between two and ten years.
The Fund also may invest up to 35% of its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding;
o high-grade debt securities secured by mortgages on commercial real estate
or residential rental properties; and
o high-grade asset-backed securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, derivatives risk, and market risk. Because the
Fund may invest in mortgage-related securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related securities may have significantly greater price and yield
volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A 1.36% 4.39% 7.66%
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Class B 2.07% 4.51% 7.37%
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Class C 4.05% 4.51% 7.37%
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Lehman Brothers
Mortgage-Backed
Securities Index 6.96% 7.23% 9.13%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(1/30/92) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 5.84% and 4.76%, respectively. Index returns for the
comparable periods (which date from month-end following applicable Class
inception date) were 9.28% and 6.95%, respectively.
BAR CHART
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The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 0.57%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
11.00 10.95 15.44 7.73 10.14 -6.14 15.35 4.23 8.40 5.82
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.90%, 4th quarter, 1990; and Worst quarter was down -4.30%,
1st quarter, 1994.
8
<PAGE>
MULTI-MARKET FUND
The Multi-Market Fund offers investors seeking high current income the
alternative of investing in a portfolio of securities denominated in the U.S.
Dollar and selected foreign currencies.
Alliance Multi-Market Strategy Trust
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OBJECTIVE:
The Fund's investment objective is the highest level of current income that is
available, consistent with what Alliance considers to be prudent investment
risk, from a portfolio of high-quality debt securities having remaining
maturities of not more than five years.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests in high-quality debt securities having remaining maturities of
not more than five years, with a high proportion of investments in money market
instruments. The Fund seeks investment opportunities in foreign, as well as
domestic, securities markets. Normally, at least 70% of the Fund's debt
securities will be denominated in foreign currencies. The Fund limits its
investments in a single currency other than the U.S. Dollar to 25% of its net
assets, except for the Euro in which the Fund may invest up to 50% of its net
assets.
The Fund concentrates at least 25% of its total assets in debt instruments
issued by domestic and foreign banking companies. The Fund may use significant
borrowings for leverage. The Fund also may:
o use derivatives strategies;
o invest in prime commercial paper or unrated paper of equivalent quality;
o enter into repurchase agreements; and
o invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in debt
securities denominated in foreign currencies have foreign risk and currency
risk. In addition, the Fund is "non-diversified" meaning that it invests more of
its assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year 5 Years Inception
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Class A 1.72% 3.10% 3.47%
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Class B 2.46% 3.17% 3.41%
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Class C 4.25% 3.15% 3.25%
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Merrill Lynch
1-3 Year
Government
Bond Index 6.97% 5.99% 6.50%
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The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (5/29/91). Index returns are from month-end of
inception of Class A shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its actual inception date was 3.95%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 5.86%.
BAR CHART
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The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 2.15%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a -2.49 10.91 -12.77 6.00 16.19 6.71 6.17
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.46%, 2nd quarter, 1995; and Worst quarter was down -8.19%,
4th quarter, 1994.
9
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds offer a selection of alternatives to investors seeking a
high level of current income through investments primarily in foreign government
securities.
Alliance North American Government Income Trust
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OBJECTIVE:
The Fund's investment objective is the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of debt securities issued or guaranteed by the
governments of the United States, Canada, or Mexico, their political
subdivisions (including Canadian Provinces but excluding states of the United
States), agencies, instrumentalities or authorities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund primarily invests in debt securities issued or guaranteed by: (i) the
federal governments of the United States, Canada, and Mexico; (ii)
government-related entities in the United States, Canada, and Mexico; and (iii)
the provincial governments of Canada and Mexico. The Fund also invests
significantly in debt securities issued by Argentine government entities. The
Fund also may invest in debt securities of other Central and South American
countries. These investments are investment grade securities generally
denominated in each countries' currency, but at least 25% of the Fund's assets
are in U.S. Dollar-denominated securities. The average weighted maturity of the
Fund's portfolio is expected to vary between one year or less and 30 years.
The Fund may use significant borrowings for leverage. The Fund also may:
o use derivative strategies; and
o invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. The Fund's investments in debt
securities of Canada, Mexico, and Argentina have foreign risk and currency risk.
Your investment also has the risk that market changes or other events affecting
these countries, including potential instability and unpredictable economic
conditions, may have a more significant effect on the Fund's net asset value. In
addition, the Fund is "non-diversified," meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 1.99% 5.88% 7.89%
- --------------------------------------------------------------------------------
Class B 2.90% 5.89% 7.79%
- --------------------------------------------------------------------------------
Class C 4.78% 5.89% 7.70%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27% 8.14%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (3/27/92). Index returns are from month-end of
inception of Class A shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its inception date was 7.11%. The index return for the comparable
period (which dates from month-end following the Class C inception date) was
7.34%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 5.92%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 18.64 -30.24 31.01 24.20 14.98 6.53
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 17.24%, 2nd quarter, 1995; and Worst quarter was down
- -23.19%, 4th quarter, 1994.
10
<PAGE>
Alliance Global Dollar Government Fund
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OBJECTIVE:
The Fund's investment objective is a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in sovereign debt obligations, although it may
invest up to 35% of its total assets in U.S. and non-U.S. corporate debt
securities. The Fund invests substantially all of its assets in lower-rated
securities or unrated securities of equivalent quality. The Fund's investments
in sovereign debt obligations and corporate debt securities are U.S.
Dollar-denominated.
The Fund's non-U.S. investments emphasize emerging markets and developing
countries. The Fund limits its investments in the sovereign debt obligations of
any one country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations of and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that
it will not invest more than 10% of its total assets in any other single
foreign country.
The average weighted maturity of the Fund's investments ranges from nine years
to longer than 25 years, depending upon the type of securities.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may use derivatives strategies; invest
in structured securities; invest in fixed and floating rate loans to sovereign
debt issuers; enter into repurchase agreements; and invest in variable,
floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. Because the Fund invests in
lower-rated securities, it has significantly more risk than other types of bond
funds and its returns will be more volatile. The Fund's investments in foreign
securities have foreign risk and country or geographic risk. Because the Fund
invests in emerging markets and in developing countries, the Fund's returns
will be significantly more volatile and may differ substantially from returns
in the U.S. bond markets generally. Your investment also has the risk that
market changes or other factors affecting emerging markets and developing
countries, including political instability and unpredictable economic
conditions, may have a significant effect on the Fund's net asset value. In
addition, the Fund is "non-diversified," meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------------------------
Class A -25.37% 4.39%
- --------------------------------------------------------------------------------
Class B -24.77% 4.49%
- --------------------------------------------------------------------------------
Class C -23.37% 4.52%
- --------------------------------------------------------------------------------
J.P. Morgan Emerging
Markets Bond Index -11.04% 9.70%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period.
* Inception Dates: 2/25/94 for Class A, Class B, and Class C shares; Index
return is from 2/28/94.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 7.85%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a 25.47 39.44 9.01 -22.05
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 26.16%, 2nd quarter, 1995; and Worst quarter was down
- -28.68%, 3rd quarter, 1998.
11
<PAGE>
Alliance Global Strategic Income Trust
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund primarily invests in debt securities of U.S. and non-U.S. companies,
U.S. Government and foreign governments, and supranational entities. The Fund's
foreign investments are generally denominated in foreign currencies. The Fund,
however, generally seeks to hedge currency risk. The Fund normally invests at
least 65% of its total assets in debt securities of companies located in at
least three countries, one of which may be the United States. The Fund limits
its investments in any one foreign country to 25% of its total assets.
The Fund invests at least 65% of its total assets in investment grade
securities, but also may invest up to 35% of its total assets in lower-rated
securities. The average weighted maturity of the Fund's investments varies
between five and 30 years.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may:
o use derivatives strategies;
o invest in structured securities;
o invest in Eurodollar instruments and foreign currencies;
o invest in asset-backed and mortgage-related securities;
o enter into repurchase agreements; and
o invest in floating, variable, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in foreign
issuers have foreign risk and currency risk. To the extent the Fund invests in
lower-rated securities, your investment is subject to more risk than an
investment in a fund that invests primarily in higher-rated securities. The
Fund's use of derivatives strategies has derivatives risk. In addition, the
Fund is "non-diversified", meaning that it invests more of its assets in a
smaller number of issuers than many other funds. Changes in the value of a
single security may have a more significant effect, either negative or
positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception
- --------------------------------------------------------------------------------
Class A -2.31% 11.07%
- --------------------------------------------------------------------------------
Class B -2.46% 11.31%
- --------------------------------------------------------------------------------
Class C 0.32% 11.94%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index 8.69% 7.26%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A shares (1/9/96). Index returns are from month-end of inception of
Class A shares.
Performance information for periods prior to the inception of Class B shares and
Class C shares (3/21/96) is the performance of the Fund's Class A shares
adjusted to reflect the higher expense ratio of Class B and Class C shares. The
average annual total returns for Class B and Class C since their actual
inception dates were 11.60% and 12.19%, respectively. The index return for the
comparable period (which date from month-end following applicable Class
inception date) was 8.68%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was 3.23%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a n/a n/a 14.96 1.99
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.86%, 2nd quarter, 1997; and Worst quarter was down -5.68%,
3rd quarter, 1998.
12
<PAGE>
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance Corporate Bond Portfolio
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily to maximize income over the long
term consistent with providing reasonable safety in the value of each
shareholder's investment, and secondarily to increase its capital through
appreciation of its investments in order to preserve and, if possible, increase
the purchasing power of each shareholder's investment.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in corporate bonds. The Fund may invest up to 50% of
its total assets in foreign debt securities, primarily corporate debt securities
and sovereign debt obligations. All of the Fund's investments, whether foreign
or domestic, will be U.S. Dollar denominated. The Fund also may invest in
income-producing equity securities. While the Fund invests primarily (currently
65%) in investment grade debt securities, it also may invest a significant
amount of its total assets in lower-rated debt securities. The average weighted
maturity of the Fund's investments varies between one year or less and 30 years.
The Fund pursues a more aggressive investment strategy than other corporate bond
funds. The Fund's investments tend to have a relatively long average weighted
maturity and duration. The Fund emphasizes both foreign corporate and sovereign
debt obligations, as well as corporate bonds that are expected to benefit from
improvements in their issuers' credit fundamentals.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund emphasizes investments with a
relatively long average maturity and duration, its returns may be more volatile
than other corporate bond funds. To the extent the Fund invests in lower-rated
securities, your investment is subject to more credit risk than an investment
in a fund that invests solely in higher-rated securities. The Fund's investments
in foreign debt obligations have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A -4.29% 5.63% 10.65%
- --------------------------------------------------------------------------------
Class B -3.54% 5.82% 10.37%
- --------------------------------------------------------------------------------
Class C -1.63% 5.84% 10.38%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27% 9.26%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(1/8/93) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 9.57% and 7.95%, respectively. Index returns for the
comparable periods (which date from month-end following applicable class
inception date) were 7.45% and 7.34%, respectively.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was -1.32%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
13.06 5.54 18.05 13.07 31.09 -12.75 27.98 10.02 11.81 -0.03
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 15.61%, 2nd quarter, 1995; and Worst quarter was down
- -8.42%, 1st quarter, 1994.
13
<PAGE>
Alliance High Yield Fund
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is to achieve a high total return by maximizing
current income and, to the extent consistent with that objective, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund primarily invests in high yield, below investment grade debt
securities, commonly known as "junk bonds." The Fund seeks to maximize current
income by taking advantage of market developments, yield disparities, and
variations in the creditworthiness of issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund invests in lower-rated
securities, it has significantly more risk than other types of bond funds and
its returns will be more volatile. The Fund's investments in foreign securities
have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------------------------
Class A -5.83% 9.72%
- --------------------------------------------------------------------------------
Class B -5.80% 10.21%
- --------------------------------------------------------------------------------
Class C -3.16% 11.86%
- --------------------------------------------------------------------------------
First Boston
High Yield Index 0.58% 5.95%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1998 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period.
* Inception Date: 4/22/97 for Class A, Class B, and Class C shares; Index
return is from 4/30/97.
BAR CHART
- --------------------------------------------------------------------------------
The annual return in the bar chart is for the Fund's Class A shares and does not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through 9/30/99, the year-to-date unannualized return for Class A
shares was -0.86%.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a n/a n/a n/a -1.69
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.29%, 1st quarter, 1998; and Worst quarter was down -9.63%,
3rd quarter, 1998.
14
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with changes in the values of
that Fund's investments. Many factors can affect those values. In this Summary,
we describe the principal risks that may affect a Fund's portfolio as a whole.
These risks and the Funds subject to the risks appear in a chart at the end of
this section. All Funds could be subject to additional principal risks because
the types of investments made by each Fund can change over time. This Prospectus
has additional descriptions of the types of investments that appear in bold type
in the discussions under "Description of Investment Practices" or "Additional
Risk Considerations." These sections also include more information about the
Funds, their investments, and related risks.
INTEREST RATE RISK
This is the risk that changes in interest rates will affect the value of a
Fund's investments in debt securities, such as bonds, notes, and asset-backed
securities, or other income-producing securities. Debt securities are
obligations of the issuer to make payments of principal and/or interest on
future dates. All of the Funds have interest rate risk. Increases in interest
rates may cause the value of a Fund's investments to decline.
Even Funds such as the Alliance Short-Term U.S. Government, Alliance U.S.
Government, Alliance Limited Maturity Government and Alliance Quality Bond that
invest a substantial portion of their assets in the highest quality debt
securities, including U.S. Government securities, are subject to interest rate
risk. Interest rate risk generally is greater for those Funds that invest a
significant portion of their assets in lower-rated securities or comparable
unrated securities such as Alliance Global Dollar Government, Alliance Global
Strategic Income, Alliance Corporate Bond and Alliance High Yield.
Interest rate risk is generally greater for Funds that invest in debt securities
with longer maturities, such as Alliance North American Government Income,
Alliance Global Dollar Government, Alliance Global Strategic Income and Alliance
Corporate Bond. This risk is compounded for the Funds that invest a substantial
portion of their assets in mortgage-related or other asset-backed securities,
such as Alliance Short-Term U.S. Government, Alliance U.S. Government, Alliance
Mortgage Securities Income, and Alliance Quality Bond. The value of these
securities is affected more by changes in interest rates because when interest
rates rise, the maturities of these type of securities tend to lengthen and the
value of the securities decreases more significantly. In addition, these types
of securities are subject to prepayment when interest rates fall, which
generally results in lower returns because the Funds must reinvest their assets
in debt securities with lower interest rates. Increased interest rate risk also
is likely for Alliance Global Dollar Government, Alliance Global Strategic
Income, Alliance Quality Bond and Alliance Corporate Bond, which invest in debt
securities paying no current interest, such as zero coupon, principal-only, and
interest-only securities, or paying non-cash interest in the form of other debt
securities (payment-in-kind securities).
CREDIT RISK
This is the risk that the issuer or the guarantor of a debt security, or the
counterparty to a derivatives contract, will be unable or unwilling to make
timely payments of interest or principal or to otherwise honor its obligations.
The degree of risk for a particular security may be reflected in its credit
rating. Credit risk is greater for Funds such as Alliance Mortgage Securities
Income, Alliance Global Dollar Government, Alliance Global Strategic Income,
Alliance Corporate Bond and Alliance High Yield that invest in lower-rated
securities. These debt securities and similar unrated securities (commonly known
as "junk bonds") have speculative elements or are predominantly speculative
credit risks.
Funds such as Alliance Global Dollar Government and Alliance High Yield may be
subject to greater credit risk because they invest in debt securities issued in
connection with corporate restructurings by highly leveraged issuers and in debt
securities that are not current in the payment of interest or principal or are
in default. Funds such as Alliance Quality Bond, Alliance Multi-Market Strategy,
Alliance North American Government Income, and Alliance Global Dollar Government
that invest in foreign securities also are subject to increased credit risk
because of the difficulties of requiring foreign entities, including issuers of
sovereign debt obligations, to honor their contractual commitments, and because
a number of foreign governments and other issuers are already in default.
MARKET RISK
This is the risk that the value of a Fund's investments will fluctuate as the
bond markets fluctuate and that prices overall will decline over shorter or
longer-term periods. All of the Funds are subject to this risk.
FOREIGN RISK
This is the risk of investments in issuers located in foreign countries. All
Alliance Funds that invest in foreign securities are subject to this risk,
including Alliance Limited Maturity Government, Alliance Quality Bond, Alliance
Multi-Market Strategy, Alliance North American Government Income, Alliance
Global Dollar Government, Alliance Global Strategic Income, Alliance Corporate
Bond and Alliance High Yield. These Funds' investments in foreign securities may
experience more rapid and extreme changes in value than investments in
securities of U.S. companies. The securities markets of many foreign countries
are relatively small, with a limited number of companies representing
a small number of securities. In addition, foreign companies
15
<PAGE>
usually are not subject to the same degree of regulation as U.S. companies.
Reporting, accounting, and auditing standards of foreign countries differ, in
some cases significantly, from U.S. standards. Nationalization, expropriation
or confiscatory taxation, currency blockage, political changes, or diplomatic
developments could adversely affect a Fund's investments in a foreign country.
In the event of a nationalization, expropriation, or other confiscation, a Fund
could lose its entire investment.
Political, social, and economic changes in a particular country could result in
increased risks for Alliance Global Dollar Government and Alliance Global
Strategic Income, which invest a substantial portion of their assets in
sovereign debt obligations, including Brady Bonds. The investments in emerging
market countries of Alliance North American Government Income and Alliance
Global Dollar Government are likely to involve significant risks. These
countries, such as Mexico, Argentina, Brazil, Morocco, the Philippines, Russia,
and Venezuela, have a history of political and economic instability.
COUNTRY OR GEOGRAPHIC RISK
This is the risk of investments in issuers located in a particular country or
geographic region. Market changes or other factors affecting that country or
region, including political instability and unpredictable economic conditions,
may have a particularly significant effect on a Fund's net asset value. The
Funds particularly subject to this risk are Alliance Multi-Market Strategy and
Alliance North American Government Income.
CURRENCY RISK
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of a Fund's investments.
Funds such as Alliance Limited Maturity Government, Alliance Quality Bond,
Alliance Multi-Market Strategy, Alliance North American Government Income,
Alliance Global Strategic Income and Alliance High Yield that invest in
securities denominated in, and/or companies receiving revenues in, foreign
currencies are subject to currency risk.
DIVERSIFICATION RISK
Most analysts believe that overall risk can be reduced through diversification,
while concentration of investments in a small number of securities increases
risk. Alliance Multi-Market Strategy, Alliance North American Government
Income, Alliance Global Dollar Government, and Alliance Global Strategic Income
are not "diversified." This means that they can invest more of their assets in a
relatively small number of issuers with greater concentration of risk. Factors
affecting these issuers can have a more significant effect on the Fund's net
asset value. Similarly, a Fund that concentrates its investments in a particular
industry, such as Alliance Multi-Market Strategy, which invests at least 25% of
its assets in the banking industry, could have increased risks because factors
affecting that industry could have a more significant effect on the value of the
Fund's investments.
LEVERAGING RISK
When a Fund borrows money or otherwise leverages its portfolio, the value of an
investment in that Fund will be more volatile and all other risks will tend to
be compounded. Each Fund may create leverage by using reverse repurchase
agreements, inverse floating rate instruments or derivatives, or by borrowing
money.
DERIVATIVES RISK
All Funds may use derivatives, which are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate, or
index. Alliance will sometimes use derivatives as part of a strategy designed to
reduce other risks. Generally, however, the Funds use derivatives as direct
investments to earn income, enhance yield and broaden Fund diversification,
which entail greater risk than if used solely for hedging purposes. In addition
to other risks such as the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and the risk that changes in
the value of the derivative may not correlate perfectly with relevant unerlying
assets, rates, or indices. Funds that invest in structured securities, such as
Alliance Global Dollar Government, Alliance Global Strategic Income and Alliance
Corporate Bond, could have increased derivatives risk.
LIQUIDITY RISK
Liquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing a Fund from selling out of these illiquid securities
at an advantageous price. All of the Funds are subject to liquidity risk because
derivatives and securities involving substantial interest rate and credit risk
tend to involve greater liquidity risk. In addition, liquidity risk tends to
increase to the extent a Fund invests in debt securities whose sale may be
restricted by law or by contract.
MANAGEMENT RISK
Each Fund is subject to management risk because it is an actively managed
investment Fund. Alliance will apply its investment techniques and risk analyses
in making investment decisions for the Funds, but there can be no guarantee that
its decisions will produce the desired results. In some cases, derivative and
other investment techniques may be unavailable or Alliance may determine not to
use them, possibly even under market conditions where their use could benefit a
Fund.
16
<PAGE>
PRINCIPAL RISKS BY FUND
The following chart summarizes the Principal Risks of each Fund. Risks not
marked for a particular Fund may, however, still apply to some extent to that
Fund at various times.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Country or
Interest Credit Market Foreign Geographic Currency Diversifica- Leveraging Derivatives
Fund Rate Risk Risk Risk Risk Risk Risk tion Risk Risk Risk
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Short-Term
U.S. Government o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance U.S. Government o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Limited
Maturity Government o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Quality Bond o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Mortgage
Securities Income o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Multi-Market
Strategy o o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance North American
Government Income o o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Global
Dollar Government o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Global
Strategic Income o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Corporate Bond o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------
Liquidity Manage-
Fund Risk ment Risk
- ---------------------------------------------------
<S> <C> <C>
Alliance Short-Term
U.S. Government o o
- ---------------------------------------------------
Alliance U.S. Government o o
- ---------------------------------------------------
Alliance Limited
Maturity Government o o
- ---------------------------------------------------
Alliance Quality Bond o o
- ---------------------------------------------------
Alliance Mortgage
Securities Income o o
- ---------------------------------------------------
Alliance Multi-Market
Strategy o o
- ---------------------------------------------------
Alliance North American
Government Income o o
- ---------------------------------------------------
Alliance Global
Dollar Government o o
- ---------------------------------------------------
Alliance Global
Strategic Income o o
- ---------------------------------------------------
Alliance Corporate Bond o o
- ---------------------------------------------------
Alliance High Yield o o
- ---------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Shares Class B Shares(a) Class B Shares(b) Class C Shares
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) None 3.0%* 4.0%** 1.0%***
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
(a) For all Funds except Alliance Global Strategic Income Trust and Alliance
High Yield Fund.
(b) For Alliance Global Strategic Income Trust and Alliance High Yield Fund.
* Class B shares automatically convert to Class A shares after 6 years. The
CDSC decreases over time. For Class B shares the CDSC decreases 1.00%
annually to 0% after the 3rd year.
** Class B shares automatically convert to Class A shares after 8 years. The
CDSC decreases over time. For Class B shares the CDSC decreases 1.00%
annually to 0% after the 4th year.
*** For Class C shares the CDSC is 0% after the first year.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in a Fund with the
cost of investing in other funds. They assume that you invest $10,000 in a Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. They also assume that your investment has a 5% return each year,
that the Fund's operating expenses stay the same, and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Short-Term U.S.
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .55% .55% .55% After 1 Year $ 576 $ 528 $ 228 $ 329 $ 229
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years* $ 984 $ 902 $ 802 $ 799 $ 799
Interest Expense .15% .15% .16% After 5 Years* $ 1,417 $ 1,402 $ 1,402 $ 1,395 $ 1,395
Other Expenses 1.00% 1.03% 1.00% After 10 Years* $ 2,619 $ 2,689 $ 2,689 $ 3,009 $ 3,009
-------- -------- --------
Total Fund Operating Expenses 2.00% 2.73% 2.71%
======== ======== ========
Waiver and/or Expense
Reimbursement +++ (.45)% (.48)% (.45)%
-------- -------- --------
Net Expenses 1.55% 2.25% 2.26%
======== ======== ========
Alliance U.S. Government
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .56% .56% .56% After 1 Year $ 539 $ 490 $ 190 $ 290 $ 190
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 781 $ 688 $ 588 $ 588 $ 588
Interest Expense .09% .08% .09% After 5 Years $ 1,041 $ 1,011 $ 1,011 $ 1,011 $ 1,011
Other Expenses .22% .23% .22% After 10 Years $ 1,785 $ 1,840 $ 1,840 $ 2,190 $ 2,190
-------- -------- --------
Total Fund Operating Expenses 1.17% 1.87% 1.87%
======== ======== ========
Alliance Limited Maturity
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .65% .65% .65% After 1 Year $ 741 $ 686 $ 386 $ 486 $ 386
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,389 $ 1,272 $ 1,172 $ 1,172 $ 1,172
Interest Expense 1.59% 1.45% 1.46% After 5 Years $ 2,060 $ 1,976 $ 1,976 $ 1,976 $ 1,976
Other Expenses .73% .74% .73% After 10 Years $ 3,841 $ 3,837 $ 3,837 $ 4,070 $ 4,070
-------- -------- --------
Total Fund Operating Expenses 3.27% 3.84% 3.84%
======== ======== ========
Alliance Quality Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .55% .55% .55% After 1 Year $ 521 $ 471 $ 171 $ 271 $ 171
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years* $ 961 $ 872 $ 772 $ 772 $ 772
Other Expenses 1.30% 1.30% 1.30% After 5 Years* $ 1,427 $ 1,400 $ 1,400 $ 1,400 $ 1,400
-------- -------- -------- After 10 Years* $ 2,714 $ 2,770 $ 2,770 $ 3,092 $ 3,092
Total Fund Operating Expenses 2.15% 2.85% 2.85%
======== ======== ========
Waiver and/or Expense
Reimbursement +++ (1.17)% (1.17)% (1.17)%
-------- -------- --------
Net Expenses .98% 1.68% 1.68%
======== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Mortgage Securities
Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .53% .53% .53% After 1 Year $ 618 $ 571 $ 271 $ 372 $ 272
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,023 $ 932 $ 832 $ 835 $ 835
Interest Expense .85% .83% .85% After 5 Years $ 1,452 $ 1,420 $ 1,420 $ 1,425 $ 1,425
Other Expenses .31% .32% .31% After 10 Years $ 2,643 $ 2,694 $ 2,694 $ 3,022 $ 3,022
-------- -------- --------
Total Fund Operating Expenses 1.99% 2.68% 2.69%
======== ======== ========
Alliance Multi-Market
Strategy Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .60% .60% .60% After 1 Year $ 594 $ 544 $ 244 $ 364 $ 264
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 950 $ 851 $ 751 $ 811 $ 811
Other Expenses .84% .81% 1.01% After 5 Years $ 1,329 $ 1,285 $ 1,285 $ 1,385 $ 1,385
-------- -------- -------- After 10 Years $ 2,389 $ 2,429 $ 2,429 $ 2,944 $ 2,944
Total Fund Operating Expenses 1.74% 2.41% 2.61%
======== ======== ========
Alliance North American
Government Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees** .72% .72% .72% After 1 Year $ 623 $ 578 $ 278 $ 377 $ 277
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,037 $ 953 $ 853 $ 850 $ 850
Interest Expense .68% .68% .68% After 5 Years $ 1,477 $ 1,454 $ 1,454 $ 1,450 $ 1,450
Other Expenses .34% .35% .34% After 10 Years $ 2,693 $ 2,754 $ 2,754 $ 3,070 $ 3,070
-------- -------- --------
Total Fund Operating Expenses 2.04% 2.75% 2.74%
======== ======== ========
Alliance Global Dollar
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .75% .75% .75% After 1 Year $ 580 $ 534 $ 234 $ 353 $ 233
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 906 $ 821 $ 721 $ 718 $ 718
Other Expenses .54% .56% .55% After 5 Years $ 1,254 $ 1,235 $ 1,235 $ 1,230 $ 1,230
-------- -------- -------- After 10 Years $ 2,234 $ 2,301 $ 2,301 $ 2,636 $ 2,636
Total Fund Operating Expenses 1.59% 2.31% 2.30%
======== ======== ========
Alliance Global Strategic
Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .75% .75% .75% After 1 Year $ 609 $ 661 $ 261 $ 361 $ 261
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years* $ 994 $ 1,002 $ 802 $ 802 $ 802
Other Expenses 1.03% 1.01% 1.02% After 5 Years* $ 1,403 $ 1,370 $ 1,370 $ 1,370 $ 1,370
-------- -------- -------- After 10 Years* $ 2,543 $ 2,747 $ 2,747 $ 2,915 $ 2,915
Total Fund Operating Expenses 2.08% 2.76% 2.77%
======== ======== ========
Waiver and/or Expense
Reimbursement +++ (.19)% (.18)% (.19)%
-------- -------- --------
Net Expenses 1.89% 2.58% 2.58%
======== ======== ========
Alliance Corporate Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .55% .55% .55% After 1 Year $ 533 $ 485 $ 185 $ 284 $ 184
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 763 $ 673 $ 573 $ 569 $ 569
Other Expenses .26% .27% .26% After 5 Years $ 1,011 $ 985 $ 985 $ 980 $ 980
-------- -------- -------- After 10 Years $ 1,719 $ 1,780 $ 1,780 $ 2,127 $ 2,127
Total Fund Operating Expenses 1.11% 1.82% 1.81%
======== ======== ========
Alliance High Yield Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- -------- ------- ------- ------- ------- -------
Management Fees .75% .75% .75% After 1 Year $ 553 $ 606 $ 206 $ 305 $ 205
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 823 $ 837 $ 637 $ 634 $ 634
Other Expenses .26% .28% .27% After 5 Years $ 1,113 $ 1,093 $ 1,093 $ 1,088 $ 1,088
-------- -------- -------- After 10 Years $ 1,937 $ 2,173 $ 2,173 $ 2,348 $ 2,348
Total Fund Operating Expenses 1.31% 2.03% 2.02%
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period and, with respect to shares held 10
years, conversion of Class B shares to Class A shares after 6 years, and
for Alliance Global Strategic Income Trust and Alliance High Yield Fund, 8
years.
+++ Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This
waiver extends through the end of the Fund's current fiscal year and may
be extended by Alliance for additional one-year terms.
* These examples assume that Alliance's agreement to waive management fees
and/or bear Fund expenses is not extended beyond its initial term.
** Represents .65 of 1% of the Fund's average daily adjusted total net
assets.
19
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are bonds, debentures, corporate notes, and preferred
stocks that are convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Equity securities are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Fixed-income securities are debt securities, convertible securities, and
preferred stocks, including floating rate and variable rate instruments.
Fixed-income securities may be rated (or, if unrated, for purposes of the Funds'
investment policies as may be determined by Alliance to be of equivalent
quality) triple-A (Aaa or AAA), high quality (Aa or AA or above), high grade (A
or above) or investment grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities, as
defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P or Ba by Moody's and BB by S&P but B by Fitch), a Fund
will use the rating deemed by Alliance to be the most appropriate under the
circumstances.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.
Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
principal-only or PO class, that receives only the principal payments on the
underlying debt obligation. POs are similar to, and are sometimes referred to
as, zero coupon securities, which are debt securities issued without interest
coupons.
Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related, and private organizations. These securities include:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home
Loan Mortgage Corporation or FHLMC.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A under the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury, and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA. U.S. Government securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES and RATED SECURITIES
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
Higher quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.
Lower-rated securities are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred to
as "junk bonds."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
Prime commercial paper is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch, or Duff 1 by Duff & Phelps.
S&P is Standard & Poor's Ratings Services.
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
20
<PAGE>
Duration is a measure that relates the price volatility of a security to changes
in interest rates. The duration of a debt security is the weighted average term
to maturity, expressed in years, of the present value of all future cash flows,
including coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Investment Practices following this section.
o The description of the principal risks for a Fund may include risks
described in the Summary of Principal Risks above. Additional information
about the risks of investing in a Fund can be found in the discussion
under Additional Risk Considerations.
o Additional descriptions of each Fund's strategies, investments, and risks
can be found in a Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Funds' investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Funds'
investment policies are not fundamental and thus can be changed without a
shareholder vote.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer investors high current income consistent with
preservation of capital by investing primarily in U.S. Government securities.
Alliance Short-Term U.S. Government Fund
Alliance Short-Term U.S. Government Fund seeks high current income consistent
with the preservation of capital by investing primarily in a portfolio of U.S.
Government securities. The Fund's investment objective is not fundamental. The
Fund invests at least 65% of its total assets in U.S. Government securities,
including mortgage-related securities, repurchase agreements and forward
commitments relating to U.S. Government securities. The Fund normally maintains
an average dollar-weighted portfolio maturity of not more than three years. In
periods of rising interest rates, the Fund may, to the extent it invests in
mortgage-related securities, be subject to the risk that its average
dollar-weighted portfolio maturity may be extended as a result of lower than
anticipated prepayment rates.
The Fund may invest a portion of its assets in securities of non-governmental
issuers. Although these investments will be of high quality at the time of
purchase, they may have higher levels of credit risk than do U.S. Government
securities. Under its policies, the Fund is not obligated to dispose of any
security whose credit quality falls below high quality.
The Fund also may:
o invest in certain SMRS;
o invest in variable, floating, and inverse floating rate instruments;
o make short sales against the box;
o enter into various hedging transactions, such as interest rate swaps,
caps, and floors;
o purchase and sell futures contracts for hedging purposes;
o purchase and sell call and put options on futures contracts or on
securities, for hedging purposes or to earn additional income;
o enter into reverse repurchase agreements;
o purchase securities for future delivery;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
Alliance U.S. Government Portfolio
Alliance U.S. Government Portfolio seeks a high level of current income that is
consistent with prudent investment risk. As a matter of fundamental policy, the
Fund pursues its objective by investing at least 65% of its total assets in U.S.
Government securities, repurchase agreements and forward contracts relating to
U.S. Government securities. The Fund may invest the remaining 35% of its total
assets in non-U.S. Government mortgage-related and asset-backed securities,
including high-grade debt securities secured by mortgages on commercial real
estate or residential rental properties.
The Fund will not invest in any security rated below BBB or Baa. The Fund may
invest in unrated securities of equivalent quality to the rated securities in
which it may invest, as determined by Alliance. The Fund expects, but is not
required, to dispose of securities that are downgraded below BBB and Baa or, if
unrated, that are determined by Alliance to have undergone similar credit
quality deterioration.
21
<PAGE>
The Fund also may:
o enter into reverse repurchase agreements and dollar rolls;
o enter into various hedging transactions, such as interest rate swaps,
caps, and floors;
o enter into forward contracts;
o purchase and sell futures contracts for hedging purposes;
o purchase call and put options on futures contracts or on securities for
hedging purposes; and
o enter into repurchase agreements.
Alliance Limited Maturity Government Fund
Alliance Limited Maturity Government Fund seeks the highest level of current
income, consistent with low volatility of net asset value. As a matter of
fundamental policy, the Fund normally invests at least 65% of its total assets
in U.S. Government securities, including mortgage-related securities and
repurchase agreements relating to U.S. Government securities.
In pursuing its investment objective and policies, the Fund takes advantage of a
wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its assessment
of relative yields on securities of different maturities and the expected effect
of future changes in interest rates on the market value of the Fund's portfolio.
At all times, however, each security held by the Fund has either a remaining
maturity of not more than ten years or a duration not exceeding that of a
ten-year Treasury note.
The Fund may invest up to 35% of its total assets in:
o high quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private corporate issuers;
o qualifying bank deposits;
o higher quality commercial paper or, if unrated, issued by companies that
have high quality debt issues outstanding; and
o high quality debt securities of corporate issuers.
The Fund may invest up to 15% of its total assets in high-quality debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental issuers.
The amount of Fund investments in foreign debt securities will vary and may
include those of a number of foreign countries or, depending upon market
conditions, those of a single country.
The Fund also may:
o enter into futures contracts and purchase and write options on futures
contracts;
o enter into forward commitments;
o enter into interest rate swaps, caps, and floors;
o invest in Eurodollar instruments;
o purchase and write put and call options on foreign currencies;
o invest in variable, floating, and inverse floating rate instruments;
o use reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
QUALITY BOND FUND
Alliance Quality Bond Portfolio
Alliance Quality Bond Portfolio seeks high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities. In seeking to achieve its investment objective, the Fund invests in
readily marketable securities with relatively attractive yields that do not
involve undue risk of loss of capital. The Fund normally invests all of its
assets in securities that are rated at least BBB- by S&P or Baa3 by Moody's or
that are of comparable quality. The Fund normally maintains an average
aggregate quality rating of its portfolio securities of at least A (S&P and
Moody's). The Fund has the flexibility to invest in long- and short-term
fixed-income securities (including debt securities, convertible debt
securities and U.S. Government obligations) and preferred stocks based on
Alliance's assessment of prospective cyclical interest rate changes.
In the event that the credit rating of a security held by the Fund falls below
investment grade (or, if in the case of unrated securities, Alliance determines
that the quality of a security has deteriorated below investment grade), the
Fund will not be obligated to dispose of that security and may continue to hold
the security if, in the opinion of Alliance, such investment is appropriate in
the circumstances.
The Fund also may:
o purchase and sell interest rate futures contracts and options;
o enter into interest rate swaps, caps and floors for hedging purposes;
o purchase put and call options and write covered put and call options on
securities it may purchase;
o write covered call options for cross-hedging purposes;
o invest in foreign fixed-income securities, but only up to 20% of its
total assets;
o enter into foreign currency futures contracts and related options;
o enter into forward foreign currency exchange contracts and options on
foreign currencies for hedging purposes;
o invest in CMOs;
o invest in zero coupon securities and "pay-in-kind" debentures; and
o make secured loans of portfolio securities of up to 50% of its total
assets.
22
<PAGE>
MORTGAGE FUND
Alliance Mortgage Securities Income Fund
Alliance Mortgage Securities Income Fund seeks a high level of current income to
the extent consistent with prudent investment risk. The Fund maintains at least
65% of its total assets in mortgage-related securities, including CMOs. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between two and ten years.
The Fund expects that governmental, government-related, or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors, the
Fund will consider making investments in these new types of securities. The Fund
may invest up to 20% of its total assets in lower-rated mortgage-related
securities.
The Fund may invest up to 35% of its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, issued by companies that have an
outstanding high quality debt issue; and
o high-grade asset-backed securities.
The Fund also may:
o enter into forward commitments;
o purchase put and call options written by others and write covered put and
call options for hedging purposes;
o purchase high-grade debt securities secured by mortgages on commercial
real estate or residential rental properties;
o enter into interest rate swaps, caps, and floors;
o enter into interest rate futures contracts;
o invest in variable, floating, and inverse floating rate instruments;
o make loans of portfolio securities; and
o enter into repurchase agreements.
MULTI-MARKET FUND
Alliance Multi-Market Strategy Trust
Alliance Multi-Market Strategy Trust is a non-diversified investment company
that offers investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund. The Fund seeks the
highest level of current income, consistent with what Alliance considers to be
prudent investment risk, that is available from a portfolio of high-quality debt
securities having remaining maturities of not more than five years. The Fund
invests in a portfolio of debt securities denominated in the U.S. Dollar and
selected foreign currencies. The Fund seeks investment opportunities in foreign,
as well as domestic, securities markets. The Fund normally expects to maintain
at least 70% of its assets in debt securities denominated in foreign currencies.
The Fund limits its investments in a single currency other than the U.S. Dollar
to 25% of its net assets, except for the Euro in which the Fund may invest up to
50% of its net assets.
In pursuing its investment objective, the Fund seeks to minimize credit risk and
fluctuations in net asset value by investing only in short-term debt securities.
Normally, a high proportion of the Fund's portfolio consists of money market
instruments. Alliance actively manages the Fund's portfolio in accordance with a
multi-market investment strategy, allocating the Fund's investments among
securities denominated in the U.S. Dollar and the currencies of a number of
foreign countries and, within each such country, among different types of debt
securities. Alliance adjusts the Fund's exposure to each currency so that the
percentage of assets invested in securities of a particular country or
denominated in a particular currency varies in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relative strength of a country's currency. Fundamental economic
strength, credit quality, and interest rate trends are the principal factors
considered by Alliance in determining whether to increase or decrease the
emphasis placed upon a particular type of security or industry sector within a
Fund's investment portfolio.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges", can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders and declines in the net asset
value of the Fund's shares resulting from adverse changes in currency exchange
rates. The Fund invests in debt securities denominated in the currencies of
countries whose governments are considered stable by Alliance.
An issuer of debt securities purchased by the Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated. In
addition, the Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency
23
<PAGE>
while the principal amounts of, and value of interest payments on, such
securities are determined with reference to another currency.
The Fund seeks to minimize investment risk by limiting its investments to debt
securities of high quality and invests in:
o U.S. Government securities;
o high-quality foreign government securities;
o obligations issued by supranational entities and corporate debt securities
having a high-quality rating;
o certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, banks (including foreign branches of
foreign banks) having total assets of more than $500 million, and
determined by Alliance to be of high quality; and
o prime commercial paper or unrated commercial paper of equivalent quality
and issued by U.S. or foreign companies having outstanding high-quality
debt securities.
As a matter of fundamental policy, the Fund concentrates at least 25% of its
total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. These
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks.
The Fund also may:
o invest in indexed commercial paper;
o enter into futures contracts and purchase and write options on futures
contracts;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o enter into interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that offer
investors a high level of current income through investments primarily in
foreign government securities.
Alliance North American Government Income Trust
Alliance North American Government Income Trust seeks the highest level of
current income, consistent with what Alliance considers to be prudent investment
risk, that is available from a portfolio of debt securities issued or guaranteed
by the United States, Canada, and Mexico, their political subdivisions
(including Canadian provinces but excluding states of the United States),
agencies, instrumentalities or authorities ("Government securities"). The Fund
invests in investment grade securities denominated in the U.S. Dollar, the
Canadian Dollar, and the Mexican Peso and expects to maintain at least 25% of
its assets in securities denominated in the U.S. Dollar. In addition, the Fund
may invest up to 25% of its total assets in debt securities issued by
governmental entities of Argentina ("Argentine Government securities").
The Fund invests at least 65%, and normally substantially more, of its assets in
Government securities and income-producing securities. The average weighted
maturity of the Fund's portfolio of fixed-income securities is expected to vary
between one year or less and 30 years. The Fund maintains borrowings of
approximately one-third of its net assets.
The Fund expects that it will not retain a debt security that is downgraded
below BBB or Baa, or, if unrated, determined by Alliance to have undergone
similar credit quality deterioration. The Fund may conclude, under certain
circumstances, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations and
the growing coordination of their fiscal and monetary policies, will over the
long term benefit the economic performance of all three countries and promote
greater correlation of currency fluctuation among the U.S. and Canadian Dollars
and the Mexican Peso.
Alliance will actively manage the Fund's assets in relation to market conditions
and general economic conditions and adjust the Fund's investments in an effort
to best enable the Fund to achieve its investment objective. Thus, the
percentage of the Fund's assets invested in a particular country or denominated
in a particular currency will vary in accordance with Alliance's assessment of
the relative yield and appreciation potential of such securities and the
relationship of the country's currency to the U.S. Dollar. To the extent that
its assets are not invested in Government securities, however, the Fund may
invest the balance of its total assets in investment grade debt securities
issued by, and denominated in the local currencies of, governments of countries
located in Central and South America or any of their political subdivisions,
agencies, instrumentalities or authorities, provided that such securities are
denominated in their local currencies. The Fund limits its investments in debt
securities issued by the governmental entities of any
24
<PAGE>
one country, except for Argentine Government securities, to 10% of its total
assets.
The Fund also may:
o enter into futures contracts and purchase and write options on futures
contracts for hedging purposes;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o write covered put and call options and purchase put and call options on
U.S. Government and foreign government securities traded on U.S. and
foreign securities exchanges, and write put and call options for
cross-hedging purposes;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
Alliance Global Dollar Government Fund
Alliance Global Dollar Government Fund seeks primarily a high level of current
income and secondarily capital appreciation. In seeking to achieve these
objectives, the Fund invests at least 65% of its total assets in sovereign debt
obligations. The Fund's investments in sovereign debt obligations will emphasize
obligations referred to as "Brady Bonds," which are issued as part of debt
restructurings and collateralized in full as to principal due at maturity by
zero coupon U.S. Government securities.
The Fund also may invest up to 35% of its total assets in U.S. and non-U.S.
corporate fixed-income securities. The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects the average
weighted maturity of the Fund's investments will be approximately:
o for U.S. fixed-income securities, nine to 15 years;
o for non-U.S. fixed-income securities, 15 to 25 years; and
o for sovereign debt obligations, longer than 25 years.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of equivalent investment
quality. These securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable vulnerability to
default, 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
be in default or not current in the payment of interest or principal.
The Fund also may invest in investment grade securities. Unrated securities will
be considered for investment by the Fund when Alliance believes that the
financial condition of the issuers of such obligations and the protection
afforded by the terms of the obligations themselves limit the risk to the Fund
to a degree comparable to that of rated securities which are consistent with the
Fund's investment objectives and policies.
As of August 31, 1999, securities ratings (or equivalent quality) of the Fund's
securities were:
o A and above .37%
o Baa or BBB 4.55%
o Ba or BB 50.00%
o B 29.35%
o CCC 9.43%
o CC 2.64%
o C 1.60%
o Unrated 2.06%
The Fund's investments in sovereign debt obligations and non-U.S. corporate
fixed-income securities emphasize countries that are considered at the time of
purchase to be emerging markets or developing countries by the World Bank. A
substantial part of the Fund's investment focus is in obligations of or
securities of issuers in Argentina, Brazil, Mexico, Morocco, the Philippines,
Russia and Venezuela because these countries are now, or are expected in the
future to be, the principal participants in debt restructuring programs
(including, in the case of Argentina, Mexico, the Philippines and Venezuela,
issuers of currently outstanding Brady Bonds) that, in Alliance's opinion, will
provide the most attractive investment opportunities for the Fund. Alliance
anticipates that other countries that will provide investment opportunities for
the Fund include, among others, Bolivia, Costa Rica, the Dominican Republic,
Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay.
The Fund limits its investments in the sovereign debt obligations of any single
foreign country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations of and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that it
will limit its investments in any other single foreign country to not more than
10% of its total assets.
The Fund also may:
o invest in structured securities;
o invest in fixed and floating rate loans that are arranged through private
negotiations between an issuer of sovereign debt obligations and one or
more financial institutions and in participations in and assignments of
these types of loans;
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o invest in other investment companies;
o invest in warrants;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o enter into standby commitment agreements;
o make short sales of securities or maintain a short position;
o write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;
o purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
o invest in variable, floating, and inverse floating rate instruments;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
While it does not currently intend to do so, the Fund reserves the right to
borrow an amount not to exceed one-third of the Fund's net assets.
Alliance Global Strategic Income Trust
Alliance Global Strategic Income Trust seeks primarily a high level of current
income and secondarily capital appreciation. The Fund invests primarily in a
portfolio of fixed-income securities of U.S. and non-U.S. companies and U.S.
Government and foreign government securities and supranational entities,
including lower-rated securities. The Fund also may use derivative instruments
to attempt to enhance income. The Fund expects that the average weighted
maturity of its portfolio of fixed-income securities will vary between five
years and 30 years in accordance with Alliance's changing perceptions of the
relative attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in fixed-income
securities of issuers located in at least three countries, one of which may be
the United States. The Fund limits its investments in the securities of any one
foreign government to 25% of its total assets. The Fund's investments in U.S.
Government securities may include mortgage-related securities and zero coupon
securities. The Fund's investments in fixed-income securities may include
preferred stock, mortgage-related and other asset-backed securities, and zero
coupon securities.
The Fund will maintain at least 65% of its total assets in investment grade
securities and may maintain not more than 35% of its total assets in lower-rated
securities. Unrated securities will be considered for investment by the Fund
when Alliance believes that the financial condition of the issuers of such
obligations and the protection afforded by the terms of the obligations limit
the risk to the Fund to a degree comparable to that of rated securities that are
consistent with the Fund's investment objectives and policies. Lower-rated
securities in which the Fund may invest include Brady Bonds and fixed-income
securities of issuers located in emerging markets.
The Fund also may:
o invest in rights and warrants;
o invest in loan participations and assignments;
o invest in foreign currencies;
o purchase and write put and call options on securities and foreign
currencies;
o purchase or sell forward foreign exchange contracts;
o invest in variable, floating, and inverse floating rate instruments;
o invest in indexed commercial paper;
o invest in structured securities;
o purchase and sell securities on a forward commitment basis;
o enter into standby commitments;
o enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including any index of U.S. Government securities,
foreign government securities or common stock, and purchase and write
options on futures contracts;
o invest in Eurodollar instruments;
o enter into interest rate swaps, caps, and floors; and
o make short sales of securities or maintain a short position;
o enter into reverse repurchase agreements and dollar rolls;
o make loans of portfolio securities; and
o enter into repurchase agreements.
The Fund may borrow in order to purchase securities or make other investments,
although it currently limits its borrowings to 25% of its total assets.
CORPORATE BOND FUNDS
Alliance Corporate Bond Portfolio
Alliance Corporate Bond Portfolio seeks primarily to maximize income over the
long term consistent with providing reasonable safety in the value of each
shareholder's investment and secondarily to increase its capital through
appreciation of its investments in order to preserve and, if possible, increase
the purchasing power of each shareholder's investment. In pursuing these
objectives, the Fund's policy is to invest in readily
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marketable securities that give promise of relatively attractive yields but do
not involve substantial risk of loss of capital. The Fund invests at least 65%
of its net assets in debt securities. Although the Fund invests at least 65% of
its total assets in corporate bonds, it also may invest in securities of
non-corporate issuers. The Fund expects that the average weighted maturity of
its portfolio of fixed-income securities will vary between one year or less and
30 years.
The Fund follows an investment strategy that in certain respects can be regarded
as more aggressive than the strategies of many other funds investing primarily
in corporate bonds. The Fund's investments normally tend to have a relatively
long average maturity and duration. The Fund places significant emphasis on both
foreign corporate and sovereign debt obligations and corporate bonds that are
expected to benefit from improvement in their issuers' credit fundamentals. In
recent years the Fund frequently has had greater net asset value volatility than
most other corporate bond funds. Prospective investors in the Fund should
therefore be prepared to accept the degree of volatility associated with its
investment strategy.
The Fund's investments in fixed-income securities have no minimum rating
requirement, except the Fund expects that it will not retain a security that is
downgraded below B, or if unrated, determined to have undergone similar credit
quality deterioration after purchase. Currently, the Fund believes its
objectives and policies may best be implemented by investing at least 65% of its
total assets in fixed-income securities considered investment grade or higher.
The Fund may invest the remainder of its assets in lower-rated fixed-income
securities. As of June 30, 1999, the Fund's investments were rated (or
equivalent quality):
o A or above 9.64%
o Baa or BBB 47.40%
o Ba or BB 37.26%
o B 1.82%
o CC 3.50%
o C .38%
o Unrated 0%
The Fund may invest up to 50% of its total assets in foreign debt securities,
which will consist primarily of corporate fixed-income securities and sovereign
debt obligations. The Fund invests no more than 15% of its total assets in
sovereign debt obligations in the form of foreign government loan participations
and assignments, which may be lower rated and considered to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. All of the Fund's investments, whether foreign or domestic, are U.S.
Dollar-denominated.
Within these limitations, the Fund has complete flexibility as to the types and
relative proportions of securities in which it will invest. The Fund plans to
vary the proportions of its holdings of long- and short-term fixed-income
securities and of equity securities in order to reflect its assessment of
prospective cyclical changes even if such action may adversely affect current
income. Substantially all of the Fund's investments, however, will be income
producing.
The Fund also may:
o invest in structured securities;
o invest in fixed and floating rate loans that are arranged through private
negotiations between an issuer of sovereign debt obligations and one or
more financial institutions and in participations in and assignments of
these type of loans;
o for hedging purposes, purchase put and call options written by others and
write covered put and call options;
o for hedging purposes, enter into various hedging transactions, such as
interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o invest in zero coupon and pay-in-kind securities; and
o invest in CMOs and multi-class pass-through mortgage-related securities.
Alliance High Yield Fund
Alliance High Yield Fund seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade debt securities, known
as "junk bonds." These securities involve greater volatility of price and risk
of principal and income than higher quality debt securities. The Fund is managed
to maximize current income by taking advantage of market developments, yield
disparities, and variations in the creditworthiness of issuers. The Fund uses
various strategies in attempting to achieve its objective.
The Fund normally invests at least 65% of its total assets in high yield debt
securities rated below investment grade by two or more NRSROs (i.e., rated lower
than Baa by Moody's or lower than BBB by S&P) or, if unrated, of equivalent
quality. The Fund may not invest more than 10% of its total assets in (i)
fixed-income securities which are rated lower than B3 or B- or their equivalents
by two or more NRSROs or, if unrated, of equivalent quality, and (ii) money
market instruments of any entity which has an outstanding issue of unsecured
debt that is rated lower than B3 or B- or their equivalents by two or more
NRSROs or, if unrated, of equivalent quality.
As of August 31, 1999, the Fund's investments were rated (or equivalent
quality):
o A and above 7.70%
o Ba or BB 12.79%
o B 63.04%
o CCC 3.07%
o Unrated 13.30%
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The Fund may invest a portion of its assets in foreign securities. The Fund may
buy and sell foreign currencies principally for the purpose of preserving the
value of foreign securities or in anticipation of purchasing foreign securities.
The Fund also may invest in:
o U.S. Government securities;
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by certain
domestic and foreign banks;
o commercial paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if
unrated, issued by domestic or foreign companies having high quality
outstanding debt securities) and participation interests in loans extended
by banks to these companies;
o corporate debt obligations with remaining maturities of less than one year
rated at least high quality as well as corporate debt obligations rated at
least high grade provided the corporation also has outstanding an issue of
commercial paper rated at least A-1 by S&P or Prime-1 by Moody's; and
o floating rate or master demand notes.
The Fund also may:
o invest in mortgage-backed and asset-backed securities;
o invest in loan participations and assignments of loans to corporate,
governmental, or other borrowers originally made by institutional lenders
or lending syndicates;
o enter into forward commitments;
o write covered put and call options on debt securities, securities indices
and foreign currencies and purchase put or call options on debt
securities, securities indices and foreign currencies;
o purchase and sell futures contracts and related options on debt securities
and on indices of debt securities;
o enter into contracts for the purchase or sale of a specific currency for
hedging purposes only;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
DESCRIPTION OF INVESTMENT PRACTICES
This section describes certain investment practices and associated risks that
are common to a number of Funds.
Derivatives. The Funds may use derivatives to achieve their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails greater
risk than if derivatives were used solely for hedging purposes. Derivatives are
a valuable tool, which, when used properly, can provide significant benefits to
Fund shareholders. A Fund may take a significant position in those derivatives
that are within its investment policies if, in Alliance's judgment, this
represents the most effective response to current or anticipated market
conditions. Alliance Multi-Market Strategy, Alliance High Yield, and Alliance
Global Strategic Income, in particular, generally make extensive use of
carefully selected forwards and other derivatives to achieve the currency
hedging that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction can
be created.
o Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price
(the exercise price) during a period of time or on a specified date. A
call option entitles the holder to purchase, and a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount based
on an underlying asset, rate or index). Likewise, when an option is
exercised the writer of the option is obligated to sell (in the case of a
call option) or to purchase (in the case of a put option) the underlying
asset (or settle for cash an amount based on an underlying asset, rate or
index).
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o Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying
asset but instead is settled for cash equal to the difference between the
values of the contract on the date it is entered into and its maturity
date.
o Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or
other tangible asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated agreements designed to
satisfy the objectives of each party. A forward contract usually results
in the delivery of the underlying asset upon maturity of the contract in
return for the agreed upon payment.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
The payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and
again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities. These
securities are described below under Mortgage-Related Securities and Other
Asset-Backed Securities.
While the judicious use of derivatives by highly-experienced investment managers
such as Alliance can be quite beneficial, derivatives involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in a Fund.
o Market Risk--This is the general risk of all investments that the value of
a particular investment will change in a way detrimental to the Fund's
interest based on changes in the bond market generally.
o Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use
and complexity of derivatives require the maintenance of adequate controls
to monitor the transactions entered into, the ability to assess the risk
that a derivative adds to a Fund's portfolio, and the ability to forecast
price, interest rate, or currency exchange rate movements correctly.
o Credit Risk--This is the risk that a loss may be sustained by a Fund as a
result of the failure of a derivative counterparty to comply with the
terms of the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or counterparty to each
exchange-traded derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
o Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
o Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made
any initial investment. Certain
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derivatives have the potential for unlimited loss, regardless of the size
of the initial investment.
o Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets,
rates or indices they are designed to closely track. Consequently, a
Fund's use of derivatives may not always be an effective means of, and
sometimes could be counterproductive to, furthering the Fund's investment
objective.
Derivatives Used by the Funds. The following describes specific derivatives that
one or more of the Funds may use.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options that are linked to LIBOR.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. Alliance
Limited Maturity Government and Alliance Global Strategic Income intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in which
each Fund invests are linked).
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
foreign currency exchange contracts ("forward contracts") to minimize the risk
from adverse changes in the relationship between the U.S. Dollar and other
currencies. A Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. Dollar price of the security (a
"transaction hedge"). When a Fund believes that a foreign currency may suffer a
substantial decline against the U.S. Dollar, it may enter into a forward sale
contract to sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount (a
"position hedge"). Instead of entering into a position hedge, a Fund may, in the
alternative, enter into a forward contract to sell a different foreign currency
for a fixed U.S. Dollar amount where the Fund believes that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. Dollar value of the currency in which
portfolio securities of the Fund are denominated (a "cross-hedge").
Futures Contracts and Options on Futures Contracts. A Fund may buy and sell
futures contracts on fixed-income or other securities or foreign currencies, and
contracts based on interest rates or financial indices, including any index of
U.S. Government securities, foreign government securities or corporate debt
securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except for Alliance
Short-Term U.S. Government and Alliance Global Strategic Income, will be used
only for hedging purposes.
Alliance Limited Maturity Government, Alliance U.S. Government, Alliance
Multi-Market Strategy, Alliance North American Government Income and Alliance
Global Strategic Income will not enter into a futures contract or write or
purchase an option on a futures contract if immediately thereafter the market
values of the outstanding futures contracts of the Fund and the currencies and
futures contracts subject to outstanding options written by the Fund would
exceed 50% of its total assets. Alliance Mortgage Securities Income will not
write or purchase options on futures contracts. Nor will Alliance Limited
Maturity Government, Alliance U.S. Government, Alliance Mortgage Securities
Income, Alliance Multi-Market Strategy, Alliance North American Government
Income or Alliance Global Strategic Income enter into a futures contract or, if
otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, Alliance Mortgage Securities Income and
Alliance Global Strategic Income will not enter into any futures contract (i)
other than one on fixed-income securities or based on interest rates, or (ii) if
immediately thereafter the sum of the then aggregate futures market prices of
financial instruments required to be delivered under open futures contract sales
and the aggregate futures market prices of instruments required to be delivered
under open futures contract purchases would exceed 30% of the value of the
Fund's total assets.
Interest Rate Transactions (Swaps, Caps, and Floors). Each Fund that may enter
into interest rate swap, cap, or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) computed based on a contractually-based
principal (or "notional") amount. Interest rate swaps
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are entered into on a net basis (i.e., the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments).
Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. A Fund
may enter into interest rate swaps, caps, and floors on either an asset-based
or liability-based basis, depending upon whether it is hedging its assets or
liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
Alliance Multi-Market Strategy, Alliance North American Government Income and
Alliance Global Strategic Income may enter into interest rate swaps involving
payments in the same currency or in different currencies. Alliance Short-Term
U.S. Government, Alliance U.S. Government, Alliance Limited Maturity
Government, Alliance Quality Bond, Alliance Mortgage Securities Income,
Alliance Global Dollar Government, Alliance Global Strategic Income and
Alliance Corporate Bond will not enter into an interest rate swap, cap, or floor
transaction unless the unsecured senior long- or short-term debt or the
claims-paying ability of the other party is then rated in the highest rating
category of at least one NRSRO. Each of Alliance Multi-Market Strategy, Alliance
North American Government Income, and Alliance Global Strategic Income will
enter into interest rate swap, cap or floor transactions with its respective
custodian, and with other counterparties, but only if: (i) for transactions with
maturities under one year, such other counterparty has outstanding prime
commercial paper; or (ii) for transactions with maturities greater than one
year, the counterparty has high-quality debt securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate transactions
is limited to the net amount of interest payments that the Fund is contractually
obligated to make.
Options on Foreign Currencies. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although if rates move adversely, a Fund may forfeit the entire amount of
the premium plus related transaction costs.
Options on Securities. In purchasing an option on securities, a Fund would be in
a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is retained
by the Fund whether or not the option is exercised. Except with respect to
uncovered call options written for cross-hedging purposes, none of the Funds
will write uncovered call or put options on securities. A call option written by
a Fund is "covered" if the Fund owns the underlying security, has an absolute
and immediate right to acquire that security upon conversion or exchange of
another security it holds, or holds a call option on the underlying security
with an exercise price equal to or less than that of the call option it has
written. A put option written by a Fund is covered if the Fund holds a put
option on the underlying securities with an exercise price equal to or greater
than that of the put option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and a Fund could be
obligated to acquire the underlying security at its current price and sell it at
a lower price. The risk of loss from writing an uncovered put option is limited
to the exercise price of the option.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." A Fund would write a
call option for cross-hedging purposes, instead of writing a covered call
option, when the premium to be received from the cross-hedge transaction exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved with other hedging strategies.
Alliance Short-Term U.S. Government, Alliance U.S. Government, Alliance Mortgage
Securities Income, Alliance North American Government Income, Alliance Global
Dollar Government, Alliance Global Strategic
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Income, Alliance Quality Bond, Alliance Corporate Bond, and Alliance High Yield
generally purchase or write privately negotiated options on securities. A Fund
that does so will effect such transactions only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by Alliance. Privately negotiated options
purchased or written by a Fund may be illiquid and it may not be possible for
the Fund to effect a closing transaction at an advantageous time. Alliance
Mortgage Securities Income, Alliance U.S. Government and Alliance Corporate
Bond will not purchase an option on a security if, immediately thereafter, the
aggregate cost of all outstanding options purchased by the Fund would exceed 2%
of the Fund's total assets. Nor will these Funds write an option if,
immediately thereafter, the aggregate value of the Fund's portfolio securities
subject to outstanding options would exceed 15% of the Fund's total assets.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Brady Bonds. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations that have
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having up to four valuation components: (i) collateralized
repayment of principal at final maturity, (ii) collateralized interest payments,
(iii) uncollateralized interest payments, and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts constitute
the "residual risk"). In the event of a default with respect to collateralized
Brady Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a when-issued basis or purchases or sales on a delayed
delivery basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a proposed
financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation
and no interest or dividends accrues to the purchaser prior to the settlement
date.
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The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
Alliance Limited Maturity Government, Alliance North American Government
Income, Alliance Global Dollar Government or Alliance Global Strategic Income
if, as a result, the Fund's aggregate forward commitments under such
transactions would be more than 25% of the total assets of Alliance Global
Strategic Income and 30% of the total assets of each of the other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive against a forward commitment, it may realize a gain or
incur a loss.
Illiquid Securities. The Funds will limit their investments in illiquid
securities to 15% of their net assets, except that the limit is 10% for Alliance
Mortgage Securities Income, Alliance Multi-Market Strategy, and Alliance North
American Government Income, and 5% for Alliance Short-Term U.S. Government. As a
matter of fundamental policy, Alliance Corporate Bond cannot purchase illiquid
securities. Illiquid securities generally include (i) direct placements or other
securities that are subject to legal or contractual restrictions on resale or
for which there is no readily available market (e.g., when trading in the
security is suspended or, in the case of unlisted securities, when market makers
do not exist or will not entertain bids or offers), including many currency
swaps and any assets used to cover currency swaps, (ii) over-the-counter options
and assets used to cover over-the-counter options, and (iii) repurchase
agreements not terminable within seven days.
A Fund that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor each Fund's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
Indexed Commercial Paper. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. Each Fund that invests in indexed
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return. A Fund will purchase such commercial paper for hedging purposes
only, not for speculation.
Investment in Other Investment Companies. Alliance Global Dollar Government may
invest in other investment companies whose investment objectives and policies
are consistent with those of the Fund. 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).
Loans of Portfolio Securities. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained by
the borrower with the Fund. The risks in lending portfolio securities, as with
other secured extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned from
the securities. The Fund may invest any cash collateral in portfolio securities
and earn additional income or receive an agreed-upon amount of income from a
borrower who has delivered equivalent collateral. Lending of portfolio
securities is limited to 50% of net assets for Alliance High Yield, 25% of
net assets for Alliance Short-Term U.S. Government and Alliance Global
Strategic Income, and 20% of net assets for Alliance Limited Maturity
Government, Alliance Mortgage Securities Income, Alliance Multi-Market
Strategy, Alliance North American Government Income and Alliance Global
Dollar Government, and to 50% of total assets for Alliance Quality Bond.
Loan Participations and Assignments. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with
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the borrower. A Fund will acquire participations only if the lender
interpositioned between the Fund and the borrower is a lender having total
assets of more than $25 billion and whose senior unsecured debt is rated
investment grade or higher. When a Fund purchases a loan assignment from a
lender it will acquire direct rights against the borrower on the loan. Because
loan assignments are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and obligations acquired
by a Fund as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to
Alliance Global Dollar Government and Alliance Global Strategic Income, or
foreign government securities, with respect to Alliance Corporate Bond and
Alliance High Yield, is restricted by the governing documentation as to the
nature of the assignee such that the only way in which the Fund may acquire an
interest in a loan is through a participation and not an assignment. A Fund may
have difficulty disposing of assignments and participations because to do so it
will have to assign such securities to a third party. Because there may not be a
liquid market for such investments, they can probably be sold only to a limited
number of institutional investors. The lack of a liquid secondary market may
have an adverse effect on the value of such investments and a Fund's ability to
dispose of particular participations and assignments when necessary to meet its
liquidity needs in response to a specific economic event such as a deterioration
in the creditworthiness of the borrower. The lack of a liquid secondary market
for participations and assignments also may make it more difficult for the Fund
to assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
Alliance Global Dollar Government and Alliance Global Strategic Income may
invest up to 25%, and Alliance Corporate Bond may invest up to 15%, of their
total assets in loan participations and assignments.
Mortgage-Related Securities. The Funds' investments in mortgage-related
securities typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both interest
and principal, unlike more traditional debt securities, which normally do not
provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if the
borrowers on the underlying mortgages fail to make their mortgage payments. The
ratings of such non-governmental securities are generally dependent upon the
ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. A Fund may
buy mortgage-related securities without credit enhancement if the securities
meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing, or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as discussed
below, frequently causes these securities to experience significantly greater
price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by GNMA,
are referred to as "modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. CMOs may be
issued by a U.S. Government instrumentality or agency or by a private issuer.
Although payment of the principal of, and interest on, the underlying collateral
securing privately issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these
CMOs represent obligations solely of the private issuer and are not insured or
guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or any other
person or entity.
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Another type of mortgage-related security, known as ARMS, bears interest at a
rate determined by reference to a predetermined interest rate or index. There
are two main categories of rates or indices: (i) rates based on the yield on
U.S. Treasury securities; and (ii) indices derived from a calculated measure
such as a cost of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate levels, while
others tend to lag changes in market rate levels and tend to be somewhat less
volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Since many adjustable-rate mortgages only reset on an annual basis, the
values of ARMS tend to fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest rates payable on
the underlying adjustable-rate mortgages.
SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by a pool of mortgages or a pool of
mortgage-backed bonds or pass-through securities, with each class receiving
different proportions of the principal and interest payments from the underlying
assets. A common type of SMRS has one class of interest-only securities or IOs
receiving all of the interest payments from the underlying assets; while the
other class of securities, principal-only securities or POs, receives all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease, while POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Changes in the values of IOs
and POs can be substantial and occur quickly, such as occurred in the first half
of 1994 when the value of many POs dropped precipitously due to increases in
interest rates. For this reason, none of the Funds relies on IOs and POs as the
principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund may
be unable to invest the proceeds from the early payment of the mortgage-related
securities in investments that provide as high a yield as the mortgage-related
securities. Early payments associated with mortgage-related securities cause
these securities to experience significantly greater price and yield volatility
than is experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions, and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. Conversely,
during periods of rising interest rates, a reduction in prepayments may increase
the effective life of mortgage-related securities, subjecting them to greater
risk of decline in market value in response to rising interest rates. If the
life of a mortgage-related security is inaccurately predicted, a Fund may not be
able to realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs, and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities at
any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities also can be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such an adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above, the
yields on ARMS vary with changes in the applicable interest rate or index, there
is often a lag between increases in general interest rates and increases in the
yield on ARMS as a result of relatively infrequent interest rate reset dates. In
addition, adjustable-rate mortgages and ARMS often have interest rate or payment
caps that limit the ability of the
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adjustable-rate mortgages or ARMS to fully reflect increases in the general
level of interest rates.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. In
some transactions, the value of the asset-backed security is dependent on the
performance of a third party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of vehicle loans or
leases) it may be administratively burdensome to perfect the interest of the
security issuer in the underlying collateral and the underlying collateral may
become damaged or stolen.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive principal
and interest payments on these securities. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, a Fund forgoes principal and interest paid on the securities. A
Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. Alliance Short-Term U.S. Government may
enter into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, Alliance Limited Maturity Government
and Alliance U.S. Government do not expect to engage in reverse repurchase
agreements and dollar rolls with respect to greater than 50% of their total
assets. Reverse repurchase agreements and dollar rolls together with any
borrowings by Alliance Global Dollar Government will not exceed 33% of its total
assets less liabilities (other than amounts borrowed). Alliance Global Strategic
Income may enter into reverse repurchase agreements with commercial banks and
registered broker-dealers in order to increase income, in an amount up to 25% of
its total assets. Reverse repurchase agreements and dollar rolls together with
any borrowings by Alliance Global Strategic Income will not exceed 25% of its
total assets.
Rights and Warrants. Rights and warrants are option securities permitting their
holders to subscribe for other securities. Alliance Global Dollar Government may
invest in warrants, and Alliance Global Strategic Income and Alliance Quality
Bond may invest in rights and warrants, for debt securities or for equity
securities that are acquired in connection with debt instruments. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants do not carry with them
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dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date. Alliance Global Strategic Income may invest up to 20% of its total assets
in rights and warrants.
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund owns the security, is not to be delivered upon consummation
of the sale. A short sale is "against the box" if a Fund owns or has the right
to obtain without payment securities identical to those sold short. Alliance
Short-Term U.S. Government and Alliance Global Dollar Government each may make
short sales only against the box and only for the purpose of deferring
realization of a gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to Alliance Global Dollar
Government, and 10% of total assets, with respect to Alliance Short-Term U.S.
Government, would be held as collateral for short sales.
Alliance Global Strategic Income may make a short sale in anticipation that the
market price of that security will decline. When the Fund makes a short sale of
a security that it does not own, it must borrow from a broker-dealer the
security sold short and deliver the security to the broker-dealer upon
conclusion of the short sale. The Fund may be required to pay a fee to borrow
particular securities and is often obligated to pay over any payments received
on such borrowed securities. The Fund's obligation to replace the borrowed
security will be secured by collateral deposited with a broker-dealer qualified
as a custodian. Depending on the arrangements the Fund makes with the
broker-dealer from which it borrowed the security regarding remittance of any
payments received by the Fund on such security, the Fund may or may not receive
any payments (e.g., dividends or interest) on its collateral deposited with the
broker-dealer.
In order to defer realization of a gain or loss for U.S. federal income tax
purposes, Alliance Global Strategic Income may also make short sales "against
the box" of securities which are eligible for such deferral. The Fund may not
make a short sale, if as a result, more than 25% of its total assets would be
held as collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price of
the securities subject to the commitments does not exceed 20%, or 25% with
respect to Alliance Global Strategic Income, of their assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in the
event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Structured Securities. Structured securities in which Alliance Global Dollar
Government, Alliance Global Strategic Income and Alliance Corporate Bond may
invest represent interests in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations, with respect to Alliance Global Dollar Government and Alliance
Global Strategic Income, or foreign government securities, with respect to
Alliance Corporate Bond. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of structured securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured securities to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to structured securities is dependent on the
extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments. Structured securities
of a given class may be either subordinated or unsubordinated to the right of
payment of another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated structured
securities. Alliance Global Dollar Government may invest up to 25% of its total
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<PAGE>
assets, and Alliance Global Strategic Income and Alliance Corporate Bond may
invest without limit, in these types of structured securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued without
interest coupons or stripped of their unmatured interest coupons, and include
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject to
greater fluctuations in market value in response to changing interest rates than
debt obligations of comparable maturities and credit quality that make current
distributions of interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these securities eliminate
reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations. Currently
the only U.S. Treasury security issued without coupons is the Treasury bill.
Although the U.S. Treasury does not itself issue Treasury notes and bonds
without coupons, under the U.S. Treasury STRIPS program interest and principal
payments on certain long-term Treasury securities may be maintained separately
in the Federal Reserve book entry system and may be separately traded and owned.
In addition, in the last few years a number of banks and brokerage firms have
separated ("stripped") the principal portions from the coupon portions of U.S.
Treasury bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments (which are
generally held by a bank in a custodial or trust account).
Alliance Global Strategic Income, Alliance Quality Bond and Alliance Corporate
Bond also may invest in "pay-in-kind" debentures (i.e., debt obligations the
interest on which may be paid in the form of obligations of the same type rather
than cash), which have characteristics similar to zero coupon securities.
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund, or are not available but may yet be developed, to the
extent such investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed those involved
in the practices described above.
Portfolio Turnover. The portfolio turnover rate for each Fund is included in the
Financial Highlights section. The Funds are actively managed and, in some cases
in response to market conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other expenses, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains, which,
when distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, each Fund may
invest in certain types of short-term, liquid, high grade or high quality
(depending on the Fund) debt securities. These securities may include U.S.
Government securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. While the Funds are investing for temporary
defensive purposes, they may not meet their investment objectives.
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ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. Certain of these risks may be heightened when investing in
emerging markets.
Currency Considerations. Those Funds that invest some portion of their assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect a Fund's net assets, distributions
and income. If the value of the foreign currencies in which a Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, a Fund may be required to liquidate securities
in order to make distributions if the Fund has insufficient cash in U.S.
Dollars to meet the distribution requirements that the Fund must satisfy to
qualify as a regulated investment company for federal income tax purposes.
Similarly, if an exchange rate declines between the time a Fund incurs
expenses in U.S. Dollars and the time cash expenses are paid, the amount of
the currency required to be converted into U.S. Dollars in order to pay
expenses in U.S. Dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, as described
above, which involve certain special risks.
Effects of Borrowing. A Fund's loan agreements provide for additional borrowings
and for repayments and reborrowings from time to time, and each Fund that may
borrow expects to effect borrowings and repayments at such times and in such
amounts as will maintain investment leverage in an amount approximately equal to
its borrowing target. The loan agreements provide for a selection of interest
rates that are based on the bank's short-term funding costs in the U.S. and
London markets.
Borrowings by a Fund result in leveraging of the Fund's shares. Utilization of
leverage, which is usually considered speculative, involves certain risks to a
Fund's shareholders. These include a higher volatility of the net asset value of
a Fund's shares and the relatively greater effect on the net asset value of the
shares. So long as a Fund is able to realize a net return on its investment
portfolio that is higher than the interest expense paid on borrowings, the
effect of leverage will be to cause the Fund's shareholders to realize a higher
current net investment income than if the Fund were not leveraged. On the other
hand, interest rates on U.S. Dollar-denominated and foreign currency-denominated
obligations change from time to time as does their relationship to each other,
depending upon such factors as supply and demand forces, monetary and tax
policies within each country and investor expectations. Changes in such factors
could cause the relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations of a Fund's investments. If the
interest expense on borrowings approaches the net return on a Fund's investment
portfolio, the benefit of leverage to the Fund's shareholders will be reduced.
If the interest expense on borrowings were to exceed the net return to
shareholders, a Fund's use of leverage would result in a lower rate of return.
Similarly, the effect of leverage in a declining market could be a greater
decrease in net asset value per share. In an extreme case, if a Fund's current
investment income were not sufficient to meet the interest expense on
borrowings, it could be necessary for the Fund to liquidate certain of its
investments and reduce the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by Alliance Multi-Market
Strategy, Alliance Global Strategic Income, Alliance North American Government
Income or Alliance Quality Bond could adversely affect the Funds' shareholders,
as noted above, or in anticipation of such changes, each Fund may increase the
percentage of its investment portfolio invested in U.S. Government securities,
which would tend to offset the negative impact of leverage on Fund shareholders.
Each Fund may also reduce the degree to which it is leveraged by repaying
amounts borrowed.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments will change as
the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but will be reflected in the net asset value of a Fund.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes foreign
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors
39
<PAGE>
trading significant blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase the
cost and expenses of a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
A Fund also could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. These
factors may affect the liquidity of a Fund's investments in any country and
Alliance will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many foreign countries
are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, a Fund could lose
its entire investment in securities in the country involved. In addition, laws
in foreign countries governing business organizations, bankruptcy and insolvency
may provide less protection to security holders such as the Fund than that
provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S. Dollar
and the Canadian Dollar, the matters described above are not likely to have a
material adverse effect on Alliance North American Government Income's
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a material
adverse effect on the Fund's investments in the securities of Mexican and other
non-Canadian foreign issuers, including investments in securities denominated in
Mexican Pesos or other non-Canadian foreign currencies. If not hedged, however,
currency fluctuations could affect the unrealized appreciation and depreciation
of Canadian Government securities as expressed in U.S. Dollars.
Investment in the Banking Industry. Due to its investment policies with respect
to investments in the banking industry, Alliance Multi-Market Strategy will have
greater exposure to the risk factors which are characteristic of such
investments. In particular, the value of and investment return on the Fund's
shares will be affected by economic or regulatory developments in or related to
the banking industry. Sustained increases in interest rates can adversely affect
the availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of the
concentration of loan portfolios in particular businesses such as real estate,
energy, agriculture or high technology-related companies; competition within
those industries as well as with other types of financial institutions; and
national and local governmental regulation. In addition, the Fund's investments
in commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking and
diversified securities activities. As discussed above, however, the Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
40
<PAGE>
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political conditions.
There can be no assurance, however, that losses will not occur. Since the risk
of default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in
lower-rated securities. In considering investments for the Fund, Alliance will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. Alliance's analysis focuses on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
Unrated Securities. Unrated securities will also be considered for investment by
Alliance North American Government Income, Alliance Global Dollar Government,
Alliance Global Strategic Income, Alliance Quality Bond, Alliance Corporate Bond
and Alliance High Yield when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which Alliance Global Dollar Government and
Alliance Global Strategic Income will invest. Reduced secondary market liquidity
may have an adverse effect on the market price and a Fund's ability to dispose
of particular instruments when necessary to meet its liquidity requirements or
in response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of those
dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social, and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected in, among other things, its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations, and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Funds' investment objectives. The
Funds may have limited legal recourse in the event of a default with respect to
certain sovereign debt obligations it holds. For example, remedies from defaults
on certain sovereign debt obligations, unlike those on private debt, must, in
some cases, be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy, moratorium and
other similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness of an issuer of
sovereign debt obligations to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt will not contest payments to the
holders of securities issued by foreign governments in the event of default
under commercial bank loan agreements.
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U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Alliance Global Dollar Government and Alliance High Yield
invest may include securities issued in connection with corporate restructurings
such as takeovers or leveraged buyouts, which may pose particular risks.
Securities issued to finance corporate restructurings may have special credit
risks due to the highly leveraged conditions of the issuer. In addition, such
issuers may lose experienced management as a result of the restructuring.
Furthermore, the market price of such securities may be more volatile to the
extent that expected benefits from the restructuring do not materialize. The
Funds may also invest in U.S. corporate fixed-income securities that are not
current in the payment of interest or principal or are in default, so long as
Alliance believes such investment is consistent with the Fund's investment
objectives. The Funds' rights with respect to defaults on such securities will
be subject to applicable U.S. bankruptcy, moratorium and other similar laws.
Year 2000: Many computer systems and applications that process transactions use
two-digit date fields for the year of a transaction, rather than the full four
digits. If these systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "19XX," which could result in processing
inaccuracies and inoperability at or after the year 2000. The Funds and their
major service providers, including Alliance, utilize a number of computer
systems and applications that have been either developed internally or licensed
from third-party suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third-party suppliers for
certain systems applications and for electronic receipt of information critical
to their business. Should any of the computer systems employed by the Funds or
their major service providers, including Alliance, fail to process Year 2000
related information properly, that could have a significant negative impact on
the Funds' operations and the services that are provided to the Funds'
shareholders. To the extent that the operations of issuers of securities held by
the Funds are impaired by the Year 2000 problem, the value of the Funds' shares
may be materially affected. In addition, for the Funds' investments in foreign
markets, it is possible that foreign companies and markets will not be as
prepared for Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and Alliance. During 1997,
Alliance began a formal Year 2000 initiative which established a structured and
coordinated process to deal with the Year 2000 issue. As part of its initiative,
Alliance established a Year 2000 project office to manage the Year 2000
initiative, focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
audit committee of the board of directors of Alliance Capital Management
Corporation, Alliance's general partner, and with Alliance's executive
management to review the status of the Year 2000 efforts. Alliance has also
retained the services of a number of consulting firms which have expertise in
advising and assisting with regard to Year 2000 issues. Alliance reports that by
June 30, 1998 it had completed its inventory and assessment of its domestic and
international computer systems and applications, identified mission critical
systems (those systems where loss of their function would result in immediate
stoppage or significant impairment to core business units) and nonmission
critical systems and determined which of these systems were not Year 2000
compliant. All third-party suppliers of mission critical computer systems and
applications and nonmission critical systems have been contacted to verify
whether their systems and applications will be Year 2000 compliant and their
responses are being evaluated. Substantially all of those contacted have
responded and approximately 90% have informed Alliance that their systems and
applications are or will be Year 2000 compliant. All mission and nonmission
critical systems supplied by third parties have been tested with the exception
of those third parties not able to comply with Alliance's testing schedule.
Alliance reports that it expects that all testing will be completed before the
end of 1999.
Alliance has remediated, replaced or retired all of its non-compliant mission
critical systems and applications that can affect the Funds. All nonmission
critical systems have been remediated. After each system has been remediated, it
is tested with 19XX dates to determine if it still performs its intended
business function correctly. Next, each system undergoes a simulation test using
dates occurring after December 31, 1999. Inclusive of the replacement and
retirement of some of its systems, Alliance has completed these testing phases
for approximately 98% of mission critical systems and 100% of nonmission
critical systems. Integrated systems tests were conducted to verify that the
systems would continue to work together. Full integration testing of all mission
critical and nonmission critical systems is complete. Testing of interfaces with
third-party suppliers has begun and will continue throughout 1999. Alliance
reports that it has completed an inventory of its facilities and related
technology applications and has begun to evaluate and test these systems.
Alliance reports that it anticipates that these systems will be fully operable
in the year 2000. Alliance has deferred certain other planned information
technology projects until after the Year 2000 initiative is completed. Such
delay is not expected to have a material adverse effect on Alliance's financial
condition or results of operations. Alliance, with the assistance of a
consulting firm, is developing Year 2000 specific contingency plans with
emphasis on mission critical functions. These plans seek to provide alternative
methods of processing in the event of a failure that is outside Alliance's
control.
The estimated current cost to Alliance of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally of
modification and testing and costs to develop formal Year 2000 specific
contingency plans. These costs, which will generally be
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expensed as incurred, will be funded from Alliance's operations and the
issuance of debt. Through June 30, 1999, Alliance had incurred approximately
$36.0 million of costs related to the Year 2000 initiative. At this time,
management of Alliance believes that the costs associated with resolving the
Year 2000 issue will not have a material adverse effect on Alliance's results
of operations, liquidity or capital resources.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Funds and its major service
providers will not operate as intended and that the systems and applications
of third-party suppliers to the Funds and their service providers will not be
Year 2000 compliant. Likewise there can be no assurance the compliance
schedules outlined above will be met or that the actual cost incurred will not
exceed current cost estimates. Should the significant computer systems and
applications used by the Funds or their major service providers, or the systems
of their important third-party suppliers, be unable to process date-sensitive
information accurately after 1999, the Funds and their service providers may be
unable to conduct their normal business operations and to provide shareholders
with required services. In addition, the Funds and their service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The
Funds and Alliance cannot determine which risks, if any, are most reasonably
likely to occur or the effects of any particular failure to be Year 2000
compliant. Certain statements provided by Alliance in this section entitled
"Year 2000", as such statements relate to Alliance, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. To the fullest extent permitted by law, the foregoing Year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of the Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment adviser managing client accounts with assets as of September 30,
1999, totaling more than $317 billion (of which more than $143 billion
represented assets of investment companies). As of September 30, 1999, Alliance
managed retirement assets for many of the largest public and private employee
benefit plans (including 28 of the nation's FORTUNE 100 companies), for public
employee retirement funds in 31 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide. The 52
registered investment companies, managed by Alliance, comprising 118 separate
investment portfolios, currently have more than 4.8 million shareholder
accounts.
Alliance provides investment advisory services and order placement facilities
for the Funds. For these advisory services, the Funds paid Alliance as a
percentage of average daily net assets:
Fee as a
percentage of
average daily Fiscal
Fund net assets* Year Ending
- ---- -------------- -----------
Alliance Short-Term U.S.
Government 0 8/31/99
Alliance U.S. Government .56 6/30/99
Alliance Limited Maturity
Government .65 11/30/98
Alliance Quality Bond .55** 6/30/00
Alliance Mortgage Securities
Income .53 12/31/98
Alliance Multi-Market Strategy .60 10/31/98
Alliance North American
Government Income .72 11/30/98
Alliance Global Dollar
Government .75 8/31/99
Alliance Global Strategic
Income .75 10/31/98
Alliance Corporate Bond .55 6/30/99
Alliance High Yield .75 8/31/99
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* Fees are stated net of any waivers and/or reimbursements. See the "Fee
Table" at the beginning of the Prospectus for more information about fee
waivers.
** Prior to any waiver by Alliance. See the "Fee Table" at the beginning of
the Prospectus for more information about fee waivers.
PORTFOLIO MANAGER
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible for the Fund's portfolio, and each
person's principal occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years*
- --------------------------------------------------------------------------------
Short-Term U.S. Jeffrey S. Phlegar; Associated with
Government since 1997; Alliance
Senior Vice President
U.S. Government Wayne D. Lyski; Associated with
since 1983; Alliance
Executive Vice President
Jeffrey S. Phlegar; (see above)
since 1997; (see above)
Limited Maturity Jeffrey S. Phlegar; (see above)
Government since 1997; (see above)
Quality Bond Matthew Bloom; Associated with
since inception; Alliance
Senior Vice President
Mortgage Securities Jeffrey S. Phlegar; (see above)
Income since 1997; (see above)
43
<PAGE>
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years*
- --------------------------------------------------------------------------------
Multi-Market Strategy Douglas J. Peebles; Associated with
since inception; Alliance
Senior Vice President
North American Wayne D. Lyski; since (see above)
Government Income inception; (see above)
Global Dollar Wayne D. Lyski; since (see above)
Government inception; (see above)
Global Strategic Wayne D. Lyski; since (see above)
Income inception; (see above)
Douglas J. Peebles; since (see above)
inception; (see above)
Corporate Bond Wayne D. Lyski; since (see above)
1987; (see above)
Paul J. DeNoon; Associated with
since January 1992; Alliance
Senior Vice President
High Yield Wayne C. Tappe; Associated with
since 1991; Alliance
Senior Vice President
Nelson Jantzen; Associated with
since 1991; Alliance
Senior Vice President
- --------------------------------------------------------------------------------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
PERFORMANCE OF SIMILARLY MANAGED PORTFOLIOS
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of
Alliance High Yield. Alliance since July 22, 1993, and prior thereto, Equitable
Capital Management Corporation, whose advisory business Alliance acquired on
that date, have served as investment adviser to the Historical Portfolio since
its inception in 1987. Wayne C. Tappe, who together with Nelson Jantzen is
primarily responsible for the day-to-day management of Alliance High Yield, has
been the person principally responsible for the day-to-day management of the
Historical Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of Alliance High
Yield and the Lipper High Current Yield Mutual Funds Average as a comparative
benchmark. As of December 31, 1998, the assets in the Historical Portfolio
totalled approximately $612 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Portfolio. In addition, the
performance data do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The performance data
have not been adjusted for corporate or individual taxes, if any, payable with
respect to the Historical Portfolio. The rates of return shown for the
Historical Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of High Yield and the
Historical Portfolio. This survey is published by Lipper, Inc. ("Lipper"), a
firm recognized for its reporting of performance of actively managed funds.
According to Lipper, performance data are presented net of investment
management fees, operating expenses and, for funds with Rule 12b-1 plans,
asset-based sales charges.
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would have
produced the corresponding cumulative return had performance been constant over
the entire period. Rates of return for Alliance High Yield Class A shares assume
the imposition of the maximum 4.25% sales charge. The inception date for the
Historical Portfolio and Lipper data is January 2, 1987 and for Alliance High
Yield is April 22, 1997.
Annualized Rates of Return
Periods Ended December 31, 1998
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Historical Portfolio -5.15% 11.36% 9.99% 11.17% 10.49%
Lipper High Current
Yield Mutual Funds
Average -0.44 8.21 7.37 9.34 8.97
Alliance High Yield -5.83 n/a n/a n/a 9.72
Cumulative Rates of Return
Periods Ending December 31, 1998
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Historical Portfolio -5.15% 38.11% 61.01% 188.22% 231.11%
Lipper High Current
Yield Mutual Funds
Average -0.44 26.80 43.00 145.62 182.21
Alliance High Yield -5.83 n/a n/a n/a 17.01
Alliance is the investment adviser of a portfolio (the "Historical Fund") of a
registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment
44
<PAGE>
objective and policies and has been managed in accordance with substantially
the same investment strategies and techniques as those of Alliance Quality
Bond. Alliance has served as investment adviser to the Historical Fund since
its inception in 1993. Matthew Bloom, who is primarily responsible for the
day-to-day management of Alliance Quality Bond, has been the person principally
responsible for the day-to-day management of the Historical Fund since 1995.
The following tables set forth performance results for the Historical Fund since
its inception on October 1, 1993, together with those of the Lipper Corporate
Debt Funds BBB Rated Average and the Lehman Aggregate Bond index as comparative
benchmarks. As of March 31, 1999, the assets in the Historical Fund totalled
approximately $333 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Fund. In addition, the performance
data do not reflect Alliance Quality Bond's higher expenses, which, if
reflected, would lower the performance of the Historical Fund. The performance
data have not been adjusted for corporate or individual taxes, if any, payable
with respect to the Historical Fund. The rates of return shown for the
Historical Fund are not an estimate or guarantee of future investment
performance of Alliance Quality Bond.
The Lipper Corporate Debt Funds BBB Rated Average is a survey of the performance
of a large number of mutual funds the investment objective of each of which is
similar to that of Alliance Quality Bond. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of Alliance Quality Bond
and the Historical Fund. This survey is published by Lipper, a firm recognized
for its reporting of performance of actively managed funds. According to Lipper,
performance data are presented net of investment management fees, operating
expenses and, for funds with Rule 12b-1 plans, asset-based sales charges. The
Lehman Aggregate Bond Index is an Index comprised of investment grade
fixed-income securities, including U.S. Treasury, mortgage-backed, corporate and
"Yankee bonds" (U.S. dollar-denominated bonds issued outside the United States).
The performance results presented below are based on percent changes in net
asset values of the Historical Fund with dividends and capital gains reinvested.
Cumulative rates of return reflect performance over a stated period of time.
Annualized rates of return represent the rate of growth that would have produced
the corresponding cumulative return had performance been constant over the
entire period. The inception date for the Historical Fund, the Lipper data and
the Lehman Index date is October 1, 1993.
Annualized Rates of Return
Periods Ended December 31, 1998
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
- --------------------------------------------------------------------------------
Historical Fund 8.69% 7.72% 6.78% 6.34%
Lehman Aggregate
Bond Index 8.69% 7.29% 7.27% 6.92%
Lipper Corporate Debt
Funds BBB Rated Average 6.09% 6.85% 6.99% 6.79%
Cumulative Rates of Return
Periods Ended December 31, 1998
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
- --------------------------------------------------------------------------------
Historical Fund 8.69% 24.98% 38.80% 38.10%
Lehman Aggregate
Bond Index 8.69% 23.61% 42.05% 42.14%
Lipper Corporate Debt
Funds BBB Rated Average 6.09% 22.02% 40.31% 41.30%
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, a Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Funds' value their
securities at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such other methods
as the Funds' Directors or Trustees believe accurately reflect fair market
value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund. Your
purchase of Fund shares may be subject to an initial sales charge. Sales of Fund
shares may be subject to a contingent deferred sales charge or CDSC. See the
Distribution Arrangements section of this Prospectus for details.
HOW TO BUY SHARES
You may purchase a Fund's shares through broker-dealers, banks, or other
financial intermediaries. You also may purchase shares directly from the Funds'
principal underwriter, Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
o Initial $250
o Subsequent $50
o Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase shares by electronic
funds transfer in amounts not exceeding $500,000 if you have completed the
appropriate section of the Subscription Application or the Shareholder Options
form obtained from AFS. Call 800-221-5672 to arrange a transfer from your bank
account.
45
<PAGE>
A Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Funds may refuse any order to purchase shares. In this regard, the Funds
reserve the right to restrict purchases of Fund shares (including through
exchanges) when they appear to evidence a pattern of frequent purchases and
sales made in response to short-term considerations.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of other Alliance
Mutual Funds (including AFD Exchange Reserves, a money market fund managed by
Alliance). Exchanges of shares are made at next-determined NAV, without sales or
service charges. You may request an exchange by mail or telephone. You must call
by 4:00 p.m., Eastern time, to receive that day's NAV. The Funds may change,
suspend, or terminate the exchange service on 60 days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV, less any applicable CDSC, after the
Fund receives your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by check or
electronic funds transfer, your redemption payment may be delayed until the Fund
is reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
o Selling Shares Through Your Broker
Your broker must receive your request by 4:00 p.m., Eastern time, and submit it
to the Fund by 5:00 p.m., Eastern time, for you to receive that day's NAV, less
any applicable CDSC. Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
o Selling Shares Directly to a Fund
By Mail
-- Send a signed letter of instruction or stock power form to AFS,
along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national stock
exchange or other eligible guarantor institution must guarantee
signatures. Stock power forms are available from your financial
intermediary, AFS, and many commercial banks. Additional
documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners.
By Telephone
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AFS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
-- A telephone redemption request must be made by 4:00 p.m., Eastern
time, for you to receive that day's NAV, less any applicable CDSC
and, except for certain omnibus accounts, may be made only once per
day.
-- If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds may be sent directly to your
bank. Otherwise, the proceeds will be mailed to you.
-- Redemption requests by electronic funds transfer may not exceed
$100,000 per day and redemption requests by check cannot exceed
$50,000 per day.
-- Telephone redemption is not available for shares held in nominees or
"street name" accounts or retirement plan accounts or shares held by
a shareholder who has changed his or her address of record within
the previous 30 calendar days.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
The Funds declare dividends on their shares each Fund business day. For
Saturdays, Sundays, and holidays dividends will be as of the previous business
day. Each Fund pays dividends on its shares after the close of business on the
twentieth day of each month or on the first day after that day if the day is not
a business day.
Each Fund's income dividends and capital gains distributions, if any, declared
by a Fund on its outstanding shares will, at the election of each shareholder,
be paid in cash or in additional shares of the same class of shares of that
Fund. If paid in additional shares, the shares will have an aggregate net asset
value as of the close of business on the day following the declaration date of
the dividend or distribution equal to the cash amount of the dividend or
distribution. You may make an election to receive dividends and distributions in
cash or in shares at the time you purchase shares. Your election can be changed
at any time prior to a record date for a dividend. There is no sales or other
charge in connection with the reinvestment of dividends or capital gains
distributions. Cash dividends may be paid in check, or at your election,
electronically via the ACH network. There is no sales or other charge on the
reinvestment of Fund dividends and distributions.
46
<PAGE>
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate and there can be no assurance
that a Fund will pay any dividends or realize any capital gains.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction for foreign taxes paid by a Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not be permitted to
claim all or a portion of a credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable as a capital gain.
For federal income tax purposes, the Fund's dividend distributions of net
income (or short-term taxable gains) will be taxable to you as ordinary
income. Distributions of long-term capital gains generally will be taxable
to you as long-term capital gains. A Fund's distributions also may be subject
to certain state and local taxes.
If you buy shares just before a Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
Share Classes. The Funds offer three classes of shares.
Class A Shares--Initial Sales Charge Alternative You can purchase Class A shares
at NAV plus an initial sales charge, as follows:
Initial Sales Charge
-------------------------------------------------
As % of Commission to
Net Amount As % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- ---------------- ------------ -------------- -----------------
Up to $100,000 ............. 4.44% 4.25% 4.00%
$100,000 up to
$250,000.................. 3.36 3.25 3.00
$250,000 up to
$500,000.................. 2.30 2.25 2.00
$500,000 up to
$1,000,000................ 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A shares in the amount of
$1,000,000, but may pay a 1% CDSC if you redeem your shares within 1 year.
Alliance may pay the dealer or agent a fee of up to 1% of the dollar amount
purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges under a Fund's Combined Purchase Privilege, Cumulative
Quantity Discount, Statement of Intention, Privilege for Certain Retirement
Plans, Reinstatement Privilege, and Sales at Net Asset Value Programs. Consult
the Subscription Application and a Fund's SAI for additional information about
these options.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a CDSC if you redeem shares within three years (four years in
the case of Alliance Global Strategic Income and Alliance High Yield) after
purchase. The CDSC varies depending on the number of years you hold the shares.
The CDSC amounts are:
Alliance Global Strategic Income and Alliance High Yield:
Years Since Purchase CDSC
--------------------- ------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
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<PAGE>
All Other Funds:
Years Since Purchase CDSC
--------------------- ------
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another Alliance Mutual
Fund, the CDSC also will apply to those Class B shares. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
The Fund's Class B shares purchased for cash automatically convert to Class A
shares six years after the end of the month of your purchase (except for Class B
shares of Alliance Global Strategic Income Trust and Alliance High Yield Fund,
which automatically convert to Class A shares eight years after the end of the
month of purchase). If you purchase shares by exchange for the Class B shares of
another Alliance Mutual Fund, the conversion period runs from the date of your
original purchase.
Class C Shares--Asset-Based Sales Charge Alternative You can purchase Class C
shares at NAV without any initial sales charge. A Fund will thus receive the
full amount of your purchase. Your investment, however, will be subject to a 1%
CDSC if you redeem your shares within 1 year. If you exchange your shares for
the Class C shares of another Alliance Mutual Fund, the 1% CDSC also will apply
to those Class C shares. The 1-year period for the CDSC begins with the date of
your original purchase, not the date of the exchange for the other Class C
shares.
Class C shares do not convert to any other class of shares of the Fund.
Asset-based Sales Charge or Rule 12b-1 Fees. Each Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its shares. The
amount of these fees for each class of the Fund's shares is:
Rule 12b-1 Fee (as a percent of
aggregate average daily net assets)
-----------------------------------
Class A .30%*
Class B 1.00%
Class C 1.00%
- ----------
* The Rule 12b-1 plan for Class A shares of Alliance Short-Term U.S. Government
Fund provides for payments of up to .50% of aggregate average daily net assets,
although the Fund's Trustees currently limit such payments to .30% of such
assets.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Class B and Class C shares are subject to
higher distribution fees than Class A shares (Class B shares are subject to
these higher fees for a period of six years, after which they convert to Class A
shares except for Alliance Global Strategic Income Trust and Alliance High Yield
Fund's Class B shares which convert to Class A shares after eight years). The
higher fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Choosing a Class of Shares. The decision as to which class of shares is more
beneficial to you depends on the amount and intended length of your investment.
If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider purchasing Class A shares. If you are making a
smaller investment, you might consider purchasing Class B shares because 100% of
your purchase is invested immediately. If you are unsure of the length of your
investment, you might consider Class C shares because there is no initial sales
charge and no CDSC as long as the shares are held for one year or more. Dealers
and agents may receive differing compensation for selling Class A, Class B, or
Class C shares. There is no size limit on purchases of Class A shares. The
maximum purchase of Class B shares is $250,000. The maximum purchase of Class C
shares is $1,000,000.
You should consult your financial agent to assist in choosing a class of Fund
shares.
Application of the CDSC. The CDSC is applied to the lesser of the original cost
of shares being redeemed or NAV at the time of redemption (or, as to Fund shares
acquired through an exchange, the cost of the Alliance Fund shares originally
purchased for cash). Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The Fund may waive the CDSC on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans, or under a monthly,
bi-monthly, or quarterly systematic withdrawal plan. See the Fund's SAI for
further information about CDSC waivers.
Other. A transaction, service, administrative, or other similar fee may be
charged by your broker-dealer, agent, financial intermediary, or other financial
representative with respect to the purchase, sale, or exchange of Class A, Class
B or Class C shares made through your financial representative. The financial
intermediaries also may impose requirements on the purchase, sale, or exchange
of shares that are different from, or in addition to, those imposed by a Fund,
including requirements as to the minimum initial and subsequent investment
amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection with
the sale of shares of the Funds. These additional amounts may be utilized, in
whole or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, the cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund
48
<PAGE>
and/or other Alliance Mutual Funds during a specific period of time. The
incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. The dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Under unusual circumstances, a Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by federal securities law. The
Funds reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell, or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
Shareholder Services. AFS offers a variety of shareholder services. For more
information about these services or your account, call AFS's toll-free number,
800-221-5672. Some services are described in the attached Subscription
Application. A shareholder manual explaining all available services will be
provided upon request. To request a shareholder manual, call 800-227-4618.
Employee Benefit Plans. Certain employee benefit plans, including
employer-sponsored tax-qualified 401(k) plans and other defined contribution
retirement plans ("Employee Benefit Plans"), may establish requirements as to
the purchase, sale or exchange of shares of the Funds, including maximum and
minimum initial investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer all classes of
shares of the Funds. In order to enable participants investing through Employee
Benefit Plans to purchase shares of the Funds, the maximum and minimum
investment amounts may be different for shares purchased through Employee
Benefit Plans from those described in this Prospectus. In addition, the Class A,
Class B and Class C CDSC may be waived for investments made through Employee
Benefit Plans.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re Alliance North American Government Income Trust, Inc.
Securities Litigation was filed in the U.S. District Court for the Southern
District of New York ("District Court") against the Fund, Alliance, ACMC, AFD,
The Equitable Companies Incorporated ("ECI"), a parent of the Adviser, and
certain current and former officers and directors of the Fund and ACMC, alleging
violations of the federal securities laws, fraud and breach of fiduciary duty in
connection with the Fund's investments in Mexican and Argentine securities. The
Complaint sought certification of a plaintiff class of all persons who purchased
or owned Class A, Class B or Class C shares of the Fund from March 27, 1992
through December 23, 1994. Plaintiffs alleged that during 1995 the Fund's losses
exceeded $750,000,000 and sought as relief unspecified damages, costs and
attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the Second
Circuit ("Court of Appeals") issued an order granting defendants' motion to
strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second Decision
to the Court of Appeals. On October 15, 1998, the Court of Appeals affirmed in
part and reversed in part the Second Decision. The Court of Appeals affirmed the
District Court's denial of plaintiffs' motion for leave to file the Amended
Complaint insofar as the Amended Complaint alleged that defendants had made
misrepresentations and omissions relating to the Funds' investments in certain
mortgage-backed securities and in the Fund's marketing materials. The Court of
Appeals reversed the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as
49
<PAGE>
the Amended Complaint alleged that defendants had made actionable
misrepresentations and omissions relating to the Fund's hedging practices.
Discovery in the case is nearly complete and trial is scheduled to commence on
December 6, 1999. The Fund and Alliance believe that the allegations in the
Complaint and the Amended Complaint are without merit and intend to defend
vigorously against those claims.
50
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of each Fund. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). Except as otherwise indicated,
this information has been audited by PricewaterhouseCoopers LLP, the independent
accountants for Alliance Short-Term U.S. Government Fund, and by Ernst & Young
LLP, the independent accountants for Alliance U.S. Government Portfolio,
Alliance Limited Maturity Government Fund, Alliance Mortgage Securities Income
Fund, Alliance Multi-Market Strategy Trust, Alliance North American Government
Income Trust, Alliance Global Dollar Government Fund, Alliance Global Strategic
Income Trust, Alliance Corporate Bond Portfolio, and Alliance High Yield Fund,
whose reports, along with each Fund's financial statements, are included in the
SAI, which is avaliable upon request.
51
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government#
Class A
Year Ended 8/31/99........ $ 9.48 $ .49(g) $ (.19) $ .30 $ (.50) $ 0.00
Year Ended 8/31/98........ 9.63 .49(g) (.11) .38 (.50) 0.00
Year Ended 8/31/97........ 9.66 .47(g) .03 .50 (.46) 0.00
Year Ended 8/31/96........ 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95........ 9.67 .42 .05 .47 (.41) 0.00
Class B
Year Ended 8/31/99........ $ 9.62 $ .43(g) $ (.21) $ .22 $ (.42) $ 0.00
Year Ended 8/31/98........ 9.74 .42(g) (.08) .34 (.43) 0.00
Year Ended 8/31/97........ 9.77 .41(g) .02 .43 (.39) 0.00
Year Ended 8/31/96........ 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95........ 9.78 .36 .04 .40 (.34) 0.00
Class C
Year Ended 8/31/99........ $ 9.61 $ .43(g) $ (.22) $ .21 $ (.42) $ 0.00
Year Ended 8/31/98........ 9.73 .42(g) (.08) .34 (.43) 0.00
Year Ended 8/31/97........ 9.76 .41(g) .02 .43 (.39) 0.00
Year Ended 8/31/96........ 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95........ 9.77 .34 .06 .40 (.34) 0.00
U.S. Government
Class A
Year Ended 6/30/99........ $ 7.57 $ .52(g) $ (.37) $ .15 $ (.52) $ 0.00
Year Ended 6/30/98........ 7.41 .54(g) .18 .72 (.54) 0.00
Year Ended 6/30/97........ 7.52 .57(g) (.10) .47 (.57) 0.00
Year Ended 6/30/96........ 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95........ 7.84 .64 .13 .77 (.65) 0.00
Class B
Year Ended 6/30/99........ $ 7.57 $ .46(g) $ (.36) $ .10 $ (.46) $ 0.00
Year Ended 6/30/98........ 7.41 .48(g) .18 .66 (.48) 0.00
Year Ended 6/30/97........ 7.52 .52(g) (.10) .42 (.52) 0.00
Year Ended 6/30/96........ 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95........ 7.84 .58 .13 .71 (.59) 0.00
Class C
Year Ended 6/30/99........ $ 7.57 $ .46(g) $ (.36) $ .10 $ (.46) $ 0.00
Year Ended 6/30/98........ 7.41 .48(g) .18 .66 (.48) 0.00
Year Ended 6/30/97........ 7.52 .52(g) (.10) .42 (.52) 0.00
Year Ended 6/30/96........ 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95........ 7.83 .58 .14 .72 (.59) 0.00
Limited Maturity Government
Class A
12/1/98 to 5/31/99........ $ 9.54 $ .21(g) $ (.27) $ (.06) $ (.26) $ 0.00
Year Ended 11/30/98....... 9.44 .47(g) .17 .64 (.47) 0.00
Year Ended 11/30/97....... 9.45 .51(g) .02 .53 (.52) 0.00
Year Ended 11/30/96....... 9.52 .51(g) (.04) .47 (.51) 0.00
Year Ended 11/30/95....... 9.51 .52(g) .02 .54 (.50) 0.00
Year Ended 11/30/94....... 9.94 .42 (.32) .10 (.48) (.01)
Class B
12/1/98 to 5/31/99........ $ 9.55 $ .19(g) $ (.30) $ (.11) $ (.22) $ 0.00
Year Ended 11/30/98....... 9.44 .39(g) .19 .58 (.39) 0.00
Year Ended 11/30/97....... 9.45 .45(g) .01 .46 (.45) 0.00
Year Ended 11/30/96....... 9.52 .44(g) (.04) .40 (.44) 0.00
Year Ended 11/30/95....... 9.52 .46(g) .01 .47 (.44) 0.00
Year Ended 11/30/94....... 9.94 .39 (.35) .04 (.42) (.01)
Class C
12/1/98 to 5/31/99........ $ 9.55 $ .19(g) $ (.30) $ (.11) $ (.22) $ 0.00
Year Ended 11/30/98....... 9.44 .39(g) .19 .58 (.39) 0.00
Year Ended 11/30/97....... 9.45 .45(g) .01 .46 (.45) 0.00
Year Ended 11/30/96....... 9.52 .45(g) (.05) .40 (.45) 0.00
Year Ended 11/30/95....... 9.52 .46(g) .01 .47 (.44) 0.00
Year Ended 11/30/94....... 9.94 .37 (.33) .04 (.42) (.01)
Mortgage Securities Income
Class A
1/1/99 to 6/30/99......... $ 8.56 $ .27(g) $ (.32) $ (.05) $ (.26) $ 0.00
Year Ended 12/31/98....... 8.63 .52(g) (.03) .49 (.52) 0.00
Year Ended 12/31/97....... 8.51 .54(g) .15 .69 (.54) 0.00
Year Ended 12/31/96....... 8.75 .54(g) (.19) .35 (.51) 0.00
Year Ended 12/31/95....... 8.13 .57(g) .64 1.21 (.57) 0.00
Year Ended 12/31/94....... 9.29 .57 (1.13) (.56) (.58) 0.00
Class B
1/1/99 to 6/30/99......... $ 8.56 $ .23(g) $ (.31) $ (.08) $ (.23) $ 0.00
Year Ended 12/31/98....... 8.63 .45(g) (.02) .43 (.45) 0.00
Year Ended 12/31/97....... 8.51 .48(g) .15 .63 (.48) 0.00
Year Ended 12/31/96....... 8.75 .48(g) (.19) .29 (.46) 0.00
Year Ended 12/31/95....... 8.13 .51(g) .64 1.15 (.51) 0.00
Year Ended 12/31/94....... 9.29 .51 (1.14) (.63) (.51) 0.00
Class C
1/1/99 to 6/30/99......... $ 8.56 $ .23(g) $ (.31) $ (.08) $ (.23) $ 0.00
Year Ended 12/31/98....... 8.63 .46(g) (.03) .43 (.46) 0.00
Year Ended 12/31/97....... 8.51 .48(g) .15 .63 (.48) 0.00
Year Ended 12/31/96....... 8.75 .48(g) (.19) .29 (.46) 0.00
Year Ended 12/31/95....... 8.13 .51(g) .64 1.15 (.51) 0.00
Year Ended 12/31/94....... 9.29 .51 (1.14) (.63) (.51) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 56.
52
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (a) omitted) Net Assets Net Assets Rate
- ------------- ------- ------------- --------- --------------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ (.02) $ (.52) $ 9.26 3.18% $ 9,379 1.55%(c)(d)(f) 5.27% 209%
0.00 (.03) (.53) 9.48 4.04 5,535 1.83(c)(d)(f) 5.00 206
0.00 (.07) (.53) 9.63 5.29 3,901 1.41(c)(d) 4.90 65
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(c)(d) 4.85 110
(.03)(b) 0.00 (.44) 9.70 5.14 2,997 1.40(c) 4.56 15
$ 0.00 $ (.02) $ (.44) $ 9.40 2.35% $ 20,565 2.25%(c)(d)(f) 4.47% 209%
0.00 (.03) (.46) 9.62 3.52 $ 10,827 2.56(c)(d)(f) 4.49 206
0.00 (.07) (.46) 9.74 4.45 6,458 2.11(c)(d) 4.13 65
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(c)(d) 4.11 110
(.03)(b) 0.00 (.37) 9.81 4.32 6,380 2.10(c) 3.82 15
$ 0.00 $ (.02) $ (.44) $ 9.38 2.24% $ 7,377 2.26%(c)(d)(f) 4.43% 209%
0.00 (.03) (.46) 9.61 3.53 5,074 2.56(c)(d)(f) 4.48 206
0.00 (.07) (.46) 9.73 4.45 5,012 2.11(c)(d) 4.15 65
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(c)(d) 4.11 110
(.03)(b) 0.00 (.37) 9.80 4.33 5,180 2.10(c) 3.80 15
$ (.01) $ 0.00 $ (.53) $ 7.19 1.83% $426,167 1.17%(d) 6.86% 320%
0.00 (.02) (.56) 7.57 10.02 352,749 1.06 7.08 153
0.00 (.01) (.58) 7.41 6.49 354,782 1.02 7.66 330
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
$ (.01) $ 0.00 $ (.47) $ 7.20 1.22% $338,310 1.87%(d) 6.13% 320%
0.00 (.02) (.50) 7.57 9.20 390,523 1.76 6.37 153
0.00 (.01) (.53) 7.41 5.69 471,889 1.73 6.95 330
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
$ (.01) $ 0.00 $ (.47) $ 7.20 1.22% $144,145 1.87%(d) 6.13% 320%
0.00 (.02) (.50) 7.57 9.21 114,392 1.76 6.38 153
0.00 (.01) (.53) 7.41 5.69 115,607 1.72 6.96 330
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
$ 0.00 $ 0.00 $ (.26) $ 9.22 (.69)% $ 29,452 2.75%(d)* 4.74%* 239%
(.07) 0.00 (.54) 9.54 6.94 41,493 3.27(d) 4.74 500
0.00 (.02) (.54) 9.44 5.79 16,197 2.41(d) 5.52 249
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(d) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(d) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(d) 4.78 375
$ 0.00 $ 0.00 $ (.22) $ 9.22 (1.15)% $ 31,605 3.48%(d)* 4.05%* 239%
(.08) 0.00 (.47) 9.55 6.30 33,591 3.84(d) 4.10 500
0.00 (.02) (.47) 9.44 5.04 33,613 3.14(d) 4.80 249
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(d) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(d) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(d) 4.12 375
$ 0.00 $ 0.00 $ (.22) $ 9.22 (1.15)% $ 28,205 3.47%(d)* 4.05%* 239%
(.08) 0.00 (.47) 9.55 6.30 28,562 3.84(d) 4.11 500
0.00 (.02) (.47) 9.44 5.05 28,738 3.13(d) 4.82 249
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(d) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(d) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(d) 4.10 375
$ 0.00 $ 0.00 $ (.26) $ 8.25 (.48)% $460,810 1.71%(d)* 6.33%* 125%
(.04) 0.00 (.56) 8.56 5.82 469,750 1.99(d) 6.06 202
(.03) 0.00 (.57) 8.63 8.40 372,494 1.41(d) 6.30 184
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(d) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(d) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(d) 6.77 438
$ 0.00 $ 0.00 $ (.23) $ 8.25 (.85)% $ 83,558 2.43%(d)* 5.53%* 125%
(.05) 0.00 (.50) 8.56 5.04 126,879 2.68(d) 5.33 202
(.03) 0.00 (.51) 8.63 7.60 323,916 2.14(d) 5.60 184
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(d) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(d) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(d) 6.05 438
$ 0.00 $ 0.00 $ (.23) $ 8.25 (.85)% $ 21,673 2.42%(d)* 5.60%* 125%
(.04) 0.00 (.50) 8.56 5.04 23,728 2.69(d) 5.35 202
(.03) 0.00 (.51) 8.63 7.60 27,859 2.12(d) 5.61 184
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(d) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(d) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(d) 6.06 438
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 56.
53
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Market Strategy
Class A
11/1/98 to 4/30/99........ $ 6.64 $ .20(g) $ (.02) $ .18 $ (.29) $ 0.00
Year Ended 10/31/98....... 7.11 .44(g) .02 .46 (.44) 0.00
Year Ended 10/31/97....... 7.23 .47(g) .08 .55 (.47) 0.00
Year Ended 10/31/96....... 6.83 .59(g) .48 1.07 (.67) 0.00
Year Ended 10/31/95....... 8.04 .77(g) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94....... 8.94 .85 (1.08) (.23) (.09) 0.00
Class B
11/1/98 to 4/30/99........ $ 6.66 $ .18(g) $ (.03) $ .15 $ (.26) $ 0.00
Year Ended 10/31/98....... 7.11 .36(g) .05 .41 (.36) 0.00
Year Ended 10/31/97....... 7.23 .42(g) .06 .48 (.42) 0.00
Year Ended 10/31/96....... 6.83 .53(g) .47 1.00 (.60) 0.00
Year Ended 10/31/95....... 8.04 .44(g) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94....... 8.94 .88 (1.18) (.30) (.08) 0.00
Class C
11/1/98 to 4/30/99........ $ 6.65 $ .18(g) $ (.02) $ .16 $ (.26) $ 0.00
Year Ended 10/31/98....... 7.11 .25(g) .16 .41 (.41) 0.00
Year Ended 10/31/97....... 7.23 .42(g) .07 .49 (.42) 0.00
Year Ended 10/31/96....... 6.83 .54(g) .47 1.01 (.61) 0.00
Year Ended 10/31/95....... 8.04 .44(g) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94....... 8.94 .46 (.75) (.29) (.09) 0.00
North American Government Income
Class A
12/1/98 to 5/31/99........ $ 7.59 $ .45(g) $ (.18) $ .27 $ (.48) $ 0.00
Year Ended 11/30/98....... 8.02 .87(g) (.33) .54 (.87) 0.00
Year Ended 11/30/97....... 8.01 1.03(g) (.05) .98 (.97) 0.00
Year Ended 11/30/96....... 6.75 1.09(g) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95....... 8.13 1.18(g) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94....... 10.35 1.02 (2.12) (1.10) (.91) 0.00
Class B
12/1/98 to 5/31/99........ $ 7.61 $ .42(g) $ (.17) $ .25 $ (.45) $ 0.00
Year Ended 11/30/98....... 8.02 .81(g) (.32) .49 (.81) 0.00
Year Ended 11/30/97....... 8.01 .98)(g) (.07) .91 (.90) 0.00
Year Ended 11/30/96....... 6.75 1.04(g) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95....... 8.13 1.13(g) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94....... 10.35 .96 (2.13) (1.17) (.84) 0.00
Class C
12/1/98 to 5/31/99........ $ 7.61 $ .42(g) $ (.17) $ .25 $ (.45) $ 0.00
Year Ended 11/30/98....... 8.02 .82(g) (.33) .49 (.82) 0.00
Year Ended 11/30/97....... 8.01 .98(g) (.07) .91 (.90) 0.00
Year Ended 11/30/96....... 6.75 1.05(g) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95....... 8.13 1.13(g) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94....... 10.34 .96 (2.12) (1.16) (.84) 0.00
Global Dollar Government
Class A
Year Ended 8/31/99........ $ 5.05 $ .71(g) $ .74 $ 1.45 $ (.74) $ 0.00
Year Ended 8/31/98........ 10.64 .73(g) (4.03) (3.30) (.73) (1.37)
Year Ended 8/31/97........ 10.01 .88(g) 1.85 2.73 (.95) (1.15)
Year Ended 8/31/96........ 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95........ 9.14 .86 (1.10) (.24) (.88) 0.00
Class B
Year Ended 8/31/99........ $ 5.05 $ .67(g) $ .76 $ 1.43 $ (.68) $ 0.00
Year Ended 8/31/98........ 10.64 .67(g) (4.05) (3.38) (.67) (1.36)
Year Ended 8/31/97........ 10.01 .81(g) 1.84 2.65 (.87) (1.15)
Year Ended 8/31/96........ 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95........ 9.14 .80 (1.11) (.31) (.81) 0.00
Class C
Year Ended 8/31/99........ $ 5.05 $ .67(g) $ .76 $ 1.43 $ (.68) $ 0.00
Year Ended 8/31/98........ 10.64 .67(g) (4.05) (3.38) (.67) (1.36)
Year Ended 8/31/97........ 10.01 .82(g) 1.84 2.66 (.88) (1.15)
Year Ended 8/31/96........ 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95........ 9.14 .79 (1.10) (.31) (.81) 0.00
Global Strategic Income
Class A
11/1/98 to 4/30/99........ $10.18 $ .45(g) $ .42 $ .87 $ (.50) $ 0.00
Year Ended 10/31/98....... 11.46 .78(g) (.64) .14 (.78) (.36)
Year Ended 10/31/97....... 10.83 .74(g) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96....... 10.00 .69(g) .95 1.64 (.81) 0.00
Class B
11/1/98 to 4/30/99........ $10.17 $ .42(g) $ .43 $ .85 $ (.47) $ 0.00
Year Ended 10/31/98....... 11.46 .69(g) (.63 .06 (.69) (.36)
Year Ended 10/31/97....... 10.83 .66(g) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96..... 9.97 .41(g) 1.01 1.42 (.56) 0.00
Class C
11/1/98 to 4/30/99........ $10.17 $ .42(g) $ .43 $ .85 $ (.47) $ 0.00
Year Ended 10/31/98....... 11.46 .68(g) (.62) .06 (.68) (.36)
Year Ended 10/31/97....... 10.83 .66(g) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96..... 9.97 .39(g) 1.03 1.42 (.56) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 56.
54
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (b) omitted) Net Assets Net Assets Rate
- ------------- ------- ------------- --------- --------------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (.29) $ 6.53 2.70% $ 445,904 1.34%(f)* 6.21%* 46%
(.42) (.07) (.93) 6.64 6.90 95,568 1.74(f) 6.46 240
(.20) 0.00 (.67) 7.11 7.82 96,133 1.58(f) 6.50 173
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(e) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(e) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(e) 7.17 605
$ 0.00 $ 0.00 $ (.26) $ 6.55 2.21% $ 21,186 2.05%(f)* 5.45%* 46%
(.43) (.07) (.86) 6.66 6.24 7,217 2.41(f) 5.64 240
(.18) 0.00 (.60) 7.11 6.90 29,949 2.29(f) 5.79 173
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(e) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(e) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(e) 6.44 605
$ 0.00 $ 0.00 $ (.26) $ 6.55 2.37% $ 19,671 2.04%(f)* 5.50%* 46%
(.42) (.04) (.87) 6.65 6.10 16,518 2.61(f) 5.28 240
(.19) 0.00 (.61) 7.11 6.92 1,203 2.28(f) 5.80 173
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(e) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(e) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(e) 6.10 605
$ 0.00 $ 0.00 $ (.48) $ 7.38 3.67% $ 593,218 2.06%(e)* 11.85%* 157%
(.07) (.03) (.97) 7.59 7.14 740,066 2.04(e) 11.17 175
0.00 0.00 (.97) 8.02 12.85 511,749 2.15(e) 12.78 118
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(e) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(e) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(e) 11.22 131
$ 0.00 $ 0.00 $ (.45) $ 7.41 3.32% $1,213,895 2.76%(e)* 11.12%* 157%
(.06) (.03) (.90) 7.61 6.46 1,300,519 2.75(e) 10.44 175
0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(e) 12.15 118
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(e) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(e) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(e) 10.53 131
$ 0.00 $ 0.00 $ (.45) $ 7.41 3.32% $ 267,111 2.75%(e)* 11.14%* 157%
(.05) (.03) (.90) 7.61 6.46 276,073 2.74(e) 10.45 175
0.00 0.00 (.90) 8.02 11.88 283,483 2.85(e) 12.14 118
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(e) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(e) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(e) 10.46 131
$ (.04) $ (.03) $ (.81) $ 5.69 29.40% $ 50,540 1.59% 12.34% 179%
(.04) (.15) (2.29) 5.05 (38.56) 32,365 1.48 8.51 188
0.00 0.00 (2.10) 10.64 30.04 37,416 1.55 8.49 314
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
$ 0.00 $ 0.00 $ (.74) $ 5.74 28.85% $ 110,003 2.31% 11.59% 179%
(.04) (.14) (2.21) 5.05 (39.11) 79,660 2.22 7.78 188
0.00 0.00 (2.02) 10.64 29.14 93,377 2.26 7.81 314
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
$ 0.00 $ 0.00 $ (.74) $ 5.74 28.85% $ 39,024 2.30% 11.56% 179%
(.04) (.14) (2.21) 5.05 (39.09) 23,711 2.19 7.75 188
0.00 0.00 (2.03) 10.64 29.17 25,130 2.25 7.82 314
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
$ 0.00 $ 0.00 $ (.50) $ 10.55 8.70% $ 26,472 1.63%(c)* 8.73%* 237%
(.28) 0.00 (1.42) 10.18 1.00 24,576 1.89(c) 7.08 183
(.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(c) 6.56 417
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(c) 8.36* 282
$ 0.00 $ 0.00 $ (.47) $ 10.55 8.46% $ 68,707 2.34%(c)* 7.98%* 237%
(.30) 0.00 (1.35) 10.17 .27 58,058 2.58(c) 6.41 183
(.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(c) 5.86 417
0.00 0.00 (.56) 10.83 14.47 800 2.60*(c) 7.26* 282
$ 0.00 $ 0.00 $ (.47) $ 10.55 8.46% $ 19,215 2.33%(c)* 7.94%* 237%
(.31) 0.00 (1.35) 10.17 .27 16,067 2.58(c) 6.43 183
(.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(c) 5.86 417
0.00 0.00 (.56) 10.83 14.47 750 2.60*(c) 7.03* 282
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 56.
55
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond
Class A
Year Ended 6/30/99........ $14.19 $ 1.06(g) $(1.64) $ (.58) $(1.07) $0.00
Year Ended 6/30/98........ 14.19 1.08(g) .12 1.20 (1.08) 0.00
Year Ended 6/30/97........ 13.29 1.15(g) .97 2.12 (1.22) 0.00
Year Ended 6/30/96........ 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95........ 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94........ 14.15 1.11 (1.36) (.25) (1.11) (.25)
Class B
Year Ended 6/30/99........ $14.19 $ .97(g) $(1.64) $ (.67) $ (.98) $0.00
Year Ended 6/30/98........ 14.19 .98(g) .13 1.11 (.98) 0.00
Year Ended 6/30/97........ 13.29 1.05(g) .98 2.03 (1.13) 0.00
Year Ended 6/30/96........ 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95........ 12.50 111 .36 1.47 (1.05) 0.00
Year Ended 6/30/94........ 14.15 1.02 (1.37) (.35) (1.04) (.25)
Class C
Year Ended 6/30/99........ $14.19 $ .97(g) $(1.64) $ (.67) $ (.98) $0.00
Year Ended 6/30/98........ 14.19 .99(g) .12 1.11 (.99) 0.00
Year Ended 6/30/97........ 13.29 1.04(g) .99 2.03 (1.13) 0.00
Year Ended 6/30/96........ 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95........ 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94........ 14.15 1.02 (1.37) (.35) (1.05) (.25)
High Yield
Class A
Year Ended 8/31/99........ $10.76 $ 1.02(g) $(1.08) $ (.06) $(1.02) $(.15)
Year Ended 8/31/98........ 11.17 1.03(g) (.27) .76 (1.02) (.14)
4/22/97+ to 8/31/97....... 10.00 .37(g) 1.15 1.52 (.35) 0.00
Class B
Year Ended 8/31/99........ $10.75 $ .95(g) $(1.08) $ (.13) $ (.95) $(.15)
Year Ended 8/31/98........ 11.17 .96(g) (.28) .68 (.95) (.14)
4/22/97+ to 8/31/97....... 10.00 .31(g) 1.19 1.50 (.33) 0.00
Class C
Year Ended 8/31/99........ $10.75 $ .95(g) $(1.07) $ (.12) $ (.95) $(.15)
Year Ended 8/31/98........ 11.17 .96(g) (.28) .68 (.95) (.14)
4/22/97+ to 8/31/97....... 10.00 .32(g) 1.18 1.50 (.33) 0.00
</TABLE>
- --------------------------------------------------------------------------------
# Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable") served as the investment adviser to The Alliance Portfolios
(the "Trust"), of which Alliance Short-Term U.S. Government is a series.
On July 22, 1993, Alliance acquired the business and substantially all of
the assets of Equitable and became investment adviser to the Trust.
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited.
* Annualized.
** Reflects newly adopted fiscal year end.
(a) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and
a redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods
of less than one year are not annualized.
(b) "Total dividends and distributions" includes dividends in excess of net
investment income and return of capital. Alliance Short-Term U.S.
Government had dividends in excess of net investment income, for the year
ended August 31, 1995, with respect to Class A shares of $(.03); with
respect to Class B shares, $(.03); and with respect to Class C shares,
$(.03).
(c) Net of expenses assumed and/or waived/reimbursed. If Alliance Short-Term
U.S. Government had borne all expenses, the expense ratios would have been
with respect to Class A shares, 2.20% (annualized) for 1993, 2.17% for the
year ended April 30, 1994, 2.95% (annualized) for the period ended August
31, 1994, 3.71% for the year ended August 31, 1995, 3.04% for the year
ended August 31, 1996, 2.42% for the year ended August 31, 1997, 2.81% for
the year ended August 31, 1998 and 2.00% for the year ended August 31,
1999; with respect to Class B shares, 4.81% (annualized) for 1993, 3.21%
for the year ended April 30, 1994, 3.60% (annualized) for the period ended
August 31, 1994, 4.33% for the year ended August 31, 1995, 3.74% for the
year ended August 31, 1996, 3.10% for the year ended August 31, 1997,
3.63% for the year ended August 31, 1998 and 2.73% for the year ended
August 31, 1999; with respect to Class C shares, 3.10% (annualized) for
the year ended April 30, 1994, 3.64% (annualized) for the period ended
August 31, 1994 (annualized), 4.23% for the year ended August 31, 1995,
3.72% for the year ended August 31, 1996, 3.09% for the year ended August
31, 1997, 3.58% for the year ended August 31, 1998 and 2.71% for the year
ended August 31, 1999. If Alliance Global Strategic Income had borne all
expenses for the respective periods January 9, 1996 to October 31, 1996,
its fiscal year ended 1997, its fiscal year ended in 1998 and 1999, the
expense ratio would have been with respect to Class A shares, 19.20%
(annualized), 4.06%, 2.08%, and 1.66% respectively; with respect to Class
B shares, 19.57% (annualized), 4.76%, and 2.37% 2.76% respectively; and
with respect to Class C shares, 19.49% (annualized), 4.77%, 2.77% and
2.36% respectively. If Alliance High Yield had borne all expenses for the
respective periods April 22, 1997 to August 31, 1997 and the fiscal year
ended August 31, 1998, the expense ratios would have been with respect to
Class A shares, 3.11% (annualized) and 1.46%, respectively; with respect
to Class B shares, 3.85% (annualized) and 2.16%, respectively; and with
respect to Class C shares, 3.84% (annualized) and 2.16%, respectively.
56
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (a) omitted) Net Assets Net Assets Rate
- ------------- ------- ------------- --------- --------------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (.01) $ (.04) $(1.12) $12.49 (4.08)% $ 476,141 1.11% 8.13% 281%
(.12) 0.00 (1.20) 14.19 8.66 510,397 1.05 7.52 244
0.00 0.00 (1.22) 14.19 16.59 370,845 1.12 8.34 307
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
$ (.01) $ (.04) $(1.03) $12.49 (4.77)% $ 630,631 1.82% 7.41% 281%
(.13) 0.00 (1.11) 14.19 7.95 672,374 1.75 6.80 244
0.00 0.00 (1.13) 14.19 15.80 480,326 1.82 7.62 307
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
$ (.01) $ (.04) $(1.03) $12.49 (4.77)% $ 204,271 1.81% 7.37% 281%
(.12) 0.00 (1.11) 14.19 7.95 254,530 1.75 6.83 244
0.00 0.00 (1.13) 14.19 15.80 174,762 1.82 7.61 307
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
$ (.05) $ (.01) $(1.23) $ 9.47 (.58)% $ 102,400 1.31% 10.21% 182%
(.01) 0.00 (1.17) 10.76 6.42 43,960 1.43(c) 8.89 311
0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(c) 8.04* 73
$ (.05) $ (.01) $(1.16) $ 9.46 (1.26)% $ 527,337 2.03% 9.52% 182%
(.01) 0.00 (1.10) 10.75 5.69 269,426 2.13(c) 8.18 311
0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(c) 7.19* 73
$ (.05) $ (.01) $(1.16) $ 9.47 (1.16)% $ 99,927 2.02% 9.54% 182%
(.01) 0.00 (1.10) 10.75 5.69 48,337 2.13(c) 8.17 311
0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(c) 7.24* 73
</TABLE>
- --------------------------------------------------------------------------------
(d) If Alliance Short-Term U.S. Government had not borne interest expenses,
the ratio of expenses (net of expenses assumed and/or waived/reimbursed
and after giving effect to an expense offset agreement with the transfer
agent) to average net assets would have been with respect to Class A
shares, 1.40% for 1996, 1997, 1998 and 1999; with respect to Class B
shares, 2.10% for 1996, 1997, 1998 and 1999; and with respect to Class C
shares, 2.10% for 1996, 1997, 1998 and 1999. If Alliance U.S. Government
Fund had not borne interest expense, the ratio of expenses to average net
assets would have been 1.08% with respect to Class A shares, 1.79% with
respect to Class B shares, 1.78% with respect to Class C shares. If
Alliance Limited Maturity Government had not borne interest expenses, the
ratio of expenses to average net assets would have been with respect to
Class A shares, 1.20% for 1994, 1.41% for 1995, 1.58% for 1996, 1.65% for
1997, 1.68% for 1998 and 1.55% for 1999; with respect to Class B shares,
1.91% for 1994, 2.11% for 1995, 2.30% for 1996, 2.39% for 1997, 2.39% for
1998 and 2.28% for 1999; with respect to Class C shares, 1.89% for 1994,
2.10% for 1995, 2.29% for 1996, 2.37% for 1997, 2.38% for 1998 and 2.27%
for 1999. If Alliance Mortgage Securities Income Fund had not borne
interest expense the ratio of expenses to average net assets would have
been with respect to Class A shares .97% for 1994, 1.03% for 1995, 1.03%
for 1996, 1.07% for 1997, 1.14% for 1998 and 1.15% for 1999; with respect
to Class B shares, 1.68% for 1994, 1.74% for 1995, 1.74% for 1996, 1.78%
for 1997, 1.85% for 1998, and 1.87% for 1999; with respect to Class C
shares 1.69% for 1994, 1.73% for 1995, 1.73% for 1996, 1.77% for 1997,
1.84% for 1998, and 1.85% for 1999.
(e) Includes interest expenses. If Alliance Multi-Market Strategy had not
borne interest expenses or loan fees, the ratio of expenses to average net
assets would have been with respect to Class A shares, 1.30% for 1994,
1.55% for 1995, and 1.60% for 1996; with respect to Class B shares, 2.01%
for 1994, 2.22% for 1995, and 2.31% for 1996; with respect to Class C
shares, 1.99% for 1994, 2.24% for 1995, and 2.30% for 1996. If Alliance
North American Government Income had not borne interest expenses, the
ratio of expenses (net of interest expenses) to average net assets would
have been with respect to Class A shares, 1.37% for 1994, 1.51% for 1995,
1.41% for 1996, 1.38% for 1997, 1.36% for 1998 and 1.38% for 1999; with
respect to Class B shares, 2.07% for 1994, 2.22% for 1995, 2.12% for 1996,
2.09% for 1997, 2.07% for 1998 and 2.09% for 1999; and with respect to
Class C shares, 2.06% for 1994, 2.21% for 1995, 2.12% for 1996, 2.08% for
1997, 2.06% for 1998 and 2.08% for 1999.
(f) Amounts do not reflect the impact of expense offset arrangement with the
transfer agent. Taking into account such expense offset arrangements, the
ratio of expenses to average net assets, for Alliance Multi-Market
Strategy would have been with respect to Class A shares 1.57% for 1997,
1.73% for 1998 and 1.33% for 1999, with respect to Class B shares 2.28%
for 1997, 2.40% for 1998 and 2.04% for 1999 and with respect to Class C
shares 2.27% for 1997, 2.60% for 1998 and 2.03% for 1999. For Alliance
Short-Term U.S. Government the ratio of expenses to average net assets,
giving effect to the assumption and/or waiver/reimbursement of expenses,
would have been with respect to Class A shares 1.82% for 1998 and 1.55%
for 1999, with respect to Class B shares 2.55% for 1998 and 2.25% for
1999 and with respect to Class C shares 2.56% for 1998 and 2.26% for 1999.
(g) Based on average shares outstanding.
57
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and
58
<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+,A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B+,B, B- --Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctutate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
59
<PAGE>
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
60
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT CANADA, MEXICO
- --------------------------------------------------------------------------------
AND ARGENTINA
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and three federal territories
(which generally fall under federal authority) with a constitutional division of
powers between the federal and Provincial governments. The Parliament of Canada
has jurisdiction over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and coinage, banks
and banking, national defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollar on August 27, 1998. On October 25 1999, the
Canadian Dollar-U.S. Dollar exchange rate was 1.4719:1. The range of
fluctuation that has occurred in the past is not necessarily indicative of the
range of fluctuation that will occur in the future. Future rates of exchange
cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which took
effect on May 1, 1917, established Mexico as a Federal Republic and provides for
the separation of executive, legislative and judicial branches. The President
and the members of the General Congress are elected by popular vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product and
a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by inflows
of foreign capital, were factors contributing to the crisis. A weakening economy
and unsettling political and social developments caused investors to lose
confidence in the Mexican economy. This resulted in a large decline in foreign
reserves followed by a sharp and rapid devaluation of the Mexican Peso. The
ensuing economic and financial crisis resulted in higher inflation and domestic
interest rates, a contraction in real gross domestic product and a liquidity
crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced new
accords designed to encourage economic growth and reduce inflation. While it
cannot be accurately predicted whether these accords will continue to achieve
their objectives, the Mexican economy has stabilized since the economic crisis
of 1994, and the high inflation and high interest rates that continued to be a
factor after 1994 have subsided as well. After declining for five consecutive
quarters beginning with the first quarter of 1995, Mexico's gross domestic
product began to grow in
61
<PAGE>
the second quarter of 1996. That growth has been sustained, resulting in
increases of 5.2%, 6.8% and 4.8% in 1996, 1997 and 1998, respectively. The
growth rate for the first six months of 1999 was 2.5%. In addition, inflation
dropped from a 52% annual rate in 1995 to a 27.7% annual rate in 1996 and a
15.7% annual rate in 1997. In 1998, the inflation rate was 18.6%. Mexico's
economy is influenced by international economic conditions, particularly those
in the United States, and by world prices for oil and other commodities. The
recovery of the economy will require continued economic and fiscal discipline as
well as stable political and social conditions. In addition, there is no
assurance that Mexico's economic policy initiatives will be successful or that
succeeding administrations will continue these initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against other
currencies, resulting in a precipitous decline against the U.S. Dollar. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately 40%
from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. In 1998, the average annual Peso-Dollar
exchange rate was approximately 16% less than that in 1997.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the federal
capital of Buenos Aires. Its federal constitution provides for an executive
branch headed by a President, a legislative branch and a judicial branch. Each
province has its own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 69 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the 1980's.
The 1991 economic plan represented a pronounced departure from its predecessors
in calling for raising revenues, cutting expenditures and reducing the public
deficit. The extensive privatization program commenced in 1989 was accelerated,
the domestic economy deregulated and opened up to foreign trade and the
frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, inflation was brought under control and gross domestic
product has increased each year since 1991, with the exception of 1995. During
1998, gross domestic product increased 3.9% from 1997; however, it contracted by
an estimated 3.0% and 4.9% during the first and second quarters, respectively,
of 1999. The recent slowdown of economic activity has fostered a deflationary
process, evidenced by the 1.5% decrease in the consumer price index during the
first six months of 1999. Significant progress was also made between 1991 and
1994 in rescheduling Argentina's debt with both external and domestic creditors,
which improved fiscal cash flows in the medium term and allowed a return to
voluntary credit markets. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on Argentine bank deposits,
which was brought under control by a series of measures designed to strengthen
the financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been instrumental
in stabilizing the economy, but has not reduced pressures from high rates of
unemployment. It is not clear that the government will be able to resist
pressure to devalue the currency. However, the historic range is not necessarily
indicative of fluctuations that may occur in the exchange rate over time and
future rates of exchange cannot be accurately predicted. The Argentine foreign
exchange market was highly controlled until December 1989, when a free exchange
rate was established for all
62
<PAGE>
foreign currency transactions. Argentina has eliminated restrictions on foreign
direct investment and capital repatriation. In 1993, legislation was adopted
abolishing previous requirements of a three-year waiting period for capital
repatriation. Under the legislation, foreign investors are permitted to remit
profits at any time.
For more information about the Funds, the following documents are available upon
request:
Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
Each Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Funds' SAIs are
incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
or make inquiries concerning the Funds, by contacting your broker or other
financial intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the SEC at 1-202-942-8090 for information on the operation of the
Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the
Commission's Public Reference Section, Wash. DC 20549-0102
You also may find more information about Alliance and the Funds on the Internet
at: www.Alliancecapital.com.
Fund SEC File No.
Short-Term U.S. Government 811-05088
U.S. Government 811-02383
Limited Maturity Government 811-06627
Quality Bond 811-02383
Mortgage Securities Income 811-03829
Multi-Market Strategy 811-06251
North American Government Income 811-06554
Global Dollar Government 811-08188
Global Strategic Income 811-07391
Corporate Bond 811-02383
High Yield 811-9160
63
<PAGE>
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
QUALITY BOND PORTFOLIO
MORTGAGE SECURITIES INCOME FUND
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'. (If you are eligible for a reduced sales charge,
you must also complete Section 4F). 3 Check off a distribution option for
your dividends. 4 Check off a distribution option for your capital gains.
All distributions (dividends and capital gains) will be reinvested into
your fund account unless you direct otherwise. If you want distributions
sent directly to your bank account, then you must complete Section 4D and
attach a preprinted, voided check for that account. If you want your
distributions sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D. If more than one dividend direction
or monthly exchange is desired, please call our Literature Center to obtain a
Shareholder Account Services Options Form for completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
OR VISIT OUR WEBSITE AT:
WWW.ALLIANCECAPITAL.COM
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
* For TOD accounts, please check
Individual or Joint Account and attach
additional sheet of paper if necessary
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
_______________________________________________
e-mail address
91330TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS --
CASH AND MONEY ORDERS NOT ACCEPTED
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio and High Yield Fund.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
QUALITY BOND FUND
QUALITY BOND PORTFOLIO 104 204 304
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUND
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
91330TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP) - PERIODIC PURCHASES
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw ON MY BANK account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
91330TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I AUTHORIZE ALLIANCE TO TRANSACT PERIODIC REDEMPTIONS FROM MY FUND ACCOUNT
AND SEND THE PROCEEDS TO ME AS INDICATED BELOW.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
91330TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
91330TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
ALLIANCE CAPITAL
THE INVESTMENT PROFESSIONAL'S CHOICE
91330TABFAPP-P6
6
SIGNATURE CARD
MEDALLION SIGNATURE GUARANTEE (see reverse)
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
STATE STREET BANK AND TRUST COMPANY (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-72460 and 811-08188.
<PAGE>
The Registrant's Advisor Class Prospectus is incorporated herein
by reference to Part A of the Amendment to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
February 28, 1997.
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-72460 and 811-08188.
<PAGE>
LOGO]
ALLIANCE GLOBAL DOLLAR
GOVERNMENT FUND, INC.
____________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
____________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
____________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for Alliance Global Dollar Government Fund, Inc. (the
"Fund") that offers Class A, Class B and Class C shares of the
Fund, and if the Fund begins to offer Advisor Class shares, the
Prospectus that offers the Advisor Class shares of the Fund (the
"Advisor Class Prospectus" and, together with any Prospectus that
offers the Class A, Class B and Class C shares, the
"Prospectus(es)"). The Fund currently does not offer Advisor
Class shares. Copies of the Prospectus(es) of the Fund may be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund...................................
Management of the Fund....................................
Expenses of the Fund......................................
Purchase of Shares........................................
Redemption and Repurchase of Shares.......................
Shareholder Services......................................
Net Asset Value...........................................
Dividends, Distributions and Taxes........................
Portfolio Transactions....................................
General Information ......................................
Report of Independent Auditors and
Financial Statements....................................
Appendix A: Options...................................... A-1
Appendix B: Certain Employee Benefit Plans............... B-1
______________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE FUND
_______________________________________________________________
Alliance Global Dollar Government Fund, Inc (the "Fund")
is a non-diversified, open-end investment company. Except as
otherwise indicated, the investment policies of the Fund are not
"fundamental policies" and may, therefore, be changed by the
Board of Directors without a shareholder vote. However, the Fund
will not change its investment policies without contemporaneous
written notice to its shareholders. The Fund's investment
objectives may not be changed without shareholder approval.
There can be, of course, no assurance that the Fund will achieve
its investment objectives.
The Fund is a "non-diversified" investment company,
which means the Fund is not limited in the proportion of its
assets that may be invested in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to
qualify to be taxed as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the
"Code"), which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Taxes." To so
qualify, among other requirements, the Fund will limit its
investment so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the Fund's total assets will be
invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total
assets will be invested in the securities of a single issuer and
the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. The Fund's investments in U.S.
Government securities are not subject to these limitations.
Because the Fund is a non-diversified investment
company, it may invest in a smaller number of individual issuer
than a diversified investment company, and an investment in such
Fund may, under certain circumstances, present greater risk to an
investor than an investment in a diversified investment company.
Foreign government securities are not treated like U.S.
Government securities for purposes of the diversification tests
described in the preceding paragraph, but instead are subject to
these tests in the same manner as the securities of non-
governmental issuers. In this regard sovereign debt obligations
issued by different issuers located in the same country are often
treated as issued by a single issuer for purposes of these
diversification tests. Certain issuers of structured securities
and loan participations may be treated as separate issuers for
the purposes of these tests.
2
<PAGE>
Investment Objectives
The Fund's primary investment objective is to seek a
high level of current income. Its secondary investment objective
is capital appreciation. In seeking to achieve these objectives,
the Fund will invest at least 65% of its total assets in debt
obligations issued or guaranteed by foreign governments,
including participations in loans between foreign 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"). The Fund's investments in
Sovereign Debt Obligations will emphasize obligations of a type
customarily referred to as "Brady Bonds" that are issued as part
of debt restructurings and that are collateralized in full as to
principal due at maturity by zero coupon obligations issued by
the U.S. government, its agencies or instrumentalities
("Collateralized Brady Bonds"). The Fund may also invest up to
35% of its total assets in U.S. and non-U.S. corporate fixed
income securities. The Fund will limit its investments in
Sovereign Debt Obligations and U.S. and non-U.S. corporate fixed
income securities to U.S. dollar denominated securities.
How The Fund Pursues Its Objectives
General. With respect to its investments in Sovereign
Debt Obligations and non-U.S. corporate fixed-income securities,
the Fund will emphasize investments in countries that are
considered 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 (the "World Bank"). The Fund anticipates that a
substantial part of its initial investment focus will be in the
U.S. dollar denominated securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines and Venezuela because
these countries are now, or are expected by Alliance Capital
Management L.P., the Fund's investment adviser (the "Adviser"),
at a future date to be, the principal participants in debt
restructuring programs (including, in the case of Argentina,
Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in the Adviser's opinion, will
provide the most attractive investment opportunities for the
Fund. The Adviser anticipates that other countries that will
provide initial investment opportunities for the Fund include,
among others, Bolivia, Costa Rica, the Dominican Republic,
Ecuador, Nigeria, Panama, Peru, Poland, Thailand, Turkey and
Uruguay. See "--Brady Bonds" below.
The Fund may invest up to 30% of its total assets in the
Sovereign Debt Obligations and corporate fixed-income securities
3
<PAGE>
of issuers in any one of Argentina, Brazil, Mexico, Morocco, the
Philippines or Venezuela, and the Fund will limit investments in
the Sovereign Debt Obligations of each such country (or of any
other single foreign country) to less than 25% of its total
assets. The Fund expects that it will not invest more than 10%
of its total assets in the Sovereign Debt Obligations and
corporate fixed-income securities of issuers in any other single
foreign country. At present, each of the above-named countries
is an "emerging market country."
In selecting and allocating assets among countries, the
Adviser will develop a long-term view of those countries and will
analyze 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.
In selecting and allocating assets among corporate issuers within
a given country, the Adviser will consider the relative financial
strength of issuers and expects to emphasize investments in
securities of issuers that, in the Adviser's opinion, are
undervalued within each market sector. The Fund is not required
to invest any specified minimum amount of its total assets in the
securities or obligations of issuers located in any particular
country.
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 will not be traded on a securities exchange. The U.S.
and non-U.S. corporate fixed-income securities held by the Fund
will include debt securities, convertible securities and
preferred stocks of corporate issuers. The Fund will not be
subject to restrictions on the maturities of the securities it
holds. The Adviser expects that, based upon current market
conditions and following the investment of the proceeds of this
offering in accordance with the Fund's investment objectives and
policies, the Fund's portfolio of U.S. fixed-income securities
will have an average maturity range of approximately 9 to 15
years and the Fund's portfolio of non-U.S. fixed-income
securities will have an average maturity range of approximately
15 to 25 years. The Adviser anticipates that the Fund's
portfolio of Sovereign Debt Obligations will have a longer
average maturity.
Substantially all of the Fund's assets will be invested
in high yield, high risk debt securities that are low-rated
(i.e., rated below Baa by Moody's Investors Service, Inc.
("Moody's") or below BBB by Standard & Poor's Ratings Services
("S&P")), or of comparable quality as determined by the Adviser
4
<PAGE>
and unrated, and that are considered to be predominantly
speculative as regards the issuer's capacity to pay interest and
repay principal. See "Special Risk Considerations--Investments
in Lower Rated and Unrated Instruments."
A substantial portion of the Fund's investments will be
in (i) securities which were initially issued at discounts from
their face values ("Discount Obligations") and (ii) securities
purchased by the Fund at a price less than their stated face
amount or, in the case of Discount Obligations, at a price less
than their issue price plus the portion of "original issue
discount" previously accrued thereon, i.e., purchased at a
"market discount." Under current federal tax law and in
furtherance of its primary investment objective of seeking high
current income, the Fund will accrue 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 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 illiquid securities
may be accentuated at such times. The Fund believes however,
that it is highly unlikely that it would be necessary to
liquidate portfolio securities in order to make such required
distributions or to meet its primary investment objective of high
current income. See "Additional Investment Policies and
Practices--Illiquid Securities."
Brady Bonds. As noted above, a significant portion of
the Fund's portfolio will consist of debt obligations customarily
referred to as "Brady Bonds" which are created through the
exchange of existing commercial bank loans to foreign entities
for new obligations in connection with debt restructurings under
a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Certain Brady Bonds are collateralized in full as to principal
due at maturity by zero coupon obligations issued or guaranteed
by the U.S. Government, its agencies, or instrumentalities having
the same maturity ("Collateralized Brady Bonds").
5
<PAGE>
Dollar-denominated, Collateralized Brady Bonds, which
may be fixed rate bonds or floating rate 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 Brady Bonds are often
collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of
rolling interest payments based on the applicable interest rate
at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady
Bonds are often viewed as having three or four valuation
components: (i) 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.
Brady Plan debt restructurings totaling more than $120
billion have been implemented to date in Argentina, Bolivia,
Brazil, Costa Rica, the Dominican Republic, Ecuador, Mexico,
Nigeria, the Philippines, 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,
Nigeria, the Philippines and Uruguay have to date issued
Collateralized Brady Bonds. Thus, at the present time Argentina,
Bolivia, Brazil, the Dominican Republic, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela are the only countries which
have issued Collateralized Brady Bonds.
6
<PAGE>
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 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.
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 under
"Additional Investment Policies-Investment in Other Investment
Companies."
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 (i.e.,
foreign government). The Fund's investment in Participations
typically will result in the Fund having a contractual
7
<PAGE>
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 to do so it will have to
assign such securities to a third party. Because there is no
liquid market for such securities, the Fund anticipates that such
securities could be sold only to a limited number of
institutional investors. 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
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
8
<PAGE>
securities for purposes of valuing the Fund's portfolio and
calculating its asset value.
U.S. and Non-U.S. Corporate Fixed-Income Securities.
U.S. and non-U.S. corporate fixed-income securities include debt
securities, convertible securities and preferred stocks of
corporate issuers. Differing yields on fixed-income securities
of the same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher yields
are generally available from securities in the lower rating
categories. When the spread between the yields of lower rated
obligations and those of more highly rated issues is relatively
narrow, the Fund may invest in the latter since they may provide
attractive returns with somewhat less risk. The Fund expects to
invest in investment grade securities (i.e. securities rated Baa
or better by Moody's or BBB or better by S&P) and in high yield,
high risk lower rated securities (i.e., securities rated lower
than Baa by Moody's or BBB by S&P) and in unrated securities of
comparable credit quality. Unrated securities will be considered
for investment by the Fund when the Adviser believes that the
financial condition of the issuers of such obligations and the
protection afforded by the terms of the obligations themselves
limit the risk to the Fund to a degree comparable to that of
rated securities which are consistent with the Fund's investment
objectives and policies. See "Certain Risk Considerations" for a
discussion of the risks associated with the Fund's investments in
U.S. and non-U.S. corporate fixed-income securities.
Defensive Position. For temporary defensive purposes,
the Fund may vary from its investment policies during periods in
which the Adviser believes that conditions warrant and invest
without limit in (i) debt securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities ("U.S.
Government Securities") and (ii) the following U.S. dollar-
denominated investments: (a) indebtedness rated Aa or better by
Moody's or AA or better by S&P, or if not so rated, of equivalent
investment quality as determined by the Adviser, (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 A-1 or better by
S&P or Prime 1 or better by Moody's or, if not so rated issued by
companies which have an outstanding debt issue rated AA or better
by S&P or Aa or better by Moody's. The Fund may also at any
time, with respect to up to 35% of its total assets, temporarily
invest funds awaiting reinvestment or held for reserves for
dividends and other distributions to shareholders in such U.S.
dollar-denominated money market instruments.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps Credit Rating Co.
9
<PAGE>
("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Additional Investment Policies and Practices
The following additional investment policies supplement
those set forth in the Prospectus.
Illiquid Securities. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.
The Fund will not maintain more than 15% of its net
assets (taken at market value) in illiquid securities. For this
purpose, illiquid securities include, among others (a) direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) over-the-
counter options purchased or written by the Fund and all assets
used to cover written over-the-counter options, and
(c) repurchase agreements not terminable within seven days.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended ("Securities Act") and securities which are
otherwise not readily marketable. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
10
<PAGE>
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements, foreign
securities and corporate bonds. Institutional investors depend
on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor
a demand for repayment. The fact that there are contractual or
legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest up to 5% of its net assets (taken at
market value) in restricted securities issued under Section 4(2)
of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering."
Section 4(2) instruments are restricted in the sense that they
can only be resold through the issuing dealer and only to
institutional investors; they cannot be resold to the general
public without registration.
Securities eligible for resale under Rule 144A of the
Securities Act that have legal or contractual restrictions on
resale but have a readily available market are not deemed
illiquid for purposes of this limitation. More specifically,
Rule 144A allows a broader institutional trading market for
securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of
certain securities to qualified institutional buyers. An
insufficient number of qualified institutional buyers interested
in purchasing certain restricted securities held by the Fund,
however, could affect adversely the marketability of such
portfolio securities and the Fund might be unable to dispose of
such securities promptly or at reasonable prices. Rule 144A has
already produced enhanced liquidity for many restricted
securities, and market liquidity for such securities may continue
to expand as a result of this regulation and the consequent
inception of the PORTAL System sponsored by the National
Association of Securities Dealers, Inc., an automated system for
the trading, clearance and settlement of unregistered securities
of domestic and foreign issuers.
The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the security;
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(5) the nature of the security (including its unregistered
nature) and the nature of the marketplace for the security (e.g.,
the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (6) any
applicable Securities and Exchange Commission (the "Commission")
interpretation or position with respect to such type of
securities.
Investment in Other Investment Companies. The Fund may
invest in other investment companies whose investment objectives
and policies are consistent with those of the Fund. 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).
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 the
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.
Interest Rate Transactions. The Fund may, without
limit, enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund expects to enter into
these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may
also enter into these transactions to protect against any
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increase in the price of securities the Adviser anticipates
purchasing for the Fund 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 such
interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling
such interest rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its
liabilities, and will usually enter into interest rate swaps on a
net basis, (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect
to each interest rate swap will be accrued daily, and an amount
of liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated
account by the Custodian. If the Fund enters into an interest
rate swap on other than a net basis, the Fund will maintain a
segregated account with the Custodian in the full amount, accrued
daily, of the Fund's obligations with respect to the swap. The
Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in the highest rating
category of at least one nationally recognized statistical rating
organization. The Adviser will monitor the creditworthiness of
counterparties on an ongoing basis. If there were a default by
such a counterparty, the Fund will have contractual remedies.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. The Adviser has determined that, as a result, the
swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid
than swaps. To the extent the Fund sells (i.e., writes) caps and
floors it will maintain in a segregated account with the
Custodian liquid assets having an aggregate net asset value at
least equal to the full amount, accrued on a daily basis, of the
Fund's obligations with respect to any caps or floors.
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Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, 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 will record the transaction and thereafter
reflect the value of the security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be
canceled in the event that the required condition did not occur
and the trade was canceled.
The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond princes, the Fund might sell securities in its portfolio on
a forward commitment basis to limit its exposure to falling
prices. In periods of falling interest rates and rising bond
prices, the Fund might sell a security in its portfolio and
purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Fund might be required to complete such when-issued or
forward transactions at prices inferior to the then current
market values. No forward commitments will be made by the Fund
if, as a result, the Fund's aggregate commitments under such
transactions would be more than 30% of the then current value of
the Fund's total assets.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Custodian
will maintain, in a segregated account of the Fund, liquid assets
having value equal to, or greater than, any commitments to
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purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to receive or deliver a
security subject to a forward commitment prior to the settlement
date of the transaction, it 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 brokers, dealers and
financial institutions provided that cash and/or liquid high-
grade debt securities, or bank letters of credit equal to at
least 100% of the market value of the securities loaned are
deposited and maintained by the borrower with the Fund. The
risks in lending portfolio securities, as with other extensions
of credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to
lend securities to a particular borrower, the Adviser (subject to
review by the Board of Directors) will consider all relevant
facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay
the Fund any income earned thereon and the Fund may invest any
cash collateral in portfolio securities, thereby earning
additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. The
Fund will have the right to regain record ownership of loaned
securities or equivalent securities in order to exercise
ownership rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. The Fund
may pay reasonable finders, administrative and custodial fees in
connection with a loan. The Fund will not lend portfolio
securities in excess of 20% of the value of its total assets, nor
will the Fund lend its portfolio securities to any officer,
director, employee or affiliate of the Fund or the Adviser. The
Board of Directors will monitor the Fund's lending of portfolio
securities.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to the types of securities in
which it invests with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in such securities. There is no percentage
restriction on the Fund's ability to enter into repurchase
agreements. The Fund may enter into repurchase agreements with
the Custodian and such primary dealers. The Fund currently
enters into repurchase agreements only with its custodians and
such primary dealers. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to
the vendor at an agreed-upon future date, normally one day or a
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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. 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 its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the Fund
enters into repurchase agreement transactions.
Repurchase agreements may exhibit the characteristics of
loans by the Fund. During the term of the repurchase agreement,
the Fund retains the security subject to the repurchase agreement
as collateral securing the seller's repurchase obligation,
continually monitors on a daily basis the market value of the
security subject to the agreement and requires the seller to
deposit with the Fund collateral equal to any amount by which the
market value of the security subject to the repurchase agreement
falls below the resale amount provided under the repurchase
agreement.
Reverse Repurchase Agreements and Dollar Rolls. The
Fund may borrow through the use of 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
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<PAGE>
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.
The Fund will establish a segregated account with its
custodian in which it will maintain liquid assets equal in value
to its obligations in respect of reverse repurchase agreements
and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities the Fund
is obligated to repurchase under the agreement may decline below
the repurchase price. In the event the buyer of securities under
a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds
of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the
Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are
speculative techniques and are considered borrowings by the Fund.
Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage of at least 300% of all borrowings.
Reverse repurchase agreements and dollar rolls, together with any
borrowings by the Fund, will not exceed 33% of the Fund's total
assets, less liabilities (other than amounts borrowed). See
"Special Borrowing Considerations."
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 which 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 or not the security is
ultimately issued, which is typically approximately 0.5% of the
aggregate purchase price of the security which the Fund has
committed to purchase. The fee is payable whether or not the
security is ultimately issued. The Fund will enter into such
agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which are
considered advantageous to the Fund and which 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 such commitments will
not exceed 20% of its assets taken at the time of acquisition of
such commitment of security. The Fund will at all times maintain
a segregated account with its Custodian of liquid assets in an
aggregate amount equal to the purchase price of the securities
underlying the commitment.
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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 will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Short Sales. The Fund may make short sales of
securities or maintain a short position only for the purpose of
deferring realization of gain or loss for U.S. federal income tax
purposes, provided that at all times when a short position is
open the Fund owns an equal amount of such securities of the same
issue as, and equal in amount to, the securities sold short. In
addition, the Fund may not make a short sale if more than 10% of
the Fund's net assets (taken at market value) is held as
collateral for short sales at any one time. If the price of the
security sold short increases between the time of the short sale
and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund
will realize a capital gain. See "Certain Fundamental Investment
Policies." See "Dividends, Distributions and Taxes-Tax Straddles"
for a discussion of certain special federal income tax
considerations that may apply to short sales which are entered
into by the Fund.
Options. The Fund may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges. 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.
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
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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 and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid
assets in a segregated account with the Custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with the Custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, 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. It would realize a
loss if the price of the underlying security increased or
remained the same or did not decrease during that period by more
than the amount of the premium. If a put or call option
purchased by the Fund were permitted to expire without being sold
or exercised, its premium would be lost by the Fund.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security, and is designed to provide
a hedge against a decline in value in another security which the
Fund owns or has the right to acquire. In such circumstances,
the Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Custodian liquid
assets in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would
write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received
from the cross-hedge transaction would exceed that which would be
received from writing a covered call option, while at the same
time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
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price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
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 caused by rising interest rates or
other factors. 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 caused by declining interest rates or other factors. 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. See Appendix A for a discussion of the use,
risks and costs of option trading.
The Fund may purchase or write options on securities of
the types in which it is permitted to invest in privately
negotiated (i.e., over-the-counter) transactions. The Fund will
effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and
loan institutions) deemed creditworthy by the Adviser, and the
Adviser has adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to do so.
See "Illiquid Securities."
Options on Securities Indices. The Fund may purchase
and sell exchange-traded options on any securities index composed
of the types of securities in which it may invest. 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
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the case of a put) the exercise price of the option. There are
no specific limitations on the Fund's purchasing and selling of
options on securities indices.
Through the purchase of listed index options, the Fund
could achieve many of the same objectives as through the use of
options on individual securities. Price movements in the Fund's
portfolio securities probably will not correlate perfectly with
movements in the level of the index and, therefore, the Fund
would bear a risk of loss on index options purchased by it if
favorable price movements of the hedged portfolio securities do
not equal or exceed losses on the options or if adverse price
movements of the hedged portfolio securities are greater than
gains realized from the options.
U.S. Government Securities. U.S. Government securities
may be backed by the full faith and credit of the United States,
supported only by the right of the issuer to borrow from the U.S.
Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S.
Treasury securities, which are backed by the full faith and
credit of the United States and differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence
issued at a discount and repaid at full face value upon
maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds
(generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are
supported by the full faith and credit of the U.S. Government,
such as securities issued by GNMA, the Farmers Home
Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and
the Small Business Administration; and (iii) obligations issued
or guaranteed by U.S. government agencies and instrumentalities
that are not supported by the full faith and credit of the U.S.
Government, such as securities issued by FNMA and FHLMC, and
governmental collateralized mortgage obligations ("CMOs"). The
maturities of the U.S. Government securities listed in paragraphs
(i) and (ii) above usually range from three months to 30 years.
Such securities, except GNMA certificates, normally provide for
periodic payments of interest in fixed amount with principal
payments at maturity or specified call dates.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain Stripped
Mortgage-Related Securities ("SMRS"). In addition, other U.S.
Government agencies and instrumentalities have issued stripped
securities that are similar to SMRS. Such securities include
those that are issued with an IO class and a PO Class. Although
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these stripped securities are purchased and sold by institutional
investors through several investment banking firms acting as
brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies
or instrumentalities guarantee only the payment of principal and
interest on the securities, and do not guarantee the securities'
yield or value or the yield or value of the shares of the Fund
that holds the securities.
U.S. Government securities are considered among the
safest of fixed-income investments. As a result, however, their
yields are generally lower than the yields available from other
fixed-income securities.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skills and
experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate 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 an 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 prices of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in
options, interest rate transactions and forward commitment
contracts will depend on the availability of liquid markets in
such instruments. Markets for all these vehicles with respect to
a number of fixed-income securities are relatively new and still
developing. If, for example, a secondary market does not exist
with respect to an option purchased or written by the Fund over-
the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be
exercised in order for the Fund to realize any profit and
(ii) the Fund may not be able to sell portfolio securities
covering an option written by the Fund until the option expires.
Therefore, no assurance can be given that the Fund will be able
to utilize these instruments effectively for the purposes set
forth above.
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
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incidence of short-term capital gain taxable as ordinary income.
The Adviser anticipates that the annual turnover in the Fund will
not be in excess of 500%. An annual turnover rate of 500%
occurs, for example, when all of the securities in the Fund's
portfolio are replaced five times in a period of one year. Such
high rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. See "Dividends, Distributions and
Taxes" and "General Information -- Portfolio Transactions."
Special Borrowing Considerations
Effects of Borrowing. The Fund may borrow to repurchase
its shares or to meet redemption requests. While the Fund does
not presently intend to do so, the Fund reserves the right to
borrow from a bank unaffiliated with either the Fund or the
Adviser an amount of money not to exceed one-third of the Fund's
total assets less liabilities (other than the amount borrowed).
The Fund anticipates that the loan agreement relating to any
borrowings would provide for additional borrowings and for
repayments at such times and in such amounts as will maintain
investment leverage in an amount approximately equal to its
borrowing target. It is anticipated that the loan agreement
would provide for a selection of interest rates that are based on
the bank's short-term funding costs in the U.S. and London
markets.
Borrowings by the Fund will result in leveraging of the
Fund's shares of common stock. The proceeds of borrowings by the
Fund will be invested in accordance with the Fund's investment
objectives and policies. The Fund would borrow when the Adviser
anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense paid by the Fund on
borrowings.
Utilization of leverage, however, involves certain risks
to the Fund's shareholders. These include a higher volatility of
the net asset value of the Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares.
So long as the Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense
paid on borrowings, the effect of leverage will be to cause the
Fund's shareholders to realize a higher current net investment
income than if the Fund were not leveraged. To the extent that
the interest expense on borrowings approaches the net return on
the Fund's investment portfolio, the benefit of leverage to the
Fund's shareholders will be reduced, and if the interest expense
on borrowings were to exceed the net return to shareholders, the
Fund's use of leverage would result in a lower rate of return
than if the Fund were not leveraged. Similarly, the effect of
leverage in a declining market could be a greater decrease in net
23
<PAGE>
asset value per share than if the Fund were not leveraged. In an
extreme case, if the Fund's current investment income were not
sufficient to meet the interest expense on borrowings, it could
be necessary for the Fund to liquidate certain of its
investments, thereby reducing the net asset value of the Fund's
shares.
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is "asset
coverage", as that term is defined and used in the 1940 Act, of
at least 300% for all borrowings of the Fund. In addition, under
the 1940 Act, in the event asset coverage falls below 300%, the
Fund must within three days reduce the amount of its borrowing to
such an extent that the asset coverage of its borrowings is at
least 300%. Under the Fund's proposed capital structure,
assuming, for example, outstanding borrowings representing not
more than one-third of the Fund's total assets less liabilities
(other than such borrowings), the asset coverage of the Fund's
portfolio would be 300%. The Fund will maintain asset coverage
of outstanding borrowings of at least 300% and if necessary will,
to the extent possible, reduce the amounts borrowed by making
repayments from time to time in order to do so. Such repayments
could require the Fund to sell portfolio securities at times
considered disadvantageous by the Adviser. In the event that the
Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the
Fund to incur related transaction costs and might cause the Fund
to realize taxable gains. See "Dividends, Distributions and
Taxes."
Other Borrowings. The Fund may also borrow to
repurchase its shares or to meet redemption requests. In
addition, the Fund may borrow for temporary purposes (including
the purposes mentioned in the preceding sentence) in an amount
not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300%
asset average limit described above. See "Fundamental Investment
Policies." The Fund may also borrow through the use of reverse
repurchase agreements and dollar rolls to the extent permitted by
the 1940 Act. See "Investment Objectives and Policies--Reverse
Repurchase Agreements and Dollar Rolls."
Certain Risk Considerations
Investments in Lower-Rated and Unrated Instruments.
Substantially all of the Fund's assets will be invested in high
yield, high risk debt securities that are rated in the lower
rating categories (i.e., below investment grade) or which are
unrated but are of comparable quality as determined by the
Adviser. Debt securities rated below investment grade are those
rated Ba or lower by Moody's or BB or lower by S&P and are
24
<PAGE>
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. The
Fund may invest in securities having the lowest ratings for non-
subordinated debt instruments assigned by Moody's, or S&P, Duff &
Phelps or Fitch (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and in unrated securities of comparable
investment quality. These securities are considered to have
extremely poor prospects of ever attaining any real investment
standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and
repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal.
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, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities. 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, the Adviser 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. Under the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, federally-insured savings and loan
associations were required to divest their investments in non-
investment grade corporate debt securities by July 1, 1994. Such
divestiture could have a material adverse effect on the market
and prices of such securities.
Many fixed-income securities, including certain U.S.
corporate fixed-income securities in which the Fund may invest,
contain call or buy-back features which permit the issuer of the
security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such
25
<PAGE>
a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security,
resulting in a decreased rate of return for the Fund.
Ratings of fixed-income securities by Moody's, S&P, Duff
& Phelps and Fitch are a generally accepted barometer of credit
risk. They are, however, subject to certain limitations from an
investor's standpoint. The rating of a security 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 the
credit risk of securities within each rating category.
Non-rated securities will also be considered for
investment by the Fund when the Adviser believes that the
financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Fund to a degree comparable to that of
rated securities which are consistent with the Fund's objectives
and policies.
The Adviser will try to reduce the risk inherent in its
investment approach through credit analysis, diversification and
attention to current developments and trends in interest rates
and economic and political conditions. However, there can be no
assurance that losses will not occur. Since the risk of default
is higher for lower-quality securities, the Adviser's research
and credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would be
the case if the Fund did not invest in lower-rated securities. In
considering investments for the Fund, the Adviser 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. The Adviser'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 investment objectives,
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.
26
<PAGE>
U.S. Corporate Fixed-Income Securities. The U.S.
corporate fixed-income securities in which the Fund will invest
may include securities issued in connection with corporate
restructurings such as takeovers or leveraged buyouts, which may
pose particular risks. Securities issued to finance corporate
restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers
may lose experienced management as a result of the restructuring.
Finally, the market price of such securities may be more volatile
to the extent that expected benefits from the restructuring do
not materialize. The Fund may also invest in U.S. corporate
fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as the Adviser
believes such investment is consistent with the Fund's investment
objectives. The Fund's rights with respect to defaults on such
securities will be subject to applicable U.S. bankruptcy,
moratorium and other similar laws.
Risks of Investments In Foreign Securities. Foreign
issuers are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a foreign issuer
may not reflect its financial position or results of operations
in the way they would be reflected had the financial statement
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 assets and
liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits.
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.
Expropriation, confiscatory taxation, nationalization,
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 the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities 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
27
<PAGE>
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 other than those on which the Fund
will focus its investments 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 local
markets may require the portfolio to adopt special procedures,
seek local governmental approvals or take other actions, each of
which may involve additional costs to the Fund.
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.
Sovereign Debt Obligations. No established secondary
markets may exist for many of the Sovereign Debt Obligations in
which the Fund will invest. Reduced secondary market liquidity
may have an adverse effect on the market price and the Fund's
ability to dispose of particular instruments when necessary to
meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness
of the issuer. Reduced secondary market liquidity for certain
Sovereign Debt Obligations may also make it more difficult for
the Fund to obtain accurate market quotations for the purpose of
valuing its portfolio. Market quotations are generally available
on many Sovereign Debt Obligations only from a limited number of
dealers and may not necessarily represent firm bids of those
dealers or prices for actual sales.
By investing in Sovereign Debt Obligations, the Fund
will be exposed to the direct or indirect consequences of
political, social and economic changes in various countries.
Political changes in a country may affect the willingness of a
28
<PAGE>
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 will invest in most cases pertain to countries
that are among the world's largest debtors to commercial banks,
foreign governments, international financial organizations and
other financial institutions. In recent years, the governments
of some of these countries have encountered difficulties in
servicing their external debt obligations, which led to defaults
on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included, among
other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or
converting outstanding principal and unpaid interest to Brady
Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of
interest on or principal of Sovereign Debt Obligations as those
payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and
political and social stability of those issuers.
Central banks and other governmental authorities which
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, the 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 could be
adversely affected in the course of restructuring arrangements or
by certain other factors referred to below. Furthermore, some of
the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the
29
<PAGE>
terms of these arrangements and may therefore have access to
information not available to other market participants.
The ability of governments to make timely payments on
their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and
its access to international credits and investments. A country
whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or
more of those commodities. 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 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 in its
Sovereign Debt Obligations.
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 the Adviser believes it
to be consistent with the Fund's investment objectives. The Fund
may have limited legal recourse in the event of a default with
respect to certain Sovereign Debt Obligations it holds. For
example, remedies from defaults on certain Sovereign Debt
Obligations, unlike those on private debt, must, in some cases,
be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of
Sovereign Debt Obligations may be substantially different from
those applicable to issuers of private debt obligations. The
political context, expressed as the willingness of an issuer of
30
<PAGE>
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.
Non-Diversified Status. The Fund is a "non-diversified"
investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities
of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company"
for purposes of the Code, which will relieve the Fund of any
liability for federal income tax to the extent its earnings are
distributed to shareholders. See "Dividends, Distributions and
Taxes." To so qualify, among other requirements, the Fund will
limit its investments so that, at the close of each quarter of
the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. The Fund's investments in
U.S. Government Securities are not subject to these limitations.
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 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.
Debt Securities. The net asset value of the Fund's
shares will change as the general levels of interest rates
fluctuate. When interest rates decline, the value of a portfolio
primarily invested in debt securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio
primarily invest in debt securities can be expected to decline.
Certain debt securities in which the Fund may invest are
floating-rate debt securities. To the extent that the Fund does
not enter into interest rate swaps with respect to such floating-
31
<PAGE>
rate debt securities, the Fund may be subject to greater risk
during periods of declining interest rates.
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices which are not at present contemplated for use by the
Fund or anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense by the Fund on
borrowing.
1940 Act Restrictions
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is "asset
coverage," as that term is defined and used in the 1940 Act, of
at least 300% for all borrowings of the Fund. In addition, under
the 1940 Act, in the event asset coverage falls below 300%, the
Fund must within three days reduce the amount of its borrowing to
such an extent that the asset coverage of its borrowings is at
least 300%. Assuming, for example, outstanding borrowings
representing not more than one-third of the Fund's total assets
less liabilities (other than such borrowings), the asset coverage
of the Fund's portfolio would be 300%; while outstanding
borrowings representing 25% of the Fund's total assets less
liabilities (other than such borrowings), the asset coverage of
the Fund's portfolio would be 400%. The Fund will maintain asset
coverage of outstanding borrowings of at least 300% and if
necessary will, to the extent possible, reduce the amounts
borrowed by making repayments from time to time in order to do
so. Such repayments could require the Fund to sell portfolio
securities at times considered disadvantageous by the Adviser and
such sales could cause the Fund to incur related Transaction
costs and to realize taxable gains.
Under the 1940 Act, the Fund may invest not more than
10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Fund may not own
more than 3% of the total outstanding voting stock of any
investment company and not more than 5% of the value of the
Fund's total assets may be invested in the securities of any
investment company.
Certain Fundamental Investment Policies
The Fund has adopted fundamental investment policies
listed below which may not be changed without the approval of its
shareholders, which means the affirmative vote of the holders of
(i) 67% or more or the shares represented at a meeting at which
more than 50% of the outstanding shares are represented, or
(ii) more than 50% of the outstanding shares, whichever is less.
Whenever any investment restriction states a maximum percentage
32
<PAGE>
of the Fund's assets which may be invested in any security or
other asset, it is intended that such maximum percentage
limitation be determined immediately after and as a result of the
Fund's acquisition of such securities or other assets.
Accordingly, any later increases or decreases in percentage
beyond the specified limitation resulting from a change in values
or net assets will not be considered a violation.
The Fund may not:
(1) invest 25% or more of its total assets in the
securities of issuers conducting their principal business
activities in any one industry, except that this restriction does
not apply to U.S. Government Securities;
(2) purchase more than 10% of any class of the voting
securities of any one issuer;
(3) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing, there is asset coverage of at least 300% as
defined in the 1940 Act, (b) borrow for temporary or emergency
purposes in an amount not exceeding 5% of the value of the total
assets of the Fund (borrowings for temporary purposes are not
subject to the 300% asset average limit described above. See
"1940 Act Restrictions"); and (c) enter into reverse repurchase
agreements and dollar rolls;
(4) pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;
(5) purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Fund would own more than 3% of the total
outstanding voting stock of any investment company or more than
5% of the value of the Fund's net assets would be invested in
securities of any one or more investment companies;
(6) Make loans except through (i) the purchase of debt
obligation in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;
(7) Participate on a joint or joint and several basis
in any securities trading account;
(8) Invest in companies for the purpose of exercising
control;
(9) Issue any senior security within the meaning of the
1940 Act except that the Fund may (i) in accordance with the
33
<PAGE>
provisions of the 1940 Act (a) borrow money from a bank, if after
such borrowing, there is asset coverage of at least 300% as
defined in the 1940 Act and (b) borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund; and (ii) write put and call
options;
(10) Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short ("short sales against the
box"), and unless not more than 10% of the Fund's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Fund's present intention to make such
sales only for the purpose of deferring realization or gain or
loss for Federal income tax purposes); or
(11) (i) Purchase or sell real estate, except that it
may purchase and sell securities or companies which deal in real
estate or interests therein; (ii) purchase or sell commodities or
commodity contracts, including futures contracts (except forward
commitment contracts or contracts for the future acquisition or
delivery of debt securities); (iii) invest in interests in oil,
gas, or other mineral exploration or development programs;
(iv) purchase securities on margin, except for such short-term
credits as may be necessary for the clearance of transactions;
and (v) act as an underwriter of securities, except that the Fund
may acquire restricted securities under circumstances in which,
if such securities were sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
Directors and Officers
The business and affairs of the Fund are managed under
the direction of the Board of Directors. The Directors and
officers of the Fund, their ages and their principal occupations
during the past five years are set forth below. Each such
Director and officer is also a director, trustee or officer of
other registered investment companies sponsored by the Adviser.
Unless otherwise specified, the address of each of the following
persons is 1345 Avenue of the Americas, New York, New York 10105.
34
<PAGE>
Directors
JOHN D. CARIFA,* 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 67, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 75, has been President of the Harry
Frank Guggenheim Foundation, with which he has been associated
since prior to 1994. He was formerly President of New York
University, the New York Botanical Garden and Rector of the
United Nations University. His address is 25 Cleveland Lane,
Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 60, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
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<PAGE>
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, Chairman, (see biography, under
"Directors" section, above).
WAYNE D. LYSKI, President, 58, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
PAUL J. DENOON, Vice President, 37, is a Senior Vice
President of ACMC, with which he has been associated since 1994.
VICKI L. FULLER, Vice President, 42, has been a Senior
Vice President of ACMC, with which she has been associated since
prior to 1994.
EDMUND P. BERGAN, JR., Secretary, 49, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 45, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto he was a Vice
President and Assistant Secretary of Delaware Management Company,
Inc. since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 38 is a Vice
President and Assistant General Counsel of AFD, with which he
has been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1994.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
49, is a Senior Vice President of AFS and a Vice President of
AFD, with which he has been associated since prior to 1994.
JUAN RODRIGUEZ, Controller, 42, is a Vice President of
AFS, with which he has been associated since prior to 1994.
36
<PAGE>
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended August 31, 1999, the
aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
Total
Number of
Investment Total Number
Companies in of Investment
the Alliance Portfolios Within
Total Fund Complex, the Alliance
Compensation Including the Fund Complex,
from the Fund, as to Including the
Alliance Fund which the Fund, as to which
Aggregate Complex, Director is the Director is a
Compensation Including a Director Director or
Name of Director From the Fund the Fund or Trustee Trustee
________________ _____________ _____________ _____________ _________________
John D. Carifa $____ $-0- 50 116
Ruth Block $3,467 $180,763 37 79
David H. Dievler $3,584 $216,288 44 86
John H. Dobkin $3,586 $185,363 42 97
William H. Foulk, Jr. $3,587 $241,003 45 111
Dr. James M. Hester $3,589 $172,913 38 80
Clifford L. Michel $3,589 $187,763 39 96
Donald J. Robinson $2,833 $193,709 41 105
As of October 8, 1999, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
37
<PAGE>
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international adviser managing
client accounts with assets as of September 30, 1999 totaling
more than $317 billion (of which more than $143 billion
represented assets of investment companies). As of September 30,
1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 28
of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide.
The 52 registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
approximately 4.8 million shareholder accounts.
<PAGE>
Alliance Capital Management Corporation ("ACMC")
is the general partner of the Adviser and a wholly owned
subsidiary of The Equitable Life Assurance Society of
the United States ("Equitable"). Equitable, one of the
largest life insurance companies in the United States,
is the beneficial owner of an approximately 55.4%
partnership interest in the Adviser. Alliance Capital
Management Holding L.P. ("Alliance Holding") owns an
approximately 41.9% partnership interest in the Adviser.*
Equity interests in Alliance Holding are traded on the
New York Stock Exchange in the form of units.
Approximately 98% of such interests are owned by the
public and management or employees of the Adviser and
approximately 2% are owned by Equitable. Equitable is a
wholly owned subsidiary of AXA Financial, Inc.
("AXA Financial"), a Delaware corporation whose shares
are traded on the New York Stock Exchange. AXA Financial
serves as the holding company for the Adviser, Equitable
and Donaldson, Lufkin & Jenrette, Inc., an integrated
investment and merchant bank. As of June 30, 1999, AXA,
a French insurance holding company, owned approximately
58.2% of the issued and outstanding shares of common
stock of AXA Financial.
________________________
* Until October 29, 1999, Alliance Holding served as
the investment adviser to the Fund. On that date,
Alliance Holding reorganized by transferring its business
to the Adviser. Prior thereto, the Adviser had no
material business operations. One result of the
reorganization was that the Advisory Agreement, then
between the Fund and Alliance Holding, was transferred
to the Adviser by means of a technical assignment, and
ownership of Alliance Fund Distributors, Inc. and Alliance
Fund Services, Inc., the Fund's principal underwriter and
transfer agent, respectively, also was transferred to
the Adviser.
<PAGE>
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to
Rule 12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
38
<PAGE>
to registration with the Securities and Exchange Commission and
with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Fund's Board of Directors. The Fund paid to the
Adviser a total of $129,485 in respect of such services during
the fiscal year of the Fund ended in 1999.
The Advisory Agreement became effective on February 1,
1994 having been approved by the unanimous vote, cast in person,
of the Fund's Directors, including the Directors who are not
parties to the Advisory Agreement or interested persons as
defined in the 1940 Act of any such party, at a meeting called
for that purpose and held on December 7, 1993, and by the Fund's
initial shareholder on January 28, 1994.
The Advisory Agreement will remain in effect for
successive twelve-month periods (computed from each January 1),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities or
by the Fund's Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the Act. Most recently, continuance of the Advisory
Agreement was approved for the period ending December 31, 2000 by
the Board of Directors, including a majority of the Directors who
are not "interested persons" as defined in the 1940 Act, at their
meeting held on October 13, 1999.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee at the annual
rate of .75 of 1% of the average daily value of the Fund's
adjusted total assets (i.e., the average daily value of the total
assets of the Fund, minus the sum of the accrued liabilities of
the Fund, other than the principal amount of money borrowed).
For the fiscal years ended August 31, 1997, August 31,
1998 and August 31, 1999, the Adviser received from the Fund
advisory fees of $1,022,246, $1,416,679 and 1,452,578,
respectively.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
39
<PAGE>
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: AFD Exchange Reserves, Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Global Environment
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance Health Care Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Institutional Funds, Inc., Alliance
Institutional Reserves, Inc., Alliance International Fund,
Alliance International Premier Growth Fund, Inc., Alliance
Limited Maturity Government Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, all open-end investment
companies; and to ACM Government Income Fund, Inc., ACM
Government Securities Fund, Inc., ACM Government Spectrum Fund,
Inc., ACM Government Opportunity Fund, Inc., ACM Managed Income
Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Korean Investment Fund, Inc., The Spain Fund, Inc. and The
Southern Africa Fund, Inc. all registered closed-end investment
companies.
40
<PAGE>
_______________________________________________________________
EXPENSES OF THE FUND
_______________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter"), to permit the
Principal Underwriter to distribute the Funds shares and to
permit the Fund to pay distribution services fees to defray
expenses associated with the distribution of its Class A, Class B
and Class C shares in accordance with a plan of distribution
which is included in the Agreement and has been duly adopted and
approved in accordance with Rule 12b-1 adopted by the Commission
under the 1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended August 31, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class A shares, in amounts aggregating
of $146,503, which constituted .30%, annualized, of the Fund's
aggregate average daily net assets attributable to the Class A
shares during the period, and the Adviser made payments from its
own resources as described above, aggregating $602,666. Of the
$749,169 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class A shares, $37,379 was spent on
advertising, $16,189 on the printing and mailing of prospectuses
for persons other than current shareholders, $268,005 for
compensation to broker-dealers and other financial intermediaries
(including, $100,163 to the Fund's Principal Underwriter),
$191,788 for compensation to sales personnel and, $235,808 was
spent on the printing of sales literature, travel, entertainment,
due diligence and other promotional expenses.
During the Fund's fiscal year ended August 31, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
of $1,084,463, which constituted 1.00%, annualized, of the Fund's
aggregate average daily net assets attributable to Class B shares
during the period, and the Adviser made payments from its own
resources, as described above, aggregating $874,727. Of the
$1,959,190 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class B shares, $46,858 was spent on
advertising, $22,937 on the printing and mailing of prospectuses
for persons other than current shareholders, $1,400,288 for
compensation to broker-dealers and other financial intermediaries
(including, $124,740 to the Fund's Principal Underwriter),
$126,956 for compensation to sales personnel, and $199,566 was
spent on the printing of sales literature, travel, entertainment,
41
<PAGE>
due diligence and other promotional expenses, and $162,585 was
spent on interest to finance Class B shares.
During the Fund's fiscal year ended August 31, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class C shares, in amounts aggregating
of $363,963, which constituted 1.00%, anualized, of the Fund's
aggregate average daily net assets attributable to Class C shares
during the period, and the Adviser made payments from its own
resources, as described above, aggregating $288,649. Of the
$652,612 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class C shares, $25,876 was spent on
advertising, $8,952 on the printing and mailing of prospectuses
for persons other than current shareholders, $418,624 for
compensation to broker-dealers and other financial intermediaries
(including, $67,836 to the Fund's Principal Underwriter), $70,087
for compensation to sales personnel, and $112,090 was spent on
the printing of sales literature, travel, entertainment, due
diligence and other promotional expenses and $16,983 was spent on
interest to finance Class C shares.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charges and
distribution services fees on the Class B shares and Class C
shares, are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares under the Plan is directly tied to the expenses
incurred by AFD. Actual distribution expenses for Class B and
Class C shares for any given year, however, will probably exceed
the distribution services fee payable under the Plan with respect
to the class involved and, in the case of Class B and Class C
shares, payments received from contingent deferred sales charges
("CDSCs"). The excess will be carried forward by AFD and
reimbursed from distribution services fees payable under the Plan
with respect to the class involved and, in the case of Class B
42
<PAGE>
and Class C shares, payments subsequently received through CDSCs,
so long as the Plan is in effect.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal year, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares of the Fund were, respectively,
$5,156,115 (4.69% of the net assets of Class B) and $1,148,688
(2.94% of the net assets of Class C).
The Plan is in compliance with rules of the National
Association of Securities Dealers, Inc. which effectively limit
the annual asset-based sales charges and service fees that a
mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end,
deferred and asset-based sales charges imposed with respect to a
class of shares by a mutual fund that also charges a service fee
to 6.25% of cumulative gross sales of shares of that class, plus
interest at the prime rate plus 1% per annum.
In approving the Plan, the Directors of the Fund
determined that there was a reasonable likelihood that the Plan
would benefit the Fund and its shareholders. The distribution
services fee of a particular class will not be used to subsidize
the provision of distribution services with respect to any other
class.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1) with respect
to each class of the Fund, provided, however, that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the Act) of that
class, and in either case, by a majority of the Directors of the
Fund who are not parties to this agreement or interested persons,
as defined in the 1940 Act, of any such party (other than as
trustees of the Fund) and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan or any
agreement related thereto. Most recently, continuance of the
Agreement until December 31, 2000 was approved by a vote cast in
person of the Directors including a majority of the Directors who
are not "interested persons", as defined in the 1940 Act, at
their Special Meeting on October 13, 1999.
43
<PAGE>
In the event that the Plan is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would
not be adversely affected.
Transfer Agency Agreement
Alliance Fund Services, Inc. an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as each Fund's registrar, transfer agency
and dividend-disbursing agent for a fee based upon the number of
account holders of the Class A shares, Class B shares, Class C
shares and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B and Class C shares is higher than the transfer
agency fee with respect to the Class A shares and Advisor Class
shares, reflecting the additional costs associated with the
Class B and Class C contingent deferred sales charges. For the
fiscal year ended August 31, 1999, the Fund paid Alliance Fund
Services, Inc. $271,773 pursuant to the Transfer Agency
Agreement.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under the heading "Purchase and Sale of
Shares -- How to Buy Shares."
44
<PAGE>
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or (iv)
by directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally a fee-based program must charge an
asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
45
<PAGE>
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Funds shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "-
- -Class A Shares." On each Fund business day on which a purchase
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A and Advisor Class shares as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
46
<PAGE>
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. If the selected
dealer, agent or financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of
regular trading on the Exchange on the next day it is open for
trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
47
<PAGE>
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events, or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the contingent deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor
Class shares do not bear such a fee, (iii) Class B shares and
Class C shares bear higher transfer agency costs than those
borne by Class A shares and Advisor Class shares; (iv) each of
Class A, Class B and Class C shares has exclusive voting rights
with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid and other matters
for which separate class voting is appropriate under applicable
law, provided that, if the Fund submits to a vote of the Class A
shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect
to the Class A shares, then such amendment will also be submitted
to the Class B shareholders and Advisor Class shareholders and
the Class A, Class B and Advisor Class shareholders will vote
separately by class, and (v) Class B shares and Advisor Class
shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
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<PAGE>
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix B for
information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
shares.) Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
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<PAGE>
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee, to exceed the initial sales charge
plus the accumulated distribution services fee of Class A shares.
In this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the fiscal years ended August 31, 1997,
August 31, 1998 and August 31, 1999, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $627,900, $1,755,169 and $868,620, respectively. Of
that amount, the Principal Underwriter received the amounts of
$29,069, $54,043 and $46,799, respectively, representing that
portion of the sales charges paid on shares of the Fund sold
during the year which was not reallowed to selected dealers (and
was, accordingly, retained by the Principal Underwriter). During
the Fund's fiscal years ended in 1997, 1998 and 1999, the
Principal Underwriter received contingent deferred sales charges
of $-0-, $-0- and $1,287, respectively, on Class A shares,
$264,244, $162,429 and $228,380, respectively, on Class B shares,
and $9,336, $28,333 and 53,260, respectively, on Class C
shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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<PAGE>
Sales Charge
Discount or
Commission
As % of As % of to Dealers or
Amount of Net Amount the Public Agents As % of
Purchase Invested Offering Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
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<PAGE>
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "-
- -Class B Shares-- Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
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<PAGE>
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
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<PAGE>
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
54
<PAGE>
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
55
<PAGE>
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
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<PAGE>
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present full-time employees
of selected dealers or agents; or the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for service in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
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<PAGE>
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B Shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase, as set forth
below).
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<PAGE>
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as
Year Since Purchase a % of Dollar Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services - Systematic Withdrawal Plan" below).
Conversion Feature. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
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<PAGE>
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
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<PAGE>
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in a
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically to
Class A shares of the Fund during the calendar month following
the month in which the Fund is informed of the occurrence of the
Conversion Event. The Fund will provide the shareholder with at
least 30 days' notice of the conversion. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
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constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee.
Advisor Class shares do not have any distribution services fee.
As a result, Class A shares have a higher expense ratio and may
pay correspondingly lower dividends and have a lower net asset
value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_______________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Share -- How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
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The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
share certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the share certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
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Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at (800) 221-
5672 before 4:00 p.m. Eastern time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc., or by checking the appropriate box on the
Subscription Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
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losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
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the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or "For
Literature" telephone numbers shown on the cover of this
Statement of Additional Information to establish an automatic
investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
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basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
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contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
share certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
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acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or
Class C shares of the Fund held by the plan can be exchanged at
the plans request, without any sales charge, for Class A shares
of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
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IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirements plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
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than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares -- General." Purchases of
additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. While an
occasional lump-sum investment may be made by a holder of Class A
shares who is maintaining a systematic withdrawal plan, such
investment should normally be an amount equivalent to three times
the annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholders account may be
redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
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(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
Checkwriting
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against
Class A or Class C shares of the Fund redeemed from the
investor's account. Under this service, checks may be made
payable to any payee in any amount not less than $500 and not
more than 90% of the net asset value of the Class A or Class C
shares in the investor's account (excluding for this purpose the
current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder
wishing to establish this checkwriting service subsequent to the
opening of his or her Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund and the Bank each reserve the
right to change or suspend the checkwriting service. There is no
charge to the shareholder for the initiation and maintenance of
this service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
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and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
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bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
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Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities. Mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Funds net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
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of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
______________________________________________________________
Until the Directors of the Fund otherwise determine,
each income dividend and capital gains distribution, if any,
declared by the Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or reinvested in
additional full or fractional shares of the Fund. Election to
receive dividends and distributions in cash or full or fractional
shares is made at the time the shares are initially purchased and
may be changed at any time prior to the record date for a
particular dividend or distribution. Cash dividends can be paid
by check or, if the shareholder so elects, electronically via the
ACH network. There is no sales or other charge in connection
with the reinvestment of dividends and capital gains
distributions. Dividends paid by the Fund, if any, with respect
to Class A, Class B, Class C and Advisor Class shares will be
calculated in the same manner, at the same time, on the same day
and will be in the same amount, except as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those
classes.
General
The Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under 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, securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
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respect to its business of investing in stock, securities or
currency; and (ii) 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, cash items, 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 total assets and 10% of the outstanding
voting securities of such issuer and (b) not 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).
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 investment company taxable
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 shareholders
equal to the sum of (i) 98% of its ordinary income for such year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve-month period ending on October 31 of such
year, and (iii) any ordinary income or capital gain net income
from the preceding calendar year that was not distributed during
such year. For this purpose, income or gain retained by the Fund
that is subject to corporate income tax will be considered to
have been distributed by the Fund by year-end. For federal
income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or
December but actually paid during the following January will be
treated as if paid by the Fund on December 31 of such 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.
The information set forth in the following discussion
relates solely to the significant United States federal income
tax consequences of dividends and distributions by the Fund and
of sales or redemptions of Fund shares, and assumes that the Fund
qualifies to be taxed as a regulated investment company.
Investors should consult their own tax counsel with respect to
the specific tax consequences of their being shareholders of the
Fund, including the effect and applicability of federal, state
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and local tax laws to their own particular situation and the
possible effects of changes therein.
Dividends and Distributions. 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 and excise taxes. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income.
Distributions of net capital gain are taxable as long-
term capital gain, regardless of how long a shareholder has held
shares in the Fund. Any dividend or distribution received by a
shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a
shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund. The investment
objective of the Fund is such that only a small portion, if any,
of the Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, 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 or redemption; otherwise it will be short-term
capital gain or loss. If a shareholder has held shares in the
Fund for six months or less and during that period has received a
distribution of net capital gain, any loss recognized by the
shareholder on the sale of those shares during the six-month
period will be treated as a long-term capital loss to the extent
of the distribution. 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.
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
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Dividend Reinvestment Plan would 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.
Qualified Plans. A dividend or capital gains
distribution with respect to shares of the Fund held by a tax-
deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or
profit-sharing plan, generally will not be taxable to the Plan.
Distributions from such plans will be taxable to individual
participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all 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 types of
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.
Foreign Taxes. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. The United States has entered into tax treaties with
many foreign countries which entitle the Fund to a reduced rate
of such taxes or exemption from taxes on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries is not known. If more than 50% of the
value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations (which
for this purpose should include obligations issued by foreign
governments), the Fund will be eligible 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
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individual shareholder who does not itemize deductions. In
addition, certain shareholders may be subject to rules which
limit or reduce their ability to fully deduct, or claim a credit
for, their pro rata share of the foreign taxes paid by the Fund.
A shareholder's foreign tax credit with respect to a dividend
received from the Fund will be disallowed unless the shareholder
holds shares in the Fund on the ex-dividend date and for at least
15 other days during the 30-day period beginning 15 days prior to
the ex-dividend date. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the
foreign 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.
The federal income tax status of each year's
distributions by the Fund will be reported to shareholders and to
the Internal Revenue Service. The foregoing is only a general
description of the treatment of foreign taxes under the United
States federal income tax laws. Because the availability of a
foreign tax credit or deduction will depend on the particular
circumstances of each shareholder, potential investors are
advised to consult their own tax advisers.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. 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 means any foreign corporation if, for the
taxable year involved, either (i) it derives at least 75% of its
gross income from "passive income" (including, but not limited
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to, interest, dividends, royalties, rents and annuities), or
(ii) on average, at least 50% of the value (or adjusted tax
basis, if elected) of the assets held by the corporation produce
"passive income." The Fund could elect to "mark-to-market" stock
in a PFIC. Under such an election, the Fund would include in
income each year an amount equal to the excess, if any, of the
fair market value of the PFIC stock as of the close of the
taxable year over the Fund's adjusted basis in the PFIC stock.
The Fund would be allowed a deduction for the excess, if any, of
the adjusted basis of the PFIC stock over the fair market value
of the PFIC stock as of the close of the taxable year, but only
to the extent of any net mark-to-market gains included by the
Fund for prior taxable years. The Fund's adjusted basis in the
PFIC stock would be adjusted to reflect the amounts included in,
or deducted from, income under this election. Amounts included
in income pursuant to this election, as well as gain realized on
the sale or other disposition of the PFIC stock, would be treated
as ordinary income. The deductible portion of any mark-to-market
loss, as well as loss realized on the sale or other disposition
of the PFIC stock to the extent that such loss does not exceed
the net mark-to-market gains previously included by the Fund,
would be treated as ordinary loss. The Fund generally would not
be subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a mark-to-
market election has been made. 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 may 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% and calendar year distribution
requirements described above.
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) 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
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payments in cash on the securities which reflect that accrued
discount.
As a result of the applicable rules, in order to make
the 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, the Adviser will select which securities to sell.
The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such sales, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such sales.
Options. Certain listed options are considered "section
1256 contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts generally will be considered 60% long-term and 40%
short-term capital gain or loss. The Fund can elect to exempt
its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
With respect to equity options or options traded on
certain foreign exchanges, gain or loss realized by the Fund upon
the lapse or sale of such options held by the Fund will be either
long-term or short-term capital gain or loss depending upon the
Fund's holding period with respect to such option. However, gain
or loss realized upon the lapse or closing out of such options
that are written by the Fund will be treated as short-term
capital gain or loss. In general, if the Fund exercises an
option, or an option that the Fund has written is exercised, gain
or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of
gain or loss upon disposition of the property underlying the
option.
Tax Straddles. Any option, short sale, interest rate
swap, cap or floor or other position entered into or held by the
Fund in conjunction with any other position held by the Fund may
constitute a "straddle" for federal income tax purposes. A
straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle." In
general, straddles are subject to certain rules that may affect
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the character and timing of the Fund's gains and losses with
respect to straddle positions.
Other Taxation
As noted above, the Fund may be subject to other state
and local taxes.
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.
_______________________________________________________________
PORTFOLIO TRANSACTIONS
_______________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions of the Fund. The Fund's portfolio transactions
occur primarily with the issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and ask
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
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performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information.
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
Portfolio securities will not be purchased from or sold
to Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Adviser or any other subsidiary or affiliate of
the Equitable Life Assurance Society of the United States.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Fund is a Maryland corporation organized in 1993.
The authorized capital stock of the Fund consists of
3,000,000,000 shares of Class A Common Stock, $.001 par value,
3,000,000,000 shares of Class B Common Stock, $.001 par value,
3,000,000,000 shares of Class C Common Stock, $.001 par value and
3,000,000,000 shares of Advisor Class Common Stock, $.001 par
value. All shares of the Fund, when issued, are fully paid and
non-assessable. Any issuance of shares of another class or
series would be governed by the 1940 Act and the law of the State
of Maryland.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the Fund, each share of the portfolio
or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. As to matters affecting each portfolio differently, such
as approval of the Advisory Agreement and changes in investment
policy, shares of each portfolio would vote as a separate series.
Class A, Class B and Class C shares of the Fund have identical
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voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses.
Each class of shares of the Fund votes separately with respect to
the Fund's Rule 12b-1 distribution plan and other matters for
which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are
entitled to receive the net assets of the Fund. Certain
additional matters relating to the Fund's organization are
discussed in this Statement of Additional Information.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on October 8, 1999 there
were 34,551,363 shares of common stock of the Fund outstanding,
including 8,596,240 Class A shares, 18,969,088 Class B shares and
6,986,035 Class C shares of common stock and no Advisor Class
shares. To the knowledge of the Fund, the following persons
owned of record, and no person owned beneficially, 5% or more of
the outstanding shares of the Fund as of October 8, 1999:
Name and Address No. of % of
Shares Class
Class A Shares
MLPF&S
For the Sole Benefit of
Its customers
Attn: Fund Admin (97KA9)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 815,696 9.47%
Prudential Securities Inc.
Special Custody Account For the
Exclusive Benefit of Customers - PC
Attn: Mutual Funds
One New York Plaza
New York, NY 10004-1901 486,884 5.65%
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Class B Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97DG9)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 033968 5.99%
Class C Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97DH0)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,137,164 16.30%
Custodian
The Bank of New York, 48 Wall Street, New York, New York
10286, will act as custodian for the assets of the Fund but plays
no part in deciding the purchase or sale of portfolio securities.
Subject to the supervision of the Fund's Directors, The Bank of
New York may enter into sub-custodial agreements for the holding
of the Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, the principal underwriter of
shares of the Fund, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel LLP, New
York, New York. Seward & Kissel LLP has relied upon the opinion
of Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
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Independent Auditors
Ernst & Young LLP, New York, New York, has been
appointed as independent auditors for the Fund.
Yield and Total Return Quotations
From time to time, the Fund advertises its "yield" and
"total return," which are computed separately for Class A,
Class B and Class C shares. The Fund's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Fund may also state in
sales literature an "actual distribution rate" for each class
which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question
are substituted for net investment income per share. The actual
distribution rate is computed separately for Class A, Class B and
Class C shares. Advertisements of the Fund's total return
disclose its average annual compounded total return for the
periods prescribed by the Commission. The Fund's total return
for each such period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of the investment at
the end of the period. For purpose of computing total return,
income dividends and capital gains distributions paid on shares
of the Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases and redemptions of
the Fund's shares are assumed to have been paid. The Fund's
advertisements may quote performance rankings or ratings of the
Fund by financial publications or independent organizations such
as Lipper, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices.
The yield for the month ended August 31, 1999 was
12.91% for the Class A shares of the Fund, 12.63% for the Class B
and 12.64% for the Class C shares. The actual distribution rate
for such period was 12.79% for Class A shares, 11.96% for Class B
shares and 11.96% for Class C shares. The Fund's average total
return for the one-year period ended August 31, 1999 was 24.00%
for Class A shares, 25.85% for Class B shares and 27.85% for
Class C shares.
The Fund's average total return is computed separately
for Class A, Class B and Class C shares. The average annual
total return based on net asset value for each class of shares
87
<PAGE>
for the one-, five- and ten-year periods ended August 31, 1999
(or since inception through that date, as noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
8/31/99 8/31/99 8/31/99
Class A 29.40% 40.97% 5.69%*
Class B 28.85% 35.79% 4.89%*
Class C 28.85% 35.93% 4.92%*
* Inception Dates: Class A - February 25, 1994
Class B - February 25, 1994
Class C - February 25, 1994
Yield and total return are not fixed and will fluctuate
in response to prevailing market conditions or as a function of
the type and quality of the securities in the Fund's portfolio,
its average portfolio maturity and its expenses. Quotations of
yield and total return do not include any provision for the
effect of individual income taxes. An investor's principal
invested in the Fund is not fixed and will fluctuate in response
to prevailing market conditions.
Advertisements quoting performance ranking or ratings of
the Fund as measured by financial publications or by independent
organizations such as Lipper, Inc. and Morningstar, Inc. and
advertisements presenting the historical record of payments of
income dividends by the Fund may also from time to time be sent
to investors or placed in newspapers, magazines such as Barrons,
Business Week, Changing Times, Forbes, Investor's Daily, Money
Magazine, The New York Times and The Wall Street Journal or other
media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission. Copies of the Registration Statement may be obtained
at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington,
D.C.
88
<PAGE>
_______________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_______________________________________________________________
89
<PAGE>
ALLIANCE
--------------
GLOBAL DOLLAR
--------------
GOVERNMENT
--------------
FUND
--------------
Annual Report
August 31, 1999
Alliance Capital [LOGO](R)
<PAGE>
PORTFOLIO OF INVESTMENTS
August 31, 1999 Alliance Global Dollar Government Fund
================================================================================
Shares or
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
SOVEREIGN DEBT
OBLIGATIONS-78.2%
OTHER SOVEREIGN
DEBT OBLIGATIONS-54.6%
ARGENTINA-8.5%
Republic of Argentina
11.75%, 4/07/09 ....................... $ 7,800 $ 7,147,140
12.125%, 2/25/19 ...................... 6,480 6,042,600
Republic of Argentina
Series XW
11.00%, 12/04/05 ...................... 3,875 3,545,625
Warrants, expiring
12/03/99 (a) .......................... 3,000 25,000
Warrants, expiring
2/25/00 (a) ........................... 23,000 217,360
------------
16,977,725
------------
BRAZIL-1.0%
Republic of Brazil
10.125%, 5/15/27 ...................... 2,634 1,866,979
------------
COLOMBIA-2.2%
Republic of Colombia
9.75%, 4/23/09 ........................ 5,400 4,347,000
------------
MALAYSIA-1.5%
Government of Malaysia
8.75%, 6/1/09 ......................... 3,000 3,008,700
------------
MEXICO-17.0%
United Mexican States
9.75%, 4/06/05 ........................ 15,000 15,105,000
10.375%, 2/17/09 (b) .................. 18,650 18,845,825
------------
33,950,825
------------
PANAMA-4.1%
Republic of Panama
9.375%, 4/01/29 ....................... 8,800 8,228,000
------------
PHILIPPINES-2.9%
Bangko Sentral Pilipinas
8.60%, 6/15/27 ........................ 4,000 3,030,000
Republic of the Philippines
9.875%, 1/15/19 ....................... 3,000 2,823,900
------------
5,853,900
------------
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
RUSSIA-12.8%
Russian Federation
11.00%, 7/24/18 ....................... $ 6,100 $ 2,897,500
12.75%, 6/24/28 ....................... 16,900 8,957,000
Russian IAN FRN
6.0625%, 12/15/15 (a)(c) .............. 10,473 1,518,598
Russian Ministry of Finance
3.00%, 5/14/03 ........................ 16,200 3,078,000
12.75%, 6/24/28 ....................... 10,000 5,300,000
Russia Principal Loan FRN
6.0625%, 12/15/20 (a)(c) .............. 34,350 3,778,500
------------
25,529,598
------------
TURKEY-2.3%
Republic of Turkey
12.00%, 12/15/08 ...................... 3,500 3,486,875
12.375%, 6/15/09 ...................... 1,000 987,500
------------
4,474,375
------------
VENEZUELA-2.3%
Republic of Venezuela
9.25%, 9/15/27 ........................ 7,700 4,630,010
------------
Total Other Sovereign Debt
Obligations
(cost $114,227,791) ................... 108,867,112
------------
NON-COLLATERALIZED
BRADY BONDS-13.7%
ARGENTINA-2.8%
Republic of Argentina
PDI FRB
5.9375%, 3/31/05 ...................... 4,650 3,964,125
Republic of Argentina
PDI FRB, Series L
5.9375%, 3/31/05 ...................... 1,860 1,585,650
------------
5,549,775
------------
5
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) Alliance Global Dollar Government Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
BRAZIL-3.1%
Republic of Brazil
DCB FRN, Series L
Registered Bond
5.9375%, 4/15/12 ...................... $ 600 $ 339,000
Republic of Brazil C - Bonds
8.00%, 4/15/14 (d) .................... 9,562 5,725,870
------------
6,064,870
------------
BULGARIA-4.1%
Republic of Bulgaria
IAB FRN
6.50%, 7/28/11 ........................ 12,000 8,235,600
------------
PERU-3.7%
Republic of Peru FLIRB
3.75%, 3/07/17 (e)(f) ................. 8,250 4,207,500
Republic of Peru PDI
4.50%, 3/07/17 (e)(f) ................. 5,450 3,168,085
------------
7,375,585
------------
Total Non-Collateralized
Brady Bonds
(cost $27,504,760) .................... 27,225,830
------------
COLLATERALIZED
BRADY BONDS-6.3%
BRAZIL-4.0%
Republic of Brazil
Discount FRN
5.875%, 4/15/24 ....................... 15,000 7,987,500
------------
VENEZUELA-2.3%
Republic of Venenzuela
Discount Series W-B
FRN
6.00%, 3/31/20 (g) .................... 7,700 4,639,250
------------
Total Collateralized
Brady Bonds
(cost $13,357,604) .................... 12,626,750
------------
LOAN PARTICIPATION-3.6%
MOROCCO-3.6%
Kingdom of Morocco
Loan Participation
FRN Series A
5.90625%, 1/01/09
(cost $7,882,074) ..................... 9,048 7,260,714
------------
Total Sovereign Debt
Obligations
(cost $162,972,229) ................... 155,980,406
------------
CORPORATE DEBT
OBLIGATIONS-13.5%
Alestra, SA
12.625%, 5/15/09 (e) .................. 500 466,250
Autopistas del Sol, SA
Series B
10.25%, 8/01/09 (e) ................... 2,500 1,631,250
Banco Nacional De
Desenvolvimiento
Economico
15.224%, 6/16/08 (e) .................. 4,300 3,504,500
Bayan Telecommunications
13.50%, 7/15/06 (e) ................... 1,000 935,000
Cellco Finance
15.00%, 8/01/05 (e) ................... 3,000 3,142,500
Conecel Holdings Ltd.
FRN 16.50%,
10/01/00 (a)(c)(e)(h) ................. 1,000 150,000
Consorcio Ecuatoriano
Telecom
14.00%, 5/01/02 (a)(c) ................ 5,500 1,925,000
Grupo Mexicano de
Desarrollo, SA
8.25%, 2/17/01 (e) .................... 7,900 1,422,000
Guangdong Enterprises
8.875%, 5/22/07 (e) ................... 6,450 1,773,750
Korea Development Bank
FRN
8.008%, 6/16/03 (e) ................... 1,600 1,568,000
6
<PAGE>
Alliance Global Dollar Government Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
Netia Holdings B.V.
Series B
11.25%, 11/01/07 (i) .............. $ 4,500 $ 2,801,250
Samsung Electronics Co.
7.45%, 10/01/02 (e) ............... 3,500 3,358,499
Tricom
11.375%, 9/01/04 .................. 2,750 2,399,375
Viatel Inc.
11.50%, 3/15/09 (e) ............... 1,800 1,777,500
------------
Total Corporate Debt
Obligations
(cost $37,393,608) ................ 26,854,874
------------
TIME DEPOSIT-0.3%
Bank Of New York
4.75%, 9/01/99
(cost $666,000) ................... 666 666,000
------------
TOTAL INVESTMENTS-92.0%
(cost $201,031,837) ............... 183,501,280
Other assets less
liabilities-8.0% .................. 16,065,245
------------
NET ASSETS-100% ...................... $199,566,525
============
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Security trades with warrants expiring February 17, 2009.
(c) Security is in default.
(d) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
(e) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31,
1999, these securities amounted to $27,104,834 representing 13.58% of net
assets.
(f) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at August 31, 1999.
(g) Security trades with oil warrants expiring March 31, 2020.
(h) Security trades with warrants expiring October 1, 2000.
(i) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective.
Glossary of Terms:
DCB - Debt Conversion Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FRB - Floating Rate Bond.
FRN - Floating Rate Note.
IAB - Interest Arrears Bond.
IAN - Interest Arrears Note.
PDI - Past Due Interest.
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999 Alliance Global Dollar Government Fund
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $201,031,837) ......................... $ 183,501,280
Cash ............................................................................ 23,417
Income receivable ............................................................... 7,088,710
Receivable for investment securities sold ....................................... 16,724,135
Receivable for capital stock sold ............................................... 583,344
-------------
Total assets .................................................................... 207,920,886
-------------
LIABILITIES
Payable for investment securities purchased ..................................... 6,488,733
Dividends payable ............................................................... 724,082
Payable for capital stock redeemed .............................................. 711,209
Accrued expenses ................................................................ 430,337
-------------
Total liabilities ............................................................... 8,354,361
-------------
NET ASSETS ......................................................................... $ 199,566,525
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ........................................................... $ 34,849
Additional paid-in capital ...................................................... 282,300,860
Distributions in excess of net investment income ................................ (2,479,757)
Accumulated net realized loss on investment transactions ........................ (62,758,870)
Net unrealized depreciation on investments ...................................... (17,530,557)
-------------
$ 199,566,525
=============
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share ($50,539,846 / 8,877,371 shares of
capital stock issued and outstanding) ......................................... $ 5.69
Sales charge--4.25% of public offering price .................................... .25
-------------
Maximum offering price .......................................................... $ 5.94
=============
Class B Shares
Net asset value and offering price per share ($110,002,790 / 19,177,608 shares of
capital stock issued and outstanding) ......................................... $ 5.74
=============
Class C Shares
Net asset value and offering price per share ($39,023,889 / 6,793,740 shares of
capital stock issued and outstanding) ......................................... $ 5.74
=============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
Year Ended August 31, 1999 Alliance Global Dollar Government Fund
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest....................................................... $ 26,927,631
EXPENSES
Advisory fee................................................... $1,452,578
Distribution fee - Class A..................................... 146,503
Distribution fee - Class B..................................... 1,084,463
Distribution fee - Class C..................................... 363,963
Transfer agency................................................ 391,872
Audit and legal................................................ 223,204
Custodian...................................................... 135,423
Administrative................................................. 129,485
Registration................................................... 88,266
Printing....................................................... 49,968
Directors' fees................................................ 24,558
Amortization of organization expenses.......................... 14,571
Miscellaneous.................................................. 14,744
----------
Total expenses................................................. 4,119,598
------------
Net investment income.......................................... 22,808,033
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions................... (45,085,335)
Net change in unrealized depreciation of investments........... 65,633,291
------------
Net gain on investment transactions............................ 20,547,956
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $ 43,355,989
============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES
IN NET ASSETS Alliance Global Dollar Government Fund
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, August 31,
1999 1998
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income................................................ $ 22,808,033 $ 15,006,720
Net realized loss on investment transactions......................... (45,085,335) (14,298,058)
Net change in unrealized appreciation (depreciation)of investments... 65,633,291 (86,796,871)
-------------- --------------
Net increase (decrease) in net assets from operations................ 43,355,989 (86,088,209)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A............................................................ (6,183,246) (3,780,424)
Class B............................................................ (12,454,582) (8,514,602)
Class C............................................................ (4,170,205) (2,711,694)
Distributions in excess of net investment income
Class A............................................................ (317,642) (227,100)
Class B............................................................ (639,811) (511,493)
Class C............................................................ (214,230) (162,898)
Tax return of capital
Class A............................................................ (301,209) (795,457)
Class B............................................................ (606,708) (1,807,258)
Class C............................................................ (203,145) (585,977)
Net realized gains on investments
Class A............................................................ -0- (5,147,027)
Class B............................................................ -0- (12,345,658)
Class C............................................................ -0- (4,432,421)
COMMON STOCK TRANSACTIONS
Net increase......................................................... 45,565,578 106,923,018
-------------- --------------
Total increase (decrease)............................................ 63,830,789 (20,187,200)
NET ASSETS
Beginning of year.................................................... 135,735,736 155,922,936
-------------- --------------
End of year.......................................................... $ 199,566,525 $ 135,735,736
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1999 Alliance Global Dollar Government Fund
================================================================================
NOTE A: Significant Accounting Policies
Alliance Global Dollar Government Fund, Inc. (the "Fund") was incorporated in
the state of Maryland on December 2, 1993, as a non-diversified, open-end
management investment company. The Fund offers Class A, Class B and Class C
shares. Class A shares are sold with a front-end sales charge of up to 4.25% for
purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or
more, Class A shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge of 1%. Class B shares are currently sold with a
contingent deferred sales charge which declines from 3% to zero depending on the
period of time the shares are held. Class B shares will automatically convert to
Class A shares six years after the end of the calendar month of purchase. Class
C shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each class
bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies followed by the Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sale price or, if there was no sale on such day, the
last bid price quoted on such day. If no bid prices are quoted, then the
security is valued at the mean of the bid and asked prices as obtained on that
day from one or more dealers regularly making a market in that security.
Securities traded on the over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to the United States
over-the-counter market and securities listed on a national securities exchange
whose primary market is believed to be over-the-counter are valued at the mean
of the closing bid and asked prices provided by two or more dealers regularly
making a market in such securities. U.S. government securities and other debt
securities which mature in 60 days or less are valued at amortized cost unless
this method does not represent fair value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or in accordance with procedures approved by, the Board of
Directors. Fixed income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
2. Organization Expenses
Organization expenses of approximately $184,000 have been deferred and amortized
on a straight-line basis through February 1999. Organization expenses have been
fully amortized as of August 31, 1999.
3. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. Investment Income and Investment Transactions
Interest income is accrued daily. Dividend income is recorded on the ex-dividend
date. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discount as an adjustment to interest income.
5. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class B
and Class C shares bear higher distribution and transfer agent fees than Class A
shares.
6. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Global Dollar Government Fund
================================================================================
and may differ from those determined in accordance with generally accepted
accounting principles. To the extent these differences are permanent, such
amounts are reclassified within the capital accounts based on their federal tax
basis treatment; temporary differences do not require such reclassification.
During the current fiscal year, permanent differences, primarily due to a tax
return of capital, resulted in a net decrease in distributions in excess of net
invesment income and a corresponding decrease in additional paid-in-capital.
This reclassification had no effect on net assets.
- --------------------------------------------------------------------------------
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 .75 of 1% of the average adjusted daily net assets of the Fund. Such fee
will be accrued daily and paid monthly.
The Fund has a Transfer Agency Agreement with Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) to provide personnel and facilities to
perform transfer agency services for the Fund. Compensation under this agreement
amounted to $271,773 for the year ended August 31, 1999.
For the year ended August 31, 1999, the Fund's expenses were reduced by $18,074
under an expense offset arrangement with Alliance Fund Services.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor has advised the
Fund that it has received front-end sales charges of $46,799 from the sale of
Class A shares and $1,287, $228,380 and $53,260 in contingent deferred sales
charges imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the year ended August 31, 1999.
- --------------------------------------------------------------------------------
NOTE C: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement the Fund pays a distribution fee to the Distributor at an annual rate
of up to .30 of 1% of the average daily net assets attributable to Class A
shares and 1% of the average daily net assets attributable to the Class B and
Class C shares. The fees are accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has advised
the Fund that it has incurred expenses in excess of the distribution costs
reimbursed by the Fund in the amount of $5,156,115 and $1,148,688 for Class B
and Class C shares, respectively; such costs may be recovered from the Fund in
future periods so long as the Agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
- --------------------------------------------------------------------------------
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $358,513,380 and $328,905,886,
respectively, for the year ended August 31, 1999. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
August 31, 1999.
At August 31, 1999, the cost of investments for federal income tax purposes was
$202,615,464. Accordingly, gross unrealized appreciation of investments was
$5,058,792 and gross unrealized depreciation was $24,172,976 resulting in net
unrealized depreciation of $19,114,184.
At August 31, 1999 the Fund had a net capital loss carryforward of $16,783,909
which expires in the year 2007.
Capital losses incurred after October 31 ("post October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
$44,391,334 during the fiscal year 1999. To the extent that the carryover losses
are used to offset future capital
12
<PAGE>
Alliance Global Dollar Government Fund
================================================================================
gains, it is probable that the gain so offset will not be distributed to
shareholders.
1. Options Transactions
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government securities and foreign
currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of the premium and a change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired through
the exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received is added to the proceeds from the sale
of the underlying security or currency in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium received
reduces the cost basis of the security or currency purchased by the Fund. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise of
an option written by the Fund could result in the Fund selling or buying a
security or currency at a price different from the current market value.
There were no transactions in options written for the year ended August 31,
1999.
- --------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
dividend into three classes, designated Class A, Class B and Class C shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
---------------------------------- ----------------------------------
SHARES AMOUNT
---------------------------------- ----------------------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold....................... 8,939,122 4,813,019 $ 51,029,072 $ 40,513,709
Shares issued in reinvestment of
dividends and distributions.... 577,502 728,102 3,335,568 6,175,196
Shares converted from Class B..... 280,097 259,021 1,604,367 2,196,430
Shares redeemed................... (7,334,617) (2,902,346) (42,253,263) (23,845,164)
-------------- -------------- -------------- --------------
Net increase...................... 2,462,104 2,897,796 $ 13,715,744 $ 25,040,171
============== ============== ============== ==============
Class B
Shares sold....................... 9,146,871 11,711,770 $ 52,340,160 $ 98,025,012
Shares issued in reinvestment of
dividends and distributions.... 799,008 1,070,901 4,638,409 9,074,872
Shares converted to Class A....... (278,458) (259,021) (1,604,367) (2,196,430)
Shares redeemed................... (6,261,743) (5,528,229) (35,910,082) (44,595,809)
-------------- -------------- -------------- --------------
Net increase...................... 3,405,678 6,995,421 $ 19,464,120 $ 60,307,645
============== ============== ============== ==============
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Global Dollar Government Fund
================================================================================
<TABLE>
<CAPTION>
---------------------------------- ----------------------------------
SHARES AMOUNT
---------------------------------- ----------------------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Class C
Shares sold....................... 7,263,526 4,751,772 $ 41,875,188 $ 41,402,517
Shares issued in reinvestment of
dividends and distributions.... 402,610 559,509 2,342,968 4,741,446
Shares redeemed................... (5,566,666) (2,979,293) (31,832,442) (24,568,761)
-------------- -------------- -------------- --------------
Net increase...................... 2,099,470 2,331,988 $ 12,385,714 $ 21,575,202
============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
NOTE F: Concentration of Risk
Investing in securities of foreign companies and foreign governments involves
special risks which include the possibility of future political and economic
developments which could adversely affect the value of such securities.
Moreover, securities of many foreign companies and foreign governments and their
markets may be less liquid and their prices more volatile than those of
comparable U.S. companies and 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: Bank Borrowing
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide short-term financing if necessary, subject to certain restrictions in
connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended August 31, 1999.
14
<PAGE>
FINANCIAL HIGHLIGHTS Alliance Global Dollar Government Fund
================================================================================
Selected Data For A Share of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $ 5.05 $ 10.64 $ 10.01 $ 8.02 $ 9.14
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net investment income ............................... .71(a) .73(a) .88(a) .84 .86
Net realized and unrealized gain (loss) on investment
transactions .................................... .74 (4.03) 1.85 2.10 (1.10)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations ...................................... 1.45 (3.30) 2.73 2.94 (.24)
---------- ---------- ---------- ---------- ----------
Less: Dividends and Distributions
Dividends from net investment income ................ (.74) (.73) (.95) (.95) (.88)
Tax return of capital ............................... (.03) (.15) -0- -0- -0-
Distributions in excess of net investment income .... (.04) (.04) -0- -0- -0-
Distributions from net realized gain on investments . -0- (1.37) (1.15) -0- -0-
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ................... (.81) (2.29) (2.10) (.95) (.88)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........................ $ 5.69 $ 5.05 $ 10.64 $ 10.01 $ 8.02
========== ========== ========== ========== ==========
Total Return
Total investment return based on net asset value (b) 29.40% (38.56)% 30.04% 38.47% (1.48)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ............. $ 50,540 $ 32,365 $ 37,416 $ 23,253 $ 12,020
Ratio of expenses to average net assets ............. 1.59% 1.48% 1.55% 1.65% 1.93%
Ratio of net investment income to average net assets 12.34% 8.51% 8.49% 9.23% 11.25%
Portfolio turnover rate ............................. 179% 188% 314% 315% 301%
</TABLE>
- --------------------------------------------------------------------------------
See footnote summary on page 17.
15
<PAGE>
FINANCIAL HIGHLIGHTS (continued) Alliance Global Dollar Government Fund
================================================================================
Selected Data For A Share of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
--------------------------------------------------------------
CLASS B
--------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $ 5.05 $ 10.64 $ 10.01 $ 8.02 $ 9.14
-------- ------- ------- ------- -------
Income From Investment Operations
Net investment income ............................... .67(a) .67(a) .81(a) .78 .80
Net realized and unrealized gain (loss) on investment
transactions .................................... .76 (4.05) 1.84 2.08 (1.11)
-------- ------- ------- ------- -------
Net increase (decrease) in net asset value from
operations ...................................... 1.43 (3.38) 2.65 2.86 (.31)
-------- ------- ------- ------- -------
Less: Dividends and Distributions
Dividends from net investment income ................ (.68) (.67) (.87) (.87) (.81)
Tax return of capital ............................... (.03) (.14) -0- -0- -0-
Distributions in excess of net investment income .... (.03) (.04) -0- -0- -0-
Distributions from net realized gain on investments . -0- (1.36) (1.15) -0- -0-
-------- ------- ------- ------- -------
Total dividends and distributions ................... (.74) (2.21) (2.02) (.87) (.81)
-------- ------- ------- ------- -------
Net asset value, end of year ........................ $ 5.74 $ 5.05 $ 10.64 $ 10.01 $ 8.02
======== ======= ======= ======= =======
Total Return
Total investment return based on net asset value (b) 28.85% (39.11)% 29.14% 37.36% (2.40)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ............. $110,003 $79,660 $93,377 $84,295 $62,406
Ratio of expenses to average net assets ............. 2.31% 2.22% 2.26% 2.37% 2.64%
Ratio of net investment income to average net assets 11.59% 7.78% 7.81% 8.57% 10.52%
Portfolio turnover rate ............................. 179% 188% 314% 315% 301%
</TABLE>
- --------------------------------------------------------------------------------
See footnote summary on page 17.
16
<PAGE>
Alliance Global Dollar Government Fund
================================================================================
Selected Data For A Share of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------------
Year Ended August 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $ 5.05 $ 10.64 $ 10.01 $ 8.02 $ 9.14
--------- ---------- --------- ---------- ---------
Income From Investment Operations
Net investment income ............................... .67(a) .67(a) .82(a) .77 .79
Net realized and unrealized gain (loss) on investment
transactions .................................... .76 (4.05) 1.84 2.10 (1.10)
--------- ---------- --------- ---------- ---------
Net increase (decrease) in net asset value from
operations ...................................... 1.43 (3.38) 2.66 2.87 (.31)
--------- ---------- --------- ---------- ---------
Less: Dividends and Distributions
Dividends from net investment income ................ (.68) (.67) (.88) (.88) (.81)
Tax return of capital ............................... (.03) (.14) -0- -0- -0-
Distributions in excess of net investment income .... (.03) (.04) -0- -0- -0-
Distributions from net realized gain on investments . -0- (1.36) (1.15) -0- -0-
--------- ---------- --------- ---------- ---------
Total dividends and distributions ................... (.74) (2.21) (2.03) (.88) (.81)
--------- ---------- --------- ---------- ---------
Net asset value, end of year ........................ $ 5.74 $ 5.05 $ 10.64 $ 10.01 $ 8.02
========= ========== ========= ========== =========
Total Return
Total investment return based on net asset value (b) 28.85% (39.09)% 29.17% 37.40% (2.36)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ............. $ 39,024 $ 23,711 $ 25,130 $ 14,511 $ 9,330
Ratio of expenses to average net assets ............. 2.30% 2.19% 2.25% 2.35% 2.63%
Ratio of net investment income to average net assets 11.56% 7.75% 7.82% 8.52% 10.46%
Portfolio turnover rate ............................. 179% 188% 314% 315% 301%
</TABLE>
- --------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the year, reinvestment of all
dividends and distributions at net asset value during the year, and
redemption on the last day of the year. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return.
17
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS Alliance Global Dollar Government Fund
================================================================================
To the Shareholders and Board of Directors
Alliance Global Dollar Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Alliance
Global Dollar Government Fund, Inc. (the "Fund"), including the portfolio of
investments, as of August 31, 1999, 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 and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1999, by correspondence with the custodian and
others. 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 Global Dollar Government Fund, Inc. at August 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
October 8, 1999
18
<PAGE>
<PAGE>
_______________________________________________________________
APPENDIX A: OPTIONS
_______________________________________________________________
Options
The Fund will only write "covered" put and call options,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the heading "Investment
Objective and Policies -- Investment Practices -- Options."
The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a "closing sale transaction".
This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be
effected.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
A-1
<PAGE>
investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-
write transactions; that is, the Fund may purchase a security and
then write a call option against that security. The exercise
price of the call the Fund determines to write will depend upon
A-2
<PAGE>
the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option
is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during
the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
option minus the amount by which the market price of the security
is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-
and-write transactions.
The Fund may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Fund will reduce any profit it might otherwise have
realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the
A-3
<PAGE>
price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
A-4
<PAGE>
____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of
(A) and (B) to be determined by Merrill
Lynch in the normal course prior to the date
the plan is established as an active plan on
Merrill Lynch's recordkeeping system (an
"Active Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
B-2
00250161.AU2
