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This is filed pursuant to Rule 497(c).
File Nos. 33-72460 and 811-08188.
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[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, 2000
____________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the
Prospectus, dated November 1, 2000, 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................................... 2
Management of the Fund.................................... 34
Expenses of the Fund...................................... 41
Purchase of Shares........................................ 45
Redemption and Repurchase of Shares....................... 62
Shareholder Services...................................... 66
Net Asset Value........................................... 73
Dividends, Distributions and Taxes........................ 76
Portfolio Transactions.................................... 83
General Information ...................................... 84
Report of Independent Auditors and
Financial Statements.................................... 90
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.
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_______________________________________________________________
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.
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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" or
"Alliance"), at a future date to be, the principal participants
in debt restructuring programs (including, in the case of
Argentina, Mexico, the Philippines and Venezuela, issuers of
currently outstanding Brady Bonds) that, in 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
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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
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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").
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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.
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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
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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
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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.
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("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.
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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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<PAGE>
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
16
<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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<PAGE>
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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<PAGE>
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
21
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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
22
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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
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<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-
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<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,* 55, 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 1995.
RUTH BLOCK, 69, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable; Chairman and
Chief Executive Officer of Evlico; a Director of Avon, Tandem
Financial Group and Donaldson, Lufkin & Jenrette Securities
Corporation. She is currently 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, 71, is an independent consultant.
Until December 1994 he was Senior Vice President of ACMC
responsible for mutual fund administration. Prior to joining
ACMC in 1984 he was Chief Financial Officer of Eberstadt Asset
Management since 1968. Prior to that he was a Senior Manager at
Price Waterhouse & Co. Member of American Institute of Certified
Public Accountants since 1953. His address is P.O. Box 167,
Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 58, is a consultant. Formerly, he was a
Senior Adviser (June 1999 - June 2000) and President (December
1989 - May 1999) of Historic Hudson Valley (historic
preservation). Previously, he was Director of the National
Academy of Design. During 1988-92, he was a Director and
Chairman of the Audit Committee of ACMC. His address is P.O. Box
12, Annandale, New York 12504.
WILLIAM H. FOULK, JR., 68, 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 1995. He was
formerly Deputy Comptroller of the State of New York and, prior
thereto, Chief Investment Officer of the New York Bank for
Savings. His address is Room 100, 2 Greenwich Plaza, Greenwich,
Connecticut 06830.
DR. JAMES M. HESTER, 76, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1995. He was formerly President of New York University
and the New York Botanical Garden, Rector of the United Nations
University and Vice Chairman of the Board of the Federal Reserve
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
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<PAGE>
Bank of New York. His address is 25 Cleveland Lane, Princeton,
New Jersey 08540.
CLIFFORD L. MICHEL, 61, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1995. 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, 66, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe LLP since January 1995.
He was formerly a senior partner and a member of the Executive
Committee of that firm. He was also a member of the Municipal
Securities Rulemaking Board and Trustee of the Museum of the City
of New York. 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, 59, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1995.
KATHLEEN A. CORBET, Senior Vice President, 40, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1995.
PAUL J. DENOON, Vice President, 38, is a Senior Vice
President of ACMC, with which he has been associated since 1995.
VICKI L. FULLER, Vice President, 43, has been a Senior
Vice President of ACMC, with which she has been associated since
prior to 1995.
EDMUND P. BERGAN, JR., Secretary, 50, 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 1995.
ANDREW L. GANGOLF, Assistant Secretary, 46, is a Senior
Vice President and Assistant General Counsel of AFD, with which
he has been associated since prior to 1995.
DOMENICK PUGLIESE, Assistant Secretary, 39 is a Senior
Vice President and Assistant General Counsel of AFD, with which
he has been associated since May 1995. Prior thereto, he was a
36
<PAGE>
Vice President and Counsel of Concord Holding Corporation since
prior to 1995.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
50, is a Senior Vice President of AFS and a Vice President of
AFD, with which he has been associated since prior to 1995.
JUAN RODRIGUEZ, Controller, 43, is a Vice President of
AFS, with which he has been associated since prior to 1995.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended August 31, 2000, the
aggregate compensation paid to each of the Directors during
calendar year 1999 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- $-0- 49 107
Ruth Block $3,854 $154,263 38 83
David H. Dievler $3,863 $210,188 44 90
John H. Dobkin $3,863 $206,488 41 87
William H. Foulk, Jr. $3,961 $246,413 45 102
Dr. James M. Hester $3,964 $164,138 39 84
Clifford L. Michel $3,964 $183,388 39 86
Donald J. Robinson $3,961 $140,813 41 96
As of October 6, 2000, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.
37
<PAGE>
Adviser
Alliance Capital Management L.P. (the "Adviser" or
"Alliance"), a Delaware limited partnership with principal
offices at 1345 Avenue of the Americas, New York, New York 10105,
has been retained under an investment advisory agreement (the
"Advisory Agreement") to provide investment advice and, in
general, to conduct the management and investment program of the
Fund under the supervision of the Fund's Board of Directors (see
"Management of the Fund" in the Prospectus).
The Adviser is a leading international adviser managing
client accounts with assets as of June 30, 2000 totaling more
than $388 billion (of which more than $185 billion represented
assets of investment companies). As of June 30, 2000, the
Adviser managed retirement assets for many of the largest public
and private employee benefit plans (including 29 of the nation's
FORTUNE 100 companies), for public employee retirement funds in
33 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 52
registered investment companies managed by the Adviser,
comprising 122 separate investment portfolios, currently have
approximately 6.1 million shareholder accounts.
Alliance Capital Management Corporation ("ACMC") is the
general partner of Alliance and an indirect wholly-owned
subsidiary of AXA Financial, Inc. ("AXA Financial"), a Delaware
corporation whose shares are traded on the New York Stock
Exchange ("NYSE"). As of October 2, 2000, AXA Financial and
certain of its subsidiaries were the beneficial owners of
approximately 52% of the outstanding Alliance units. Alliance
Capital Management Holding L.P. ("Alliance Holding") owned
approximately 30% of the outstanding Alliance units.** Equity
interests in Alliance Holding are traded on the NYSE in the form
of units. Approximately 98% of such units are owned by the
public and management or employees of Alliance and approximately
2% are owned by AXA Financial. As of June 30, 2000, AXA, a
____________________
** 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 organization was
that the Advisory Agreement, then between the Fund and
Alliance Holding, was transferred to the Adviser, 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.
38
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French insurance holding company, owned approximately 60% of the
issued and outstanding shares of common stock of AXA Financial.
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
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 $133,901 in respect of such services during
the fiscal year of the Fund ended in 2000.
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
39
<PAGE>
Agreement was approved for an additional annual term 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 17-19, 2000.
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, 1998, August 31,
1999 and August 31, 2000 the Adviser received from the Fund
advisory fees of $1,416,679, 1,452,578 and 1,614,015
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'
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 Disciplined Value Fund,
Inc., Alliance Global Dollar Government Fund, Inc.,, Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic Income
Trust, Inc., Alliance Government Reserves, Alliance Greater China
'97 Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
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
40
<PAGE>
Fund, Inc., Alliance Worldwide Privatization Fund, Inc., The
Alliance Fund, Inc., The Alliance Portfolios and EQ Advisors
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.
_______________________________________________________________
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, 2000, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class A shares, in amounts aggregating
of $19,306, 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 $63,767. Of the
$81,073 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class A shares, $2,155 was spent on
advertising, $4,523 on the printing and mailing of prospectuses
for persons other than current shareholders, $41,345 for
compensation to broker-dealers and other financial intermediaries
(including, $14,249 to the Fund's Principal Underwriter), $6,253
for compensation to sales personnel and, $26,797 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, 2000, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
41
<PAGE>
of $91,240, 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 $0. Of the $81,789
paid by the Fund and the Adviser under the Rule 12b-1 Plan with
respect to Class B shares, $955 was spent on advertising, $3,202
on the printing and mailing of prospectuses for persons other
than current shareholders, $45,273 for compensation to broker-
dealers and other financial intermediaries (including, $6,316 to
the Fund's Principal Underwriter), $5,944 for compensation to
sales personnel, and $12,016 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $14,399 was spent on interest to
finance Class B shares.
During the Fund's fiscal year ended August 31, 2000, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class C shares, in amounts aggregating
of $41,747, 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 $41,542. Of the
$83,289 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class C shares, $1,113 was spent on
advertising, $2,480 on the printing and mailing of prospectuses
for persons other than current shareholders, $53,163 for
compensation to broker-dealers and other financial intermediaries
(including, $7,356 to the Fund's Principal Underwriter), $12,361
for compensation to sales personnel, and $13,887 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses and $285 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
42
<PAGE>
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
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,
$4,924,107 (4.54% of the net assets of Class B) and $1,501,212
(3.07% 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
43
<PAGE>
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 for an additional annual term 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 17-19, 2000.
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.
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, 2000, the Fund paid Alliance Fund
Services, Inc. $359,533 pursuant to the Transfer Agency
Agreement.
Code of Ethics
The Fund, the Adviser and the Principal Underwriter have
each adopted codes of ethics pursuant to Rule 17j-1 of the 1940
Act. These codes of ethics permit personnel subject to the codes
to invest in securities, including securities that may be
purchased or held by the Fund.
44
<PAGE>
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under the heading "Purchase and Sale of
Shares -- How to Buy Shares."
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (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.
45
<PAGE>
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
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.
46
<PAGE>
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. If the selected
dealer, agent or financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of
regular trading on the Exchange on the next day it is open for
trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a 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.
47
<PAGE>
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, 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.
48
<PAGE>
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares***
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix 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
____________________
*** Advisor Class shares are sold only to investors described
above in this section under "--General."
49
<PAGE>
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee, to exceed the initial sales charge
plus the accumulated distribution services fee of Class A shares.
In this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the fiscal years ended August 31, 1998,
August 31, 1999 and August 31, 2000 the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $1,755,169, $868,620 and $438,441, respectively. Of
that amount, the Principal Underwriter received the amounts of
$54,043, $46,799 and $16,437 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 1998,1999 and 2000, the
Principal Underwriter received contingent deferred sales charges
of $-0-, $1,287 and $6,180, respectively, on Class A shares,
$162,429, and $228,380 and $353,523, respectively, on Class B
shares, and $28,333, 53,260 and $13,472, respectively, on Class C
shares.
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<PAGE>
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of As % of to Dealers or
Amount of Net Amount the Public Agents As % of
Purchase Invested Offering Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
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
51
<PAGE>
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "-
-Class B Shares-- Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
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
52
<PAGE>
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
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 Disciplined Value Fund, Inc.
Alliance Global Dollar Government 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
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<PAGE>
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
-Biotechnology Portfolio
-Premier Portfolio
-Technology Portfolio
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
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).
54
<PAGE>
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs the Statement of Intention; however, the 13-month period
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
55
<PAGE>
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
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
56
<PAGE>
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present full-time employees
of selected dealers or agents; or the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, 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; and
(vi) 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
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<PAGE>
under programs sponsored by administrators or other persons that
have been approved by the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B Shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
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
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<PAGE>
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as
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
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<PAGE>
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
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
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<PAGE>
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
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.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in 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, (iv) pursuant to a systematic withdrawal plan (see
Shareholder Services - Systematic Withdrawal Plan" below), or
(v) sold through programs offered by financial intermediaries and
approved by AFD where such programs offer only shares which are
not subject to a contingent deferred sales charge and where the
financial intermediary establishes a single omnibus account for
each Fund.
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<PAGE>
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
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
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<PAGE>
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
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.
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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.
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
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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
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
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Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
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
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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
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.
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All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
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
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normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
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
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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
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
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and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
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.
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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
(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
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Class A or Class C shares of the Fund redeemed from the
investor's account. Under this service, checks may be made
payable to any payee in any amount not less than $500 and not
more than 90% of the net asset value of the Class A or Class C
shares in the investor's account (excluding for this purpose the
current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder
wishing to establish this checkwriting service subsequent to the
opening of his or her Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund and the Bank each reserve the
right to change or suspend the checkwriting service. There is no
charge to the shareholder for the initiation and maintenance of
this service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
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.
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In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
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.
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Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities. 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
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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
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
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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
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
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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
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 calendar 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
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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
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
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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
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
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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
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
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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
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.
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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
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
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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
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
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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
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 6, 2000 there
were 30,947,553 shares of common stock of the Fund outstanding,
including 9,525,855 Class A shares, 14,849,581 Class B shares and
6,572,117 Class C shares of common stock and no Advisor Class
shares. To the knowledge of the Fund, the following persons
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owned of record, and no person owned beneficially, 5% or more of
the outstanding shares of the Fund as of October 6, 2000:
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 1,044,059 10.76%
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 632,234 6.64%
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 2,217,646 14.94%
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 1,222,057 17.07%
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.
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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.
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
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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, 2000 was 11.87%
for the Class A shares of the Fund, 11.53% for the Class B and
11.55% for the Class C shares. The actual distribution rate for
such period was 10.31% for Class A shares, 9.61% for Class B
shares and 9.60% for Class C shares. The Fund's average total
return for the one-year period ended August 31, 2000 was 11.49%
for Class A shares, 12.79% for Class B shares and 14.76% 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
for the one-, five- and ten-year periods ended August 31, 2000
(or since inception through that date, as noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
8/31/00 8/31/00 8/31/00
Class A 39.76% 14.87% 10.31%*
Class B 38.41% 14.00% 9.55%*
Class C 38.58% 14.05% 9.48%*
*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
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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.
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_______________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_______________________________________________________________
The financial statements and the report of Ernst & Young
LLP of Alliance Global Dollar Government Fund, Inc. are
incorporated herein by reference to its annual report filing made
with the SEC pursuant to Section 30(b) of the 1940 Act and Rule
30b2-1 thereunder. The annual report is dated August 31, 2000
and it was filed on October 27, 2000. It is available without
charge upon request by calling Alliance Fund Services, Inc. at
(800) 227-4618.
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_______________________________________________________________
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
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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
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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
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price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
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<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
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by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
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00250161.AV1
