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This is filed pursuant to Rule 497(c).
File Nos. 33-76598 and 811-08426.
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(LOGO) ALLIANCE WORLDWIDE
PRIVATIZATION FUND, INC.
________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
________________________________________________________________
This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
current Prospectus for Alliance Worldwide Privatization Fund,
Inc. (the "Fund") that offers the Class A, Class B and Class C
shares of the Fund and the current Prospectus for the Fund that
offers the Advisor Class shares of the Fund (the "Advisor Class
Prospectus" and, together with the Prospectus for the Fund that
offers the Class A, Class B, and Class C shares of the Fund, the
"Prospectus"). Copies of such Prospectuses may be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE FUND.....................................
MANAGEMENT OF THE FUND......................................
EXPENSES OF THE FUND........................................
PURCHASE OF SHARES..........................................
REDEMPTION AND REPURCHASE OF SHARES.........................
SHAREHOLDER SERVICES........................................
NET ASSET VALUE.............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................
PORTFOLIO TRANSACTIONS......................................
GENERAL INFORMATION.........................................
REPORT OF INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS......................................
APPENDIX A: OPTIONS........................................ A-1
APPENDIX B: FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.... B-1
APPENDIX C: BOND RATINGS................................... C-1
APPENDIX D: CERTAIN EMPLOYEE BENEFIT PLANS................. D-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 Worldwide Privitization Fund, Inc. (the "Fund")
is a 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
objective may not be changed without shareholder approval. There
can be, of course, no assurance that the Fund will achieve its
investment objective.
Investment Objective
The investment objective of the Fund is to seek long
term capital appreciation. In seeking to achieve its investment
objective, as a fundamental policy, the Fund will invest at least
65% of its total assets in equity securities that are issued by
enterprises that are undergoing, or that have undergone,
privatization as described below, although normally,
significantly more of the Fund's total assets will be invested in
such securities. The balance of the Fund's investment portfolio
will include securities of companies that are believed by
Alliance Capital Management L.P., the Fund's investment adviser
(the "Adviser") to be beneficiaries of the privatization process.
Equity securities include common stock, preferred stock, rights
or warrants to subscribe for or purchase common or preferred
stock, securities (including debt securities) convertible into
common or preferred stock and securities that give the holder the
right to acquire common or preferred stock.
How The Fund Pursues Its Objective
Investment in Privatizations. The Fund is designed for
investors desiring to take advantage of investment opportunities,
historically inaccessible to U.S. individual investors, that are
created by privatizations of state enterprises in both
established and developing economies, including those in Western
Europe and Scandinavia, Australia, New Zealand, Latin America,
Asia and Eastern and Central Europe and, to a lesser degree,
Canada and the United States.
The Fund's investments in the securities of enterprises
undergoing privatization may comprise three distinct situations.
First, the Fund may invest in the initial offering of equity
securities of a government- or state-owned or controlled company
or enterprise (a "state enterprise") that are traded in a
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recognized national or international securities market (an
"initial equity offering"). Secondly, the Fund may invest in the
securities of a current or former state enterprise following its
initial equity offering, including the purchase of securities in
any secondary offerings. Finally, the Fund may make privately
negotiated investments in a state enterprise that has not yet
conducted an initial equity offering. Investments of this type
may be structured, for example, as privately negotiated sales of
stock or other equity interests in joint ventures, cooperatives
or partnerships. In the opinion of the Adviser, substantial
potential for appreciation in the value of equity securities of
an enterprise undergoing or following privatization exists as the
enterprise rationalizes its management structure, operations and
business strategy to position itself to compete efficiently in a
market economy, and the Fund will seek to emphasize investments
in the equity securities of such enterprises.
The Fund intends to spread its portfolio investments
among the capital markets of a number of countries and, under
normal market conditions, will invest in the equity securities of
issuers based in at least four, and normally considerably more,
countries. The percentage of the Fund's assets invested in
equity securities of companies based in a particular country will
vary in accordance with the Adviser's assessment of the
appreciation potential of such securities. Notwithstanding the
foregoing, no more than 15% of the Fund's total assets will be
invested in securities of issuers in any one foreign country,
except that the Fund may invest up to 30% of its total assets in
securities of issuers in any one of France, Germany, Great
Britain, Italy and Japan.
Privatization is a process through which the ownership
and control of companies or assets changes in whole or in part
from the public sector to the private sector. Through
privatization a government or state divests or transfers all or a
portion of its interest in a state enterprise to some form of
private ownership. In contrast, nationalization is the process
through which a government or state assumes control of a
privately owned enterprise. Privatizations may take the form of
individually negotiated transactions, including trade sales or
management buy-outs, or an offering of equity securities.
Governments and states with established economies, including,
among others, France, Great Britain, Germany and Italy, and those
with developing economies, including, among others, Argentina,
Mexico, Chile, Indonesia, Malaysia, Poland and Hungary, are
currently engaged in privatizations. The Fund will invest in the
securities of enterprises, in any country, that in the Adviser's
opinion present attractive investment opportunities, and the
countries in which the Fund invests will change from time to
time. It is the Adviser's current intention to invest
approximately 70% of the Fund's total assets in securities of
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enterprises located in countries with established economies and
the remainder of the Fund's assets in securities of enterprises
located in countries with developing economies.
The trend toward privatization of state enterprises is a
global phenomenon that the Adviser expects will continue into the
next century. In addition, the Adviser believes that a global
portfolio of equity securities of state enterprises that are
undergoing privatization offers investors the opportunity for
significant capital appreciation relative to local and regional
stock market indices.
A major premise of the Fund's investment approach is
that, because of the particular characteristics of privatized
companies, their equity securities offer investors opportunities
for significant capital appreciation. In particular, because
privatization programs are an important part of a country's
economic restructuring, equity securities that are brought to the
market by means of initial equity offerings frequently are priced
to attract investment in order to secure the issuer's successful
transition to private sector ownership. In addition, these
enterprises generally tend to enjoy dominant market positions in
their local markets. Because of the relaxation of government
controls upon privatization, these enterprises typically have the
potential for significant managerial and operational efficiency
gains, which, among other factors, can increase their earnings
due to the restructuring that accompanies privatization and the
incentives management frequently receives.
Individual regions and countries have different
histories of involvement in the privatization process. For
example, the countries that formerly constituted the Soviet Union
and the Eastern Bloc are currently exploring privatization partly
as a means of integrating into the international community, while
certain Western European and Latin American countries have had
privatization programs in place for more than ten years. The
cumulative gross proceeds from major privatizations worldwide has
dramatically increased in recent years.
Privatization programs are established to address a
range of economic, political or social needs. Privatization is
generally viewed as a means to achieve increased efficiency and
improve the competitiveness of state enterprises. Western
European countries are currently engaged in privatization
programs partly as a means of increasing government revenues,
thereby reducing budget deficits. The reduction of budget
deficits recently has become an important objective as Western
European countries attempt to meet the directives of the European
Commission regarding debt and achieve the target budget deficit
levels established by the Maastricht Treaty. In developing
market countries, including many of those in Latin America and
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Asia, privatization is viewed as an integral part of broad
economic measures that are designed to reduce external debt and
control inflation as these countries attempt to meet the
directives of the International Bank for Reconstruction and
Development (the "World Bank") and the International Monetary
Fund regarding desirable debt levels. Within Eastern and Central
Europe, privatization is also being used as a means of achieving
structural economic changes that will enable Eastern and Central
European countries to develop market economies and compete in the
world markets.
The privatization of state enterprises is achieved
through various methods. A gradual approach is commonly taken at
the early stages of privatization within a country. Oftentimes,
the government will transfer partial ownership of the enterprise
to a corporation or similar entity and occasionally also broaden
ownership to employees and citizens while retaining an interest.
Occasionally, a few selected foreign minority shareholders are
permitted to make private investments at this stage. After the
new corporation has operated under this form of ownership for a
few years, the government may divest itself completely by means
of an equity offering in national and international securities
markets. Another approach is the formation of an investment fund
owned by employees and citizens that, with the assistance of
international managers, operates one or many state enterprises
for a set term, after which the government may divest itself of
its remaining interest. Foreign investors are often permitted to
become minority shareholders of these investment funds. In less
gradual privatizations, state enterprises are auctioned to
qualified investors through competitive bidding processes in
private transactions. Alternatively, equity offerings may be
made directly through the local and international securities
markets.
Although the Fund anticipates that it generally will not
concentrate its investments in any industry, it is permitted,
under certain conditions, to invest more than 25% of its total
assets in the securities of issuers whose primary business
activity is that of national commercial banking. Prior to
concentrating in the securities of national commercial banks, the
Fund's Board of Directors would have to determine, based on
factors in existence at the time of the determination, such as
liquidity, availability of investments and anticipated returns,
that the Fund's ability to achieve its investment objective would
be adversely affected if the Fund were not permitted to invest
more than 25% of its total assets in those securities. The
Adviser anticipates that such circumstances could include periods
during which returns on or market liquidity of investments in
national commercial banks substantially exceed those available on
investments in other industries. The staff of the Securities and
Exchange Commission (the "Commission") has indicated that, in its
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view, registered investment companies may not, absent shareholder
approval, change between concentration and non-concentration in
the securities of issuers in a single industry. The Fund
disagrees with the staff's position but has undertaken that it
will not concentrate in the securities of national commercial
banks until final resolution of the issue. There can be no
assurance that the issue will be resolved so as to permit the
Fund to change between concentration and non-concentration in the
manner described above in this paragraph. To the extent that the
Fund invests more than 25% of its total assets in the national
commercial banks, the Fund's performance could be significantly
influenced by events or conditions affecting this industry and
the Fund's investments may be subject to greater risk and market
fluctuation than those of a fund that has in its portfolio
securities representing a broader range of investment
alternatives. The national commercial banking industry is
subject to, among other things, increases in interest rates and
deterioration in general economic conditions.
Except as otherwise noted, the Fund's investment
policies described below are not designated "fundamental
policies" within the meaning of the Investment Company Act of
1940 (the "1940 Act") and, therefore, may be changed by the
Directors of the Fund without a shareholder vote. However, the
Fund will not change its investment policies without
contemporaneous written notice to shareholders.
Warrants. The Fund may invest up to 20% of its total
assets in rights or warrants which entitle the holder to buy
equity securities at a specific price for a specific period of
time, but will do so only if the equity securities themselves are
deemed appropriate by the Adviser for inclusion in the Fund's
portfolio; however, the Fund does not presently intend to invest
more than 10% of its total assets in such warrants. Rights and
warrants may be considered more speculative than certain other
types of investments in that they do not entitle a holder to
dividends or voting rights with respect to the securities which
may be purchased nor do they represent any rights in the assets
of the issuing company. Also, the value of a right or warrant
does not necessarily change with the value of the underlying
securities and a right or warrant ceases to have value if it is
not exercised prior to the expiration date.
Debt Securities and Convertible Debt Securities. The
Fund may invest up to 35% of its total assets in debt securities
and convertible debt securities of issuers whose common stocks
are eligible for purchase by the Fund under the investment
policies described above. Debt securities include bonds,
debentures, corporate notes and preferred stocks. Convertible
debt securities are such instruments that are convertible at a
stated exchange rate into common stock. Prior to their
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conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide
a stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of debt securities and convertible debt securities tends to
decline as interest rates increase and, conversely, to increase
as interest rates decline. While convertible securities
generally offer lower interest yields than non-convertible debt
securities of similar quality, they do enable the investor to
benefit from increases in the market price of the underlying
common stock.
When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an
issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
The Fund may maintain not more than 5% of its net assets
in debt securities rated below Baa by Moody's Investors Service,
Inc. ("Moody's") and BBB by Standard and Poor's Ratings Services
("S&P"), or, if not rated, determined by the Adviser to be of
equivalent quality. The Fund will not purchase a debt security
that, at the time of purchase, is rated below B by Moody's and
S&P, or determined by the Adviser to be of equivalent quality,
but may retain a debt security the rating of which drops below B.
See "Certain Risk Considerations--Securities Ratings."
Defensive Position. For temporary defensive purposes,
the Fund may vary from its fundamental investment policy during
periods in which conditions in securities markets or other
economic or political conditions warrant. The Fund may reduce
its position in equity securities and increase without limit its
position in short-term, liquid, high-grade debt securities, which
may include securities issued by the U.S. government, its
agencies and instrumentalities ("U.S. Government Securities"),
bank deposits, money market instruments, short-term (for this
purpose, securities with a remaining maturity of one year or
less) debt securities, including notes and bonds, and short-term
foreign currency denominated debt securities rated A or higher by
S&P or Moody's or, if not so rated, of equivalent investment
quality as determined by the Adviser. For this purpose, the Fund
will limit its investments in foreign currency denominated debt
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securities to securities that are denominated in currencies in
which the Fund anticipates its subsequent investments will be
denominated.
Subject to its policy of investing at least 65% of its
total assets in equity securities of enterprises undergoing
privatization, the Fund may also at any time temporarily invest
funds awaiting reinvestment or held as reserves for dividends and
other distributions to shareholders in money market instruments
referred to above.
Additional Investment Policies and Practices
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 and over-the-counter, including
options on market indices. The Fund will only write "covered"
put and call options, unless such options are written 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
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 its 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 its 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
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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 but seeks 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 Fund's 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
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
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. 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
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value. These risks could be reduced by entering into a closing
transaction prior to the option expiration dates if a liquid
market is available. The Fund retains the premium received from
writing a put or call option whether or not the option is
exercised. For additional information on the use, risk and costs
of options, see Appendix A.
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 Market Indices. 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 exercises of the option, an amount of
cash if the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option. There are no specific limitations
on the Fund's purchasing and selling of options on securities
indices.
Futures Contracts and Options on Futures Contracts. The
Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S.
Government Securities, securities issued by foreign government
entities or common stocks ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to
acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser
of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
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Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date.
The Fund will not enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of the market value of the outstanding futures
contracts of the Fund and the market value of the currencies and
futures contracts subject to outstanding options written by the
Fund would exceed 50% of the market value of the total assets of
the Fund.
The successful use of such instrument draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses. The Fund's Custodian will
place liquid assets in a segregate account of the Fund having a
value equal to the aggregate amount of the Fund's commitments
under futures contracts.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Foreign Currencies. The Fund may purchase
and write put and call options on foreign currencies for the
purpose of protecting against declines in the U.S. Dollar value
of foreign currency-denominated portfolio securities and against
increases in the U.S. Dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
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may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written
or purchased by the Fund are traded on U.S. and foreign exchanges
or over-the-counter. There is no specific percentage limitation
on the Fund's investments in options on foreign currencies. For
additional information on the use, risks and costs of options on
foreign currencies, see Appendix B.
Forward Foreign Currency Exchange Contracts. The Fund
may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. Dollar
and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date, and is individually negotiated and privately traded
by currency for an agreed price at a future date, and is
individually negotiated and privately traded by currency traders
and their customers. The Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or
sale of a security denominated in a foreign currency in order to
"lock in" the U.S. Dollar price of the security ("transaction
hedge"). The Fund may not engage in transaction hedges with
respect to the currency of a particular country to an extent
greater than the aggregate amount of the Fund's transactions in
that currency. Additionally, for example, when the Fund believes
that a foreign currency may suffer a substantial decline against
the U.S. Dollar, it may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value
of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position
hedge"). In this situation the Fund may, in the alternative,
enter into a forward contract to sell a different foreign
currency for a fixed U.S. Dollar amount where the Fund believes
that the U.S. Dollar value of the currency to be sold pursuant to
the forward contract will fall whenever there is a decline in the
U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated ("cross-hedge"). To the extent
required by applicable law, the Fund's Custodian will place
liquid assets in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the assets placed in a
segregated account declines, additional liquid assets will be
placed in the account on a daily basis so that the value of the
account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign
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currency being hedged by a forward sale contract at a price no
higher than the forward contract price or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated
changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such
contracts. In addition, the Fund may use other methods of
"cover" as are permitted by applicable law.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Fund's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not
entered into such contracts. The use of foreign currency forward
contracts will not eliminate fluctuations in the underlying U.S.
Dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency-denominated portfolio securities and
the use of such techniques will subject the Fund to certain
risks.
The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign-currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Fund may
not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's
ability to use such contracts to hedge or cross-hedge its assets.
Also, with regard to the Fund's use of cross-hedges, there can be
no assurance that historical correlation between the movement of
certain foreign currencies relative to the U.S. Dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.
For additional information on the use, risks and costs of forward
foreign currency exchange contracts, see Appendix B.
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,
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corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter 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
conditions did not occur and the trade was canceled.
The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling 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 Fund's
Custodian will maintain, in a segregated account of the Fund,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it may incur a gain or loss.
In the event the other party to a forward commitment transaction
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<PAGE>
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.
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
ultimately is issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has
committed to purchase. 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 the commitments will not exceed 50% of its
assets taken at the time of acquisition of such commitment. 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.
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.
Currency Swaps. The Fund may enter into currency swaps
for hedging purposes. Currency swaps involve the exchange by the
Fund with another party of a series of payments in specified
currencies. Since currency swaps are individually negotiated,
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<PAGE>
the Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its currency swaps
positions. A currency swap may involve the delivery at the end
of the exchange period of a substantial amount of one designated
currency in exchange for the other designated currency. Therefore
the entire principal value of a currency swap is subject to the
risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess,
if any, of the Fund's obligations over its entitlements with
respect to each currency swap will be accrued on a daily basis
and an amount of liquid assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in
a segregated accounting by the Fund's custodian. The Fund will
not enter into any currency swap unless the credit quality of the
unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least
one nationally recognized rating organization at the time of
entering into the transaction. If there is a default by the other
party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transactions.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to U.S. Government Securities
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. Currently,
the Fund intends to enter into repurchase agreements only with
its custodian 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 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. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
by its Custodian for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, the Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. In the event of a vendor's
bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for 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
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<PAGE>
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.
Illiquid Securities. The Fund will not maintain more
than 15% of the Fund's net assets (taken at market value) in
illiquid securities. For this purpose, illiquid securities
include, among others (a) direct placement or other securities
which are subject to legal or contractual restrictions on resale
or for which there is no readily available market (e.g., many
individually negotiated currency swaps and any assets used to
cover currency swaps, most privately negotiated investments in
state enterprises that have not yet conducted initial equity
offerings, when trading in the security is suspended or, in the
case of unlisted securities, when market makers do not exist or
will not entertain bids or offers), (b) over-the-counter options
and all assets used to cover over-the-counter options and (c)
repurchase agreements not terminable within seven days.
The Fund may not be able to readily sell illiquid
securities. Such securities are unlike securities which are
traded in the open market and which can be expected to be sold
immediately if the market is adequate. The sale price of
illiquid securities may be lower or higher than the Adviser's
most recent estimate of their fair value. Generally, less public
information is available with respect to the issuers of such
securities than with respect to companies whose securities are
traded on an exchange. Illiquid securities are more likely to be
issued by small businesses and therefore subject to greater
economic, business and market risks than the listed securities of
more well-established companies. Adverse conditions in the public
securities markets may at certain times preclude a public
offering of an issuer's securities. To the extent that the Fund
makes any privately negotiated investments in state enterprises,
such investments are likely to be in securities that are not
readily marketable. It is the intention of the Fund to make such
investments when the Adviser believes there is a reasonable
expectation that the Fund would be able to dispose of its
investment within three years. There is no law in a number of the
countries in which the Fund may invest similar to the U.S.
Securities Act of 1933, as amended (the "1933 Act") requiring an
17
<PAGE>
issuer to register the public sale of securities with a
governmental agency or imposing legal restrictions on resales of
securities, either as to length of time the securities may be
held or manner of resale. However, there may be contractual
restrictions on resale of securities. In addition, many
countries do not have informational disclosure requirements
similar in scope to those required under the U.S. Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Adviser
will monitor the illiquidity of such securities under the
supervision of the Board of Directors.
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. Pursuant to the
Taxpayer Relief Act of 1997, if the Fund has unrealized gain with
respect to a security and enters into a short sale with respect
to such security, the Fund generally will be deemed to have sold
the appreciated security and thus will recognize a gain for tax
purposes. 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
"Investment Restrictions." Certain special federal income tax
considerations may apply to short sales which are entered into by
the Fund. See "Dividends, Distributions and Taxes-United States
Federal Income Taxation of the Fund-Tax Straddles."
General. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast price movements or currency
exchange rate movements correctly. Should exchange rates move in
an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or
may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on
currencies and forward contracts, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the
prices of such instruments and movements in the prices of the
securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
18
<PAGE>
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If 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 currencies or portfolio securities covering
an option written by the Fund until the option expires or it
delivers the underlying futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, the Fund's ability to
engage in options and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes--U.S.
Federal Income Taxes."
Additional Investment Policies
Loans of Portfolio Securities. The Fund may make
secured loans of its portfolio securities to entities with which
it can enter into repurchase agreements, provided that liquid
assets equal to at least 100% of the market value of the
securities loaned are deposited and maintained by the borrower
with the Fund. See "Repurchase Agreements" above. 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 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 30% of the value of its total assets, nor
will the Fund lend its portfolio securities to any officer,
19
<PAGE>
director, employee or affiliate of the Fund or the Adviser. The
Board of Directors will monitor the Fund's lending of portfolio
securities.
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 which currently are not available but which may be
developed, to the extent such investment practices are both
consistent with the Fund's investment objective and legally
permissible for the Fund. Such investment practices, if they
arise, may involve risks which exceed those involved in the
activities described above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to sell any security whenever,
in the judgment of the Adviser, its appreciation possibilities
have been substantially realized or the business or market
prospects for such security have deteriorated, irrespective of
the length of time that such security has been held. The Adviser
anticipates that the Fund's annual rate of portfolio turnover
will not exceed 200%. A 200% annual turnover rate would occur if
all the securities in the Fund's portfolio were replaced twice
within a period of one year. The turnover rate has a direct
effect on the transaction costs to be borne by the Fund, and as
portfolio turnover increases it is more likely that the Fund will
realize short-term capital gains.
Certain Risk Considerations
Investment in the Fund involves the special risk
considerations described below.
Investment in Privatized Enterprises. The governments
of certain foreign countries have, to varying degrees, embarked
on privatization programs contemplating the sale of all or part
of their interests in state enterprises. In certain
jurisdictions, the ability of foreign entities, such as the Fund,
to participate in privatizations may be limited by local law, or
the price or terms on which the Fund may be able to participate
may be less advantageous than for local investors. Moreover,
there can be no assurance that governments that have embarked on
privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be
successful or that governments will not re-nationalize
enterprises that have been privatized. Furthermore, in the case
of certain of the enterprises in which the Fund may invest, large
blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by
those enterprises. The sale of some portion or all of those
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<PAGE>
blocks could have an adverse effect on the price of the stock of
any such enterprise.
Most state enterprises or former state enterprises go
through an internal reorganization of management prior to making
an initial equity offering in an attempt to better enable these
enterprises to compete in the private sector. However, certain
reorganizations could result in a management team that does not
function as well as the enterprise's prior management and may
have a negative effect on such enterprise. After making an
initial equity offering enterprises which may have enjoyed
preferential treatment from the respective state or government
that owned or controlled them may no longer receive such
preferential treatment and may become subject to market
competition from which they were previously protected. Some of
these enterprises may not be able to effectively operate in a
competitive market and may suffer losses or experience bankruptcy
due to such competition. In addition, the privatization of an
enterprise by its government may occur over a number of years,
with the government continuing to hold a controlling position in
the enterprise even after the initial equity offering for the
enterprise.
Currency Considerations. Because substantially all of
the Fund's assets will be invested in securities denominated in
foreign currencies and a corresponding portion of the Fund's
revenues will be received in such currencies, the dollar
equivalent of the Fund's net assets and distributions will be
adversely affected by reductions in the value of certain foreign
currencies relative to the U.S. dollar. Such changes will also
affect the Fund's income. The Fund will, however, have the
ability to attempt to protect itself against adverse changes in
the values of foreign currencies by engaging in certain of the
investment practices listed above. While the Fund has this
ability, there is no certainty as to whether and to what extent
the Fund will engage in these practices. If the value of the
foreign currencies in which the Fund receives its income falls
relative to the U.S. dollar between receipt of the income and the
making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund
has insufficient cash in U.S. dollars to meet distribution
requirements. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. dollars and the time
cash expenses are paid, the amount of the currency required to be
converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred.
Risk of Foreign Investment. The securities markets of
many foreign countries are relatively small, with the majority of
market capitalization and trading volume concentrated in a
21
<PAGE>
limited number of companies representing a small number of
industries. Consequently, the Fund's investment portfolio may
experience greater price volatility and significantly lower
liquidity than a portfolio invested in equity securities of U.S.
companies. These markets may be subject to greater influence by
adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual
in the United States. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties. Furthermore, foreign investment in the securities
markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of the Fund. As illustrations,
certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment
by foreign persons in a particular company, or limit the
investment by foreign persons to only a specific class of
securities of a company which may have less advantageous terms
than securities of the company available for purchase by
nationals or impose additional taxes on foreign investors. The
national policies of certain countries may restrict investment
opportunities in issuers deemed sensitive to national interests.
In addition, the repatriation of investment income, capital or
the proceeds of sales of securities from certain of the countries
is controlled under regulations, including in some cases the need
for certain advance government notification or authority, and if
a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. Investing in local markets may
require the Fund to adopt special procedures, seek local
governmental approvals or other actions, any of which may involve
additional costs to the Fund. The liquidity of the Fund's
investments in any country in which any of these factors exist
could be affected and the Adviser will monitor the effect of any
such factor or factors on the Fund's investments. Furthermore,
transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the United States.
Issuers of securities in foreign jurisdictions are
generally not subject to the same degree of regulation as are
U.S. issuers with respect to such matters as insider trading
rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The
reporting, accounting and auditing standards of foreign countries
may differ, in some cases significantly, from U.S. standards in
important respects and less information may be available to
22
<PAGE>
investors in foreign securities than to investors in U.S.
securities. Foreign issuers are subject to accounting, auditing
and financial standards and requirements that differ, in some
cases significantly, from those applicable to U.S. issuers. In
particular, 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 statements been prepared in
accordance with U.S. generally accepted accounting principles. In
addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Fund will invest require, for both tax and accounting
purposes, that certain 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.
The economies of individual foreign countries may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product or gross national product,
rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social
instability or diplomatic developments could affect adversely the
economy of a foreign country or the Fund's investments in such
country. In the event of expropriation, nationalization or other
confiscation, the Fund could lose its entire investment in the
country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may
provide less protection to security holders such as the Fund than
that provided by U.S. laws. The Fund intends to spread its
portfolio investments among the capital markets of a number of
countries and, under normal market conditions, will invest in the
equity securities of issuers based in at least four, and normally
considerably more, countries. There is no restriction, however,
on the percentage of the Fund's assets that may be invested in
countries within any one region of the world. To the extent that
the Fund's assets are invested within any one region, the Fund
may be subject to any special risks that may be associated with
that region.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable
tax laws and interpretations will not change in the future.
23
<PAGE>
Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the
information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
Investments in Lower-Rated Debt Securities. Debt
securities rated below investment grade, i.e., Ba and lower by
Moody's or BB and lower by S&P ("lower-rated securities"), or, if
not rated, determined by the Adviser to be of equivalent quality,
are 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. They are also generally
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. Debt securities
rated Ba by Moody's or BB by S&P are judged to have speculative
characteristics or to be predominantly speculative with respect
to the issuer's ability to pay interest and repay principal.
Debt securities rated B by Moody's and S&P are judged to have
highly speculative characteristics or to be predominantly
speculative. Such securities may have small assurance of
interest and principal payments. Debt securities having the
lowest ratings for non-subordinated debt instruments assigned by
Moody's or S&P (i.e., rated C by Moody's or CCC and lower by S&P)
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.
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. The Adviser will try to reduce the
risk inherent in investment in lower-rated securities through
credit analysis, diversification and attention to current
developments and trends in interest rates and economic and
political conditions. However, there can be no assurance that
losses will not occur. Since the risk of default is higher for
lower-rated securities, the Adviser's research and credit
analysis are a correspondingly important aspect of its program
24
<PAGE>
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-risk, high-yield 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.
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 objective
and policies.
The ratings of debt securities by S&P and Moody's 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. Securities rated BBB by S&P or Baa by Moody's are
considered to be investment grade. Securities rated BBB by S&P
or Baa by Moody's are considered to have speculative
characteristics. Sustained periods of deteriorating economic
conditions or rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay
principal than in the case of higher-rated securities. See
Appendix C for a description of Moody's and S&P's bond and
commercial paper ratings.
Certain Fundamental Investment Policies. The following
restrictions, which supplement those set forth in the Fund's
Prospectus, may not be changed without approval by the vote of a
majority of the Fund's outstanding voting securities, which means
the affirmative vote of the holders of (i) 67% or more of 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.
To reduce investment risk, as a matter of fundamental
policy the Fund may not:
(i) invest 25% or more of its total assets in
securities of issuers conducting their principal
business activities in the same industry, except
25
<PAGE>
that this restriction does not apply to (a) U.S.
Government Securities; or (b) the purchase of
securities of issuers whose primary business
activity is in the national commercial banking
industry, so long as the Fund's Directors
determine, on the basis of factors such as
liquidity, availability of investments and
anticipated returns, that the Fund's ability to
achieve its investment objective would be
adversely affected if the Fund were not
permitted to invest more than 25% of its total
assets in those securities, and so long as the
Fund notifies its shareholders of any decision
by the Directors to permit or cease to permit
the Fund to invest more than 25% of its total
assets in those securities, such notice to
include a discussion of any increased investment
risks to which the Fund may be subjected as a
result of the Director's determination;
(ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of
redemption requests which might require the
untimely disposition of securities; borrowing in
the aggregate may not exceed 15%, and borrowing
for purposes other than meeting redemptions may
not exceed 5% of the Fund's total assets
(including the amount borrowed) less liabilities
(not including the amount borrowed) at the time
the borrowing is made; outstanding borrowings in
excess of 5% of the value of the Fund's total
assets will be repaid before any investments are
made;
(iii) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
(iv) make loans except through (i) the purchase of
debt obligations in accordance with its
investment objectives and policies; (ii) the
lending of portfolio securities; or (iii) the
use of repurchase agreements;
(v) participate on a joint or joint and several
basis in any securities trading account;
(vi) invest in companies for the purpose of
exercising control;
26
<PAGE>
(vii) issue any senior security within the meaning of
the 1940 Act except that the Fund may write put
and call options;
(viii) make short sales of securities or maintain a
short position, unless at all times when a short
position is open it on an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as,
and equal in amount to, the securities sold
short ("short sales against the box"), and
unless not more than 10% of the Fund's net
assets (taken at market value) is held as
collateral for such sales at any one time (it is
the Fund's present intention to make such sales
only for the purpose of deferring realization of
gain or loss for Federal income tax purposes);
or
(ix) (a) purchase or sell real estate, except that it
may purchase and sell securities of companies
which deal in real estate or interests therein;
(b) purchase or sell commodities or commodity
contracts including futures contracts (except
foreign currencies, foreign currency options and
futures, options and futures on securities and
securities indices and forward contracts or
contracts for the future acquisition or delivery
of securities and foreign currencies and related
options on futures contracts and similar
contracts); (c) invest in interests in oil, gas,
or other mineral exploration or development
programs; (d) purchase securities on margin,
except for such short-term credits as may be
necessary for the clearance of transactions; and
(e) 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 1933 Act.
The exception contained in clause (i)(b) above is
subject to the operating policy regarding concentration described
above in this section "--How the Fund Pursues Its Objective."
In addition to the restrictions set forth above, in
connection with the qualifications of its shares for sale in
certain states, the Fund may not invest in warrants (other than
warrants acquired by the Fund as a part of a unit or attached to
securities at the time of purchase) if as a result of such
27
<PAGE>
warrants valued at the lower of such cost or market would exceed
10% of the value of the Fund's assets at the time of
purchase.
_____________________________________________________________
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
principal officers of the Fund, their ages and their primary
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.
Directors
JOHN D. CARIFA,* 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 67, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
28
<PAGE>
DR. JAMES HESTER, 75, has been President of the Harry
Frank Guggenheim Foundation, with which he has been associated
since prior to 1994. He was formerly President of New York
University, the New York Botanical Garden and Rector of the
United Nations University. His address is 25 Cleveland Lane,
Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 60, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, Chairman and President, see biography,
above.
MARK H. BREEDON, Senior Vice President, 46, has been a
Vice President of ACMC and a Director and Senior Vice President
of Alliance Capital Limited ("ALC") with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
THOMAS J. BARDONG, Vice President, 54, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
RUSSELL BRODY, Vice President, 32, is a Vice President
of ACMC and Head Trader of the London desk of ACL, with which he
has been associated since April 1997. Prior thereto, he was the
head of European Equity Dealing at Lombard Odier et Cie, London
office, since prior to 1994.
DAVID EDGERLY, Vice President, 57, is the General
Manager of Alliance Capital Management (Turkey) Ltd., with which
he has been associated since prior to 1994.
JEAN VAN DE WALLE, Vice President, 40, has been Vice
President of ACMC since prior to 1994.
29
<PAGE>
EDMUND P. BERGAN, Jr., Secretary, 49, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 45, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was a
Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 38, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1994.
EMILIE D. WRAPP, Assistant Secretary, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
MARK GERSTEN, Treasurer and Chief Financial Officer, 49,
is a Senior Vice President of AFS and a Vice President of AFD,
with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34 is a Vice President of
AFS, with which he has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its current fiscal year, the aggregate
compensation paid to each of the Directors during calendar year
1998 by all of the funds 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 other fund in the Alliance Fund Complex provides
compensation in the form of pension or retirement benefits to any
of its directors or trustees.
30
<PAGE>
Total Number Total Number
of Investment of Investment
Companies in Portfolios Within
the Alliance the Alliance Fund
Total Fund Complex, Complex,
Compensation Including the Including the
From the Fund, as to Fund, as to
Alliance Fund which the which the
Aggregate Complex, Director is a Director is a
Name of Compensation Including the Director or Director or
Director From the Fund Fund Trustee Trustee
___________ _____________ _____________ _____________ _______________
John D. Carifa $0 $0 50 116
Ruth Block $3,583 $180,763 37 79
David H. Dievler $3,706 $216,288 44 86
John H. Dobkin $3,670 $185,363 42 97
William H. Foulk, Jr. $3,705 $241,003 45 111
Dr. James M. Hester $3,707 $172,913 38 80
Clifford L. Michel $3,707 $187,763 39 96
Donald J. Robinson $2,972 $193,709 41 105
As of October 8, 1999, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international adviser managing
client accounts with assets as of September 30, 1999 totaling
more than $317 billion (of which more than $143 billion
represented assets of investment companies). As of September 30,
1999, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 28
of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for
foundations, endowments, banks and insurance companies worldwide.
The 52 registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
approximately 4.8 million shareholder accounts.
ACMC is the general partner of the Adviser. As of
September 30, 1999, The Equitable Life Assurance Society of the
31
<PAGE>
United States ("Equitable"), ACMC, Inc. and Equitable Capital
Management Corporation ("ECMC") were the beneficial owners of
approximately 56% of the outstanding Units of the Adviser. ACMC,
ECMC and ACMC, Inc. are wholly owned subsidiaries of Equitable,
one of the largest life insurance companies in the United States.
ECMC is a registered investment adviser and ACMC, Inc. is a
holding company for Units of the Adviser. Equitable is a wholly
owned subsidiary of AXA Financial, Inc. ("AXA Financial"), a
Delaware corporation whose shares are traded on the New York
Stock Exchange. AXA Financial serves as the holding company for
the Adviser, Equitable and Donaldson, Lufkin & Jenrette, Inc., a
broker-dealer holding company. As of September 30, 1999, AXA, a
French insurance holding company, owned approximately 56% of the
issued and outstanding shares of the common stock of AXA
Financial.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. For the fiscal years ended June
30, 1997, June 30, 1998 and June 30, 1999, the Adviser received
from the Fund advisory fees of $6,703,589, $6,894,591 and
$5,177,294, respectively.
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 employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or by other subsidiaries of Equitable. In such event,
the services will be provided to the Fund at cost and the
32
<PAGE>
payments specifically approved by the Fund's Board of Directors.
The Fund paid to the Adviser a total of $173,000 in respect of
such services during the fiscal year of the Fund ended June 30,
1999.
Under the Advisory Agreement, the Fund pays the Adviser
a fee at the annual rate of 1.00% of the value of the average
daily net assets of the Fund. The fee is accrued daily and paid
monthly.
The Advisory Agreement became effective on April 22,
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 April 19, 1994, and by the Fund's
initial shareholder on April 19, 1994.
The Advisory Agreement will remain in effect for successive
twelve-month periods (computed from each February 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 1940 Act, of any such party at a meeting in person called for
the purpose of voting on such matter. Most recently, continuance
of the Advisory Agreement was approved for the period ending
January 31, 2000 by the Board of Directors, including a majority
of the Directors who are not "interested persons" as defined in
the 1940 Act, at their Regular Meeting held on January 5, 1999.
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 Global Dollar
Government Fund, Inc., Alliance Global Environment Fund, Inc.,
33
<PAGE>
Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Government Reserves, Alliance
Greater China '97 Fund, Inc., Alliance Growth and Income Fund,
Inc., Alliance Health Care Fund, Inc., Alliance High Yield Fund,
Inc., Alliance Institutional Funds, Inc., Alliance Institutional
Reserves, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., The Alliance Fund,
Inc., The Alliance Portfolios and The Hudson River Trust, all
registered open-end investment companies; and to ACM Government
Income Fund, Inc., ACM Government Securities Fund, Inc., ACM
Government Spectrum Fund, Inc., ACM Government Opportunity Fund,
Inc., ACM Managed Income Fund, Inc., ACM Managed Dollar Income
Fund, Inc., ACM Municipal Securities Income Fund, Inc., Alliance
All-Market Advantage Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Austria Fund, Inc., The Korean Investment Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., 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 distribution of
its Class A shares, Class B shares 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 under the 1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended June 30, 1999,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class A shares, in amounts
aggregating $1,107,619 which constituted .30%, annualized, of the
34
<PAGE>
Fund's aggregate average daily net assets attributable to Class A
shares during the period, and the Adviser made payments from its
own resources as described above aggregating $895,797. Of the
$2,003,416 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class A shares, $94,257 was spent on
advertising, $5,368 on the printing and mailing of prospectuses
for persons other than current shareholders, $1,254,311for
compensation to broker-dealers and other financial intermediaries
(including, $236,199 to the Fund's Principal Underwriters),
$250,989 for compensation to sales personnel, $398,491 was spent
on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended June 30, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
$1,250,782 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 $1,250,782
paid by the Fund under Rule 12b-1 Plan with respect to the
Class B shares, $31,129 was spent on advertising, $11,012 on the
printing and mailing of prospectuses for persons other than
current shareholders, $608,459 for compensation to broker-dealers
and other financial intermediaries (including, $89,492 to the
Fund's Principal Underwriters), $39,716 for compensation to sales
personnel, $143,865 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, $154,313 was spent on interest on Class B shares
financing and $262,288 was used to offset the Distribution
Service fees paid in prior years.
During the Fund's fiscal year ended June 30, 1999, the
Fund paid distribution services fees for expenditures under the
Agreement, with respect to Class C shares, in amounts aggregating
$217,886, which constituted 1.00%, annualized, 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 $99,416. Of the
$317,302 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to the Class C shares, $13,614 was spent on
advertising, $4,820 on the printing and mailing of prospectuses
for persons other than current shareholders, $204,816 for
compensation to broker-dealers and other financial intermediaries
(including, $39,506 to the Fund's Principal Underwriters),
$16,616 for compensation to sales personnel, $62,155 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $15,281 was spent
on interest on Class C shares financing.
35
<PAGE>
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 charge and
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares for any given year, however, will probably exceed
the distribution services fee payable under the Rule 12b-1 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 Rule 12b-1 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 Rule 12b-1 Plan is in
effect.
Unreimbursed distribution expenses incurred as of
the end of the Fund's most recently completed fiscal period, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares for the Fund were, respectively,
$6,347,503 (5.41% of the net assets of Class B); 637,365 (3.12%
of net assets of Class C).
The Rule 12b-1 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.
36
<PAGE>
In approving the 12b-1 Plan, the Directors of the Fund
determined that there was a reasonable likelihood that the Rule
12b-1 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 February 1) with respect
to each class of the Fund, provided, however, that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of
that class, and in either case, by a majority of the Directors of
the Fund who are not parties to the Agreement or interested
persons, as defined in the 1940 Act, of any such party (other
than as directors of the Fund) and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan or any
agreement related thereto. The Agreement was most recently
approved for the period ending January 31, 2000 by the Directors
of the Fund, including all of the disinterested Directors, at a
meeting held on January 5, 1999.
In the event that the Rule 12b-1 Plan is terminated
or not continued with respect to the Class A shares, Class B
shares or Class C shares, (i) no distribution services fees
(other than current amounts accrued but not yet paid) would be
owed by the Fund to the Principal Underwriter with respect to
that class, and (ii) the Fund would not be obligated to pay the
Principal Underwriter for any amounts expended under the
Agreement not previously recovered by the Principal Underwriter
from distribution services fees in respect of shares of such
class or through deferred sales charges.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreements. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
37
<PAGE>
services arrangements would be made and that shareholders would
not be adversely affected.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser located at 500 Plaza Drive, Secaucus,
New Jersey 07904, receives a transfer agency fee per account
holder 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 and Advisor Class shares,
reflecting the additional costs associated with the Class B and
Class C contingent deferred sales charge. For the fiscal year
ended June 30, 1999, the Fund paid Alliance Fund Services, Inc.
$817,915 pursuant to the Transfer Agency Agreement.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How To Buy Shares."
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
38
<PAGE>
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)
under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Richard Ellis, Inc. Generally, a fee-based program must
charge an asset-based or other similar fee and must invest at
least $250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's 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 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.
39
<PAGE>
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 value of the Class A
and Advisor Class shares, as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. 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
net asset value). 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"
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<PAGE>
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission 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 do Class A shares, and Advisor Class shares do not bear such a
fee, (iii) Class B and Class C shares bear higher transfer agency
41
<PAGE>
costs than do Class A 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 and Advisor Class shareholders and the Class A,
Class B and Advisor Class shareholders will vote separately by
class, and (v) Class B and Advisor Class shares are subject to a
conversion feature. Each class has different exchange privileges
and certain different shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares**
Class A, Class B and Class C shares have the following
alternative purchase arrangements: Class A shares are sold to
investors choosing the initial sales charge alternative, Class B
shares are sold to investors choosing the deferred sales charge
alternative and Class C shares are sold to investors choosing the
asset-based sales charge alternative. These alternative purchase
arrangements 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 charges on Class B shares prior to conversion, or
the accumulated distribution services fee and contingent deferred
sales charges 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
____________________
** Advisor Class shares are sold only to investors described
above in this section "--General."
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<PAGE>
orders from certain retirement plans and certain employee benefit
plans) for more than $250,000 for Class B shares. (See Appendix D
for information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
Shares.) Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
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 four-
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
four-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.
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<PAGE>
During the Fund's fiscal years ended June 30, 1999,
June 30, 1998, and June 30, 1997, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $326,001, $1,205,560 and $816,186, respectively. Of
that amount, the Principal Underwriter received the amount of
$35,878, $79,491 and $36,182, 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 1999, 1998 and 1997, the
Principal Underwriter received contingent deferred sales charges
of $1,421, $257 and $0, respectively, on Class A shares,
$328,557, $273,885 and $309,365, respectively, on Class B shares,
and $18,552, $17,603 and $1,116, respectively on Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Commission Discount Or
Charge Sales Charge
As % of To Dealers
As % of the Public Or Agents
Amount of Net Amount Offering As % of
Purchase Invested 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
44
<PAGE>
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers 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
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<PAGE>
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the 1933 Act.
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
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<PAGE>
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation).
An investor's purchase of additional Class A shares of the Fund
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
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<PAGE>
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the initial 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 a 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
48
<PAGE>
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 initial
sales charge applicable to the shares actually purchased if the
full amount indicated is not purchased, and such escrowed shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased,
the escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased
at the end of the 13-month period. The difference in the sales
charge will be used to purchase additional shares of the Fund
subject to the rate of the sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
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.
49
<PAGE>
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 reinstatement of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales
charge) and without any 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
sales are made 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;
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 service 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
50
<PAGE>
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 services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing within such time period as may be designated by the
Principal Underwriter, proceeds of redemption of shares of such
other registered investment companies as may be designated from
time to time by the Principal Underwriter; and (vii) employer-
sponsored qualified pension or profit-sharing plans (including
Section 401(k) plans), custodial accounts maintained pursuant to
Section 403(b)(7) retirement plans and individual retirement
accounts (including individual retirement accounts to which
simplified employee pension ("SEP") contributions are made), if
such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
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 are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four 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.
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<PAGE>
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 3.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Year Contingent Deferred Sales Charge as a %
Since Purchase of Dollar Amount Subject to Charge
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth 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
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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 - Systemic Withdrawal Plan" below).
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
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 eight 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
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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 than Class A shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than Class
A shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
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.
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
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described above under "Purchase of Shares--General" and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan or, to be associated with the
investment adviser or financial intermediary, in each case that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically 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 of 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 under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
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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 redeems
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 New York Stock Exchange (the "Exchange") is
closed (other than customary weekend and holiday closings) or
during which the Commission determines that trading thereon is
restricted, or for any period during which an emergency (as
determined by the Commission) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the Commission may by order
permit for the protection of security holders of the Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
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redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the 1934 Act.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
fund transfer of shares for which no stock certificates have been
issued by telephone at (800) 221-5672 by a shareholder who has
completed the appropriate portion of the Subscription Application
or, in the case of an existing shareholder, an "Autosell"
application obtained from Alliance Fund Services, Inc. A
telephone redemption request may not exceed $100,000 (except for
certain omnibus accounts), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by electronic funds transfer
to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS 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
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difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Telephone redemption is not available
with respect to shares (i) for which certificates have been
issued, (ii) held in nominee or "street name" accounts,
(iii) held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iv) held in any
retirement plan account. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
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 net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
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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 under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
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shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may 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 exchange of Class
A shares of the Fund for Advisor Class shares of the Fund,
exchange of shares as described above in this section are taxable
transactions for federal tax purposes. The exchange service may
be changed, suspended or terminated on 60 days written
notice.
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
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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
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
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<PAGE>
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
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
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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 shares and
Class C shares of the Fund held by such plan can be exchanged at
the plan's request, without any sales charge, for Class A shares
of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
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 accounts,
a Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
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"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.
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
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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 Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the 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 accountants,
PricewaterhouseCoopers 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.
________________________________________________________________
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 deems
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appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's 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 indicted
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 mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is 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 but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more 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 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 securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or 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.
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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 pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's 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 it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale 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
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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 Fund's 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
________________________________________________________________
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 that the higher
distribution services applicable to Class B and C shares, and any
incremental transfer agency costs relating to Class B and Class C
shares, will be borne exclusively by the class to which they
relate.
United States Federal Income Taxation Of Dividends and
Distributions
General. The Fund intends for each taxable year to
qualify to be taxed as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). To so
qualify, the Fund must, among other things, (i) derive at least
90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
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respect to its business of investing in stock, securities or
currency; and (ii) diversify its holdings so that, at the end of
each quarter of its taxable year, the following two conditions
are met: (a) at least 50% of the value of the Fund's assets is
represented by cash, U.S. Government Securities, securities of
other regulated investment companies and other securities with
respect to which the Fund's investment is limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such
issuer, and (b) not 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 net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net
short-term capital loss), it will not be subject to federal
income tax on the portion of its taxable income for the year
(including any net capital gain) that it distributes to
shareholders.
The Fund also intends to avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to the sum of (i) 98% of its ordinary income
for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
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amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. 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.
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
corporations.
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.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
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.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if the
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
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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.
Foreign Taxes. Income received by the Fund may also be
subject to foreign income taxes, including withholding taxes. The
United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of such taxes
or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a United States 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 United States shareholder who does not itemize
deductions. In addition, certain individual United States
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
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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.
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
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. 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 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
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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, on 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 any
other disposition of the PFIC stock, would be treated as ordinary
income. The deductible portion of any mark- to-market loss, as
well as loss realized on the sale or other disposition of the
PFIC stock to the extent that such loss does not exceed the net
mark-to-market gains previously included by the Fund, would be
treated as ordinary loss. The Fund generally would not be subject
to the deferred tax and interest charge provisions discussed
above with respect to PFIC stock for which a mark-to-market
election has been made. If the Fund purchases shares in a PFIC
and the Fund does elect to treat the foreign corporation as a
"qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the
ordinary income and net capital gains of the foreign corporation,
even if this income is not distributed to the Fund. Any such
income would be subject to the 90% and calendar year distribution
requirements described above.
Currency Fluctuations-"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
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result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each distribution will be treated as a gain from the sale of
shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts and forward foreign currency
contracts are considered "section 1256 contracts" for federal
income tax purposes. Section 1256 contracts held by the Fund at
the end of each taxable year will be "marked to market" and
treated for federal income tax purposes as though sold for fair
market value on the last business day of such taxable year. Gain
or loss realized by the Fund on section 1256 contracts other than
forward foreign currency contracts will be considered 60% long-
term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts will
be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available
to be distributed to shareholders as ordinary income, as
described above. The Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described
below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or 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.
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Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
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straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
Taxation of Foreign Stockholders
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 counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
Other Taxation
The Fund may be subject to other state and local
taxes.
________________________________________________________________
PORTFOLIO TRANSACTIONS
________________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of broker-
dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
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Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and subject to seeking best execution, the Fund may consider
sales of shares of the Fund or other investment companies managed
by the Adviser as a factor in the selection of brokers to execute
portfolio transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation (DLJ),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ, for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
77
<PAGE>
Many of the Fund's portfolio transactions in equity
securities will occur on foreign stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions.
On many foreign stock exchanges these commissions are fixed.
Securities traded in foreign over-the-counter markets (including
most fixed-income securities) are purchased from and sold to
dealers acting as principal. Over-the-counter transactions
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include
a stated underwriter's discount. The Adviser expects to effect
the bulk of its transactions in securities of companies based in
foreign countries through brokers, dealers or underwriters
located in such countries. U.S. Government or other U.S.
securities constituting permissible investments will be purchased
and sold through U.S. brokers, dealers or underwriters.
During the fiscal years ended June 30, 1999, 1998 and
1997, the Fund incurred brokerage commissions amounting in the
aggregate to $2,195,358, $1,667,217 and $1,512,610, respectively.
During the fiscal years ended June 30, 1999, 1998 and
1997,abrokerage commissions amounting in the aggregate to $0, $0
and $0 respectively, were paid to DLJ and brokerage commissions
amounting in the aggregate to $8,404, $360 and $0, respectively,
were paid to brokers utilizing the Pershing Division of DLJ.
During the fiscal year ended June 30, 1999, the brokerage
commissions paid to DLJ constituted 0% of the Fund's aggregate
brokerage commissions and the brokerage commissions paid to
brokers utilizing the Pershing Division of DLJ constituted .38%
of the Fund's aggregate brokerage commissions. During the fiscal
year ended June 30, 1999, of the Fund's aggregate dollar amount
of brokerage transactions involving the payment of commissions,
0% were effected through DLJ and .05% were effected through
brokers utilizing the Pershing Division of DLJ. During the
fiscal year ended June 30, 1999, transactions in portfolio
securities of the Fund aggregating $803,134,873 with associated
brokerage commissions of approximately $2,030,319 were allocated
to persons or firms supplying research services to the Fund or
the Adviser.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The Fund was organized as a corporation in Maryland in
1994. The Fund's capital stock of the Fund currently consists of
3,000,000,000 shares of Class A Common Stock, 3,000,000,000
shares of Class B Common Stock, 3,000,000,000 shares of Class C
78
<PAGE>
and 3,000,000,000 shares of Advisor Class Common Stock, each
having a par value $.01 per share. All shares of the Fund, when
issued, are fully paid and non-assessable. The Directors are
authorized to reclassify and issue any unissued shares to any
number of additional series and classes without shareholder
approval. Accordingly, the Directors in the future, for reasons
such as the desire to establish one or more additional portfolios
with different investment objectives, policies or restrictions,
may create additional classes or series of shares. Any issuance
of shares of another class or series would be governed by the
1940 Act and the law of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally
be entitled to one vote for all purposes. Generally, shares of
both portfolios would vote as a single series on matters, such as
the election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as a separate series. Procedures for calling a
shareholders' meeting for the removal of Directors of the Fund,
similar to those set forth in Section 16(c) of the 1940 Act will
be available to shareholders of the Fund. 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.
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.
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. Class A, B, C and Advisor Class shares have identical
voting, dividend, liquidation and other rights, except that each
class bears its own transfer agency expenses, each of Class A,
Class B and Class C shares of the Fund bears its own distribution
expenses and Class B shares and Advisor Class shares convert to
Class A shares under certain circumstances. Each class of shares
79
<PAGE>
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 the Fund, are entitled to
receive the net assets of the Fund.
At October 8, 1999 there were 39,657,963 shares of
common stock of the Fund outstanding including 27,528,860 Class A
shares, 10,093,500 Class B shares, 1,879,276 Class C shares and
156,327 Advisor Class shares. To the knowledge of the Fund, the
following persons owned of record or beneficially, 5% or more of
a class of the outstanding shares of the Fund as of October 8,
1999:
No. of % of
Shares % of % of % of Advisor
Name and Address Class Class A Class B Class C Class
MLPF&S 3,043,600 11.02%
For the Sole 2,929,806 29.02%
Benefit of Its 435,903 23.52%
Customers 51,099 32.77%
4800 Deer Lake Dr.
East, 2nd Floor
Jacksonville, FL
32246-6484
Robert L. Errico &
Nicolena Errico
960 Park Ave., 1A
New York, NY
10028-0325 12,935 8.30%
Middleton Place
Foundation
Reserve Fund
Ashley River Road
Charleston, SC
29414 9,680 6.21%
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Water Street, Boston, Massachusetts, will act as the Fund's
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, Brown Brothers may
enter into sub-custodial agreements for the holding of the Fund's
foreign securities.
80
<PAGE>
Principal Underwriter
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of Alliance, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of shares of the 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 1933 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 Accountants
PricewaterhouseCoopers LLP, New York, New York, serves
as independent accountants for the Fund.
Performance Information
From time to time, the Fund advertises its "total
return," which is computed separately for Class A, Class B,
Class C and Advisor Class shares. Such advertisements disclose
the Fund's 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 purposes of computing total return, income dividends
and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales
charges applicable to purchases and redemptions of the Fund's
shares are assumed to have been paid.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
81
<PAGE>
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class, divides
the difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended June 30, 1999 (or since inception through that date, as
noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
6/30/99 6/30/99 6/30/99
_________ _____________ ______________
Class A 9.86% 13.29%* N/A
Class B 8.91% 12.49%* N/A
Class C 8.91% 14.92%* N/A
Advisor Class 10.12% 16.16%* N/A
*Inception Dates: Class A - June 2, 1994
Class B - June 2, 1994
Class C - February 8, 1995
Advisor Class - October 2, 1996
The Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. The Fund's
total return is 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 and its
expenses. Total return information is useful in reviewing the
Fund's performance but such information may not provide a basis
for comparison with bank deposits or other investments which pay
82
<PAGE>
a fixed yield for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance ratings of the Fund
as measured by financial publications or by independent
organizations such as Lipper, Inc. and Morningstar, Inc. and
advertisements presenting the historical record of payments of
income dividends by the Fund may also from time to time be sent
to investors or placed in newspapers, magazines such as Barrons,
Business Week, Changing Times, Forbes, Investor's Daily, Money
Magazine, The New York Times and The Wall Street Journal or other
media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser 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 under the 1933 Act. 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.
83
<PAGE>
___________________________________________________________
REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL
STATEMENTS
___________________________________________________________
84
<PAGE>
ALLIANCE WORLDWIDE PRIVATIZATION FUND
ANNUAL REPORT
JUNE 30, 1999
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-97.9%
ARGENTINA-0.8%
Nortel Inversora, SA (ADR) 208,000 $ 3,614,000
AUSTRALIA-1.6%
Commonwealth Serum Lab, Ltd. 650,000 5,603,919
TABCORP Holdings, Ltd. 340,000 2,288,026
------------
7,891,945
AUSTRIA-2.9%
Austria Tabakwerke AG 100,000 5,823,173
Bank Austria AG 150,000 7,884,472
------------
13,707,645
BRAZIL-5.1%
Bardella Industrias Mecanicas, SA pfd (a) 20,786 587,175
Celular CRT Participacoes,
SA pfd 3,994,362 534,838
Rts. expiring 7/5/99 (a) 2,104,833 0
Companhia Paranaense de Energia (ADR) 470,000 3,936,250
Companhia Paulista de Forca e Luz pfd 176,463 10,867
Companhia Riograndense de Telecomunicacoes
Cl. A pfd 594,362 144,225
Embratel Participacoes, SA (ADR) 110,000 1,526,250
Espirito Santo Centrais Eletricas, SA 6,247 229,480
Gerdau, SA pfd 310,791,935 5,179,866
Gerdau Metalurgica, SA (a)(b) 10,044,305 224,153
pfd 178,009,484 5,380,513
Iven, SA pfd (b) 8,614,000 1,119,333
Tele Sudeste Celular Participacoes, SA
(ADR) 90,000 2,610,000
Telesp Participacoes, SA (ADR) 140,900 3,223,087
------------
24,706,037
CHILE-0.3%
Compania de Telecomunicaciones de Chile
(ADR) 60,000 1,485,000
CROATIA-0.5%
Pliva D.D. (GDR) 153,000 2,317,950
CYPRUS-0.2%
Premier Telesports (a)(b) 85,000 700,842
Primamedic, Ltd. (a)(b) 1,522,600 439,395
------------
1,140,237
CZECH REPUBLIC-0.9%
Ceske Radiokomunikace AS 92,000 3,196,373
Tabak AS 4,000 951,045
------------
4,147,418
EGYPT-0.3%
Commercial International Bank 100,000 898,063
Madinet NASR for Housing & Development 56,000 626,799
------------
1,524,862
FINLAND-1.1%
MeritaNordbanken Oyj 900,000 5,110,993
FRANCE-8.0%
Aerospatiale Matra (a) 42,480 978,528
CNP Assurances 189,300 5,168,253
Elf Aquitaine, SA 59,600 8,741,025
Sanofi-Synthelabo, SA 194,000 8,227,782
SEITA 139,400 8,045,666
Societe Generale Cl. A 39,700 6,992,682
------------
38,153,936
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
GERMANY-2.9%
MVV Energie AG New Shares (a) 277,400 $ 4,374,305
Stinnes AG (a) 302,000 4,699,970
Viag AG 10,000 4,720,377
------------
13,794,652
GHANA-0.3%
Social Security Bank, Ltd. 2,000,000 1,440,151
GREECE-0.5%
Heracles General Cement, SA 84,400 2,259,112
HONG KONG-1.4%
China Telecom (Hong Kong), Ltd. 1,100,000 3,055,319
Ng Fung Hong, Ltd. 3,500,000 2,909,674
Shandong International Power
Development Co., Ltd. Cl. H (a) 4,250,000 958,614
------------
6,923,607
HUNGARY-1.0%
Magyar Olaj-es Gazipari Reszvenytar 128,900 3,104,613
OTP Bank Reszvenytar (GDR) 42,500 1,761,625
------------
4,866,238
INDIA-1.3%
Industrial Credit & Investment Corp.
(GDR), Ltd. 1,460,000 2,473,721
Mahanagar Telephone Nigam, Ltd. (GDR) 222,300 2,200,770
Videsh Sanchar Nigam, Ltd. (GDR) (c) 126,000 1,614,375
------------
6,288,866
INDONESIA-0.3%
PT Tambang Timah TBK (GDR) (a) 135,000 1,204,875
ISRAEL-0.5%
Bank Hapoalim, Ltd. 1,000,000 2,565,421
ITALY-5.3%
Banca Nazionale del Lavoro (a) 2,000,000 6,286,965
ENI SpA 800,000 4,773,971
Instituto Nazionale delle Assicurazioni 1,300,000 3,014,651
Monte dei Paschi di Siena SpA (a) 807,500 3,578,674
Telecom Italia Mobile SpA 937,800 3,450,561
Telecom Italia SpA 827,853 4,487,972
------------
25,592,794
JAPAN-12.9%
Daiwa Securities Co., Ltd. 1,607,000 10,629,625
East Japan Railway Co. 907 4,874,530
Japan Tobacco, Inc. 1,364 15,112,324
Nippon Telegraph & Telephone Corp. 1,000 11,658,192
Nomura Securities Co., Ltd. 600,000 7,029,641
NTT Mobile Communications Network, Inc. 150 2,033,982
New Shares (a) 600 8,036,711
West Japan Railway Co. 600 2,301,873
------------
61,676,878
MALAWI-0.1%
Press Corp., Ltd. (GDR) (a) 94,000 623,220
MALAYSIA-0.7%
Telekom Malaysia Berhad 1,000,000 3,364,929
8
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
MALTA-0.3%
Maltacom Plc. (GDR) 75,000 $ 1,368,750
MEXICO-4.8%
Grupo Financiero Banorte, SA de CV
Series O (a) 6,635,277 9,710,161
Telefonos de Mexico, SA Cl. L (ADR) 117,500 9,495,469
Tubos de Acero de Mexico, SA (ADR) 338,000 3,675,750
------------
22,881,380
NETHERLANDS-10.3%
Akzo Nobel NV 200,000 8,410,104
Equant NV (NY Shares) (a) 94,700 8,913,638
ING Groep NV 190,335 10,298,860
STMicroelectronics NV 156,000 10,386,478
United Pan-Europe Communications NV (a) 215,960 11,707,665
------------
49,716,745
NORWAY-0.4%
Christiana Bank OG Kreditkasse 500,000 1,795,571
PEOPLE'S REPUBLIC OF CHINA-0.8%
Beijing Datang Power Generation Co.,
Ltd. Cl. H 5,285,800 1,703,207
Yanzhou Coal Mining Co., Ltd. Cl. H 5,740,000 2,071,508
------------
3,774,715
PERU-1.4%
Cementos Norte Pacasmayo, SA Cl. C 743,620 970,667
Explosivos, SA (b) 1,571,704 1,344,143
Ferreyros, SA 1,430,661 940,179
Ontario Quinta AVV (a)(d) 2,000,000 3,360,000
------------
6,614,989
PHILIPPINES-1.0%
International Container Terminal
Services, Inc. (a) 2,754,769 358,373
Manila Electric Co. Series B 533,305 1,920,178
Philippine Long Distance Telephone Co. 80,500 2,454,139
------------
4,732,690
POLAND-1.7%
Kredyt Bank PBI, SA (GDR) (c) 93,400 2,229,925
New Shares (GDR) (a)(c) 46,700 1,114,963
Orbis, SA (a) 327,220 2,816,767
Powszechny Bank Kredy (GDR) (a) 86,700 2,102,475
------------
8,264,130
PORTUGAL-0.9%
Electricidade de Portugal, SA 110,000 1,979,466
Soporcel-Sociedade Portuguesa de Papel,
SA (a) 208,250 2,135,597
------------
4,115,063
ROMANIA-0.0%
Societatea, SA (b) 30,454 154,076
RUSSIA-1.3%
Gazprom (ADR) (c) 93,400 1,053,085
Lukoil Holdings (ADR) 81,000 3,207,600
Sberbank of Russia 20,607 835,614
Sun Interbrew, Ltd. (GDR) voting
shares (a)(b)(c) 156,000 763,712
(GDR) Non-voting shares (a)(c)(d) 156,000 351,000
------------
6,211,011
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
SINGAPORE-1.1%
Development Bank of Singapore, Ltd. 445,000 $ 5,438,308
SOUTH AFRICA-0.3%
Iscor, Ltd. 4,810,000 1,506,613
SOUTH KOREA-5.3%
Housing & Commercial Bank, Korea 76,300 2,406,004
Korea Electric Power Corp. 120,000 4,986,609
Korea Telecom Corp. (ADR) (a) 108,189 4,327,560
Pohang Iron & Steel Co., Ltd. 52,400 6,295,017
SK Telecom Co., Ltd. 3,645 4,929,803
(ADR) 108,289 1,840,913
Rts. expiring 7/26/99 (a) 836 439,487
------------
25,225,393
SPAIN-5.1%
Aldeasa, SA 200,000 5,532,529
Argentaria, Caja Postal y Banco
Hipotecario de Espana, SA 229,700 5,229,593
Indra Sistemas, SA 380,000 4,092,711
Repsol, SA 225,000 4,591,546
Tabacalera, SA Cl. A 254,600 5,143,108
------------
24,589,487
SWEDEN-0.4%
ForeningsSparbanken AB, Cl. A 126,000 1,781,569
SWITZERLAND-1.5%
SairGroup 9,400 1,968,539
Swisscom AG 14,100 5,306,891
------------
7,275,430
TAIWAN-0.8%
Taiwan Semiconductor Manufacturing
Co. (a) 1,033,200 3,950,471
THAILAND-1.1%
PTT Exploration & Production Public
Co., Ltd. 268,000 2,049,519
Siam Commercial Bank Public Co., Ltd.
pfd (a) 2,322,000 3,305,898
------------
5,355,417
TRINIDAD & TOBAGO-0.0%
B.W.I.A. International Airways, Ltd.
(a)(d) 2,727,272 0
TURKEY-0.5%
Petkim Petrokimya Holding AS 69,459,000 954,401
Turkiye Is Bankasi Series C 91,801,600 1,631,120
------------
2,585,521
UNITED KINGDOM-8.9%
Anglian Water Plc. 200,000 2,211,689
Birkby Plc. 811,000 3,765,066
British Airways Plc. 813,000 5,610,262
British Energy Plc. 667,000 5,677,878
Energis Plc. (a) 200,000 4,770,186
Mersey Docks & Harbour Co. 428,650 3,591,472
National Grid Group Plc. 657,000 4,572,593
National Power Plc. 831,000 6,052,146
PowerGen Plc. 187,600 2,022,811
Stagecoach Holdings Plc. 1,200,000 4,298,843
------------
42,572,946
UNITED STATES-1.0%
Near East International LLC (a)(d) 10 1,000,000
United Customer Management
Solutions (a)(b) 17,862 3,929,640
------------
4,929,640
10
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
- -------------------------------------------------------------------------
VENEZUELA-0.1%
Mercantil Servicios Financieros, CA
(ADR) 82,500 $244,720
------------
U.S. $ VALUE
- -------------------------------------------------------------------------
TOTAL INVESTMENTS-97.9%
(cost $374,037,965) $469,485,401
Other assets less liabilities-2.1% 10,134,890
NET ASSETS-100% $479,620,291
(a) Non-income producing security.
(b) Illiquid securities, valued at fair value (see Note A).
(c) Securities are exempt from registration under Rule 144A of the
Securitities Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At June 30, 1999
these securities amounted to $7,127,060 or 1.5% of net assets.
(d) Restricted and illiquid securities, valued at fair value (see Notes A &G).
Glossary of terms:
ADR- American Depositary Receipt.
GDR- Global Depositary Receipt.
NY Shares- New York Registered Shares.
See notes to financial statements.
11
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $374,037,965) $469,485,401
Cash 721,186
Foreign cash, at value (cost $8,908,764) 8,911,691
Receivable for investment securities sold 6,434,804
Dividends and interest receivable 1,375,427
Receivable for capital stock sold 478,236
Foreign taxes receivable 323,810
Total assets 487,730,555
LIABILITIES
Payable for investment securities purchased 5,787,080
Payable for capital stock redeemed 1,143,942
Advisory fee payable 388,010
Distribution fee payable 194,015
Accrued expenses 597,217
Total liabilities 8,110,264
NET ASSETS $479,620,291
COMPOSITION OF NET ASSETS
Capital stock, at par $ 40,861
Additional paid-in capital 361,800,378
Accumulated net investment loss (425,731)
Accumulated net realized gain on investments and
foreign currency transactions 22,818,208
Net unrealized appreciation of investments and
foreign currency denominated assets and
liabilities 95,386,575
$479,620,291
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($340,193,716 / 28,742,845 shares of capital stock
issued and outstanding) . $11.84
Sales Charge--4.25% of public offering price .53
Maximum offering price $12.37
CLASS B SHARES
Net asset value and offering price per share
($117,419,840 / 10,206,563 shares of capital stock
issued and outstanding) $11.50
CLASS C SHARES
Net asset value and offering price per share
($20,397,220 / 1,774,377 shares of capital stock
issued and outstanding) $11.50
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($1,609,515 / 136,805 shares of capital stock
issued and outstanding) $11.77
See notes to financial statements.
12
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999 ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of $1,089,797) $ 9,620,671
Interest 237,493 $ 9,858,164
EXPENSES
Advisory fee 5,177,294
Distribution fee - Class A 1,107,619
Distribution fee - Class B 1,250,782
Distribution fee - Class C 217,886
Transfer agency 1,358,590
Custodian 1,220,392
Printing 215,031
Administrative 173,000
Audit and legal 72,695
Registration 55,258
Amortization of organization expenses 40,877
Directors' fees 22,000
Miscellaneous 45,783
Total expenses before interest and waivers
assumed by adviser (see Note B) 10,957,207
Interest expense 38,057
Total expenses before waivers assumed by adviser 10,995,264
Less: Expense offset arrangement (see Note B) (75,016)
Total expenses 10,920,248
Net investment loss (1,062,084)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments 26,673,782
Net realized loss on foreign currency
transactions (42,036)
Net change in unrealized appreciation of:
Investments 3,635,095
Foreign currency denominated assets
and liabilities 17,152
Net gain on investments and foreign currency
transactions 30,283,993
NET INCREASE IN NET ASSETS FROM OPERATIONS $29,221,909
See notes to financial statements.
13
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1999 1998
---------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income (loss) $ (1,062,084) $ 4,543,175
Net realized gain on investments and foreign
currency transactions 26,631,746 79,032,204
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets and
liabilities 3,652,247 (26,242,066)
Net increase in net assets from operations 29,221,909 57,333,313
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (3,960,735) (7,099,073)
Class B (437,988) (1,695,396)
Class C (94,004) (237,218)
Advisor Class (20,394) (22,444)
Net realized gain on investments
Class A (53,210,205) (53,637,469)
Class B (17,946,553) (15,371,652)
Class C (3,142,307) (2,150,777)
Advisor Class (196,625) (135,664)
CAPITAL STOCK TRANSACTIONS
Net decrease (123,251,264) (20,593,202)
Total decrease (173,038,166) (43,609,582)
NET ASSETS
Beginning of year 652,658,457 696,268,039
End of year (including undistributed net
investment income (loss) of ($425,731)
and $14,037,753, respectively) $479,620,291 $652,658,457
See notes to financial statements.
14
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Worldwide Privatization Fund, Inc. (the "Fund") organized as a
Maryland corporation on March 16, 1994, is registered under the Investment
Company Act of 1940 as an open-end management investment company. The Fund
offers Class A, Class B, Class C and Advisor Class shares. Class A shares are
sold with an initial sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase may be subject to a contingent deferred
sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 4.00% to zero depending on the period
of time the shares are held. Class B shares will automatically convert to Class
A shares eight years after the end of the calendar month of purchase. Class C
shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. Advisor Class shares are sold
without an initial or contingent deferred sales charge. Advisor Class shares
are offered solely to investors participating in fee based programs and to
certain retirement plan accounts. All four classes of shares have identical
voting, dividend, liquidation and other rights, and the same terms and
conditions, except that each class bears different distribution expenses and
has exclusive voting rights with respect to its distribution plan. The
financial statements have been prepared in conformity with generally accepted
accounting principles which require management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities in the
financial statements and amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sales price or if no sale occurred, at
the mean of the closing bid and asked price on that day. Readily marketable
securities traded in the over-the-counter market, securities listed on a
foreign securities exchange whose operations are similar to the U.S.
over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter, are valued at
the mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices obtained from a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $220,000 have been deferred and were
amortized on a straight-line basis through June 1999.
3. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated into U.S. dollars at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated into U.S. dollars at rates of exchange
prevailing when accrued.
Net realized foreign currency gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities, currency gains and
losses realized between the trade and settlement dates on security transactions
and the difference between the amounts of interest recorded on the Fund's books
and the U.S. dollar equivalent amounts actually received or paid. The Fund does
not isolate the effect of fluctuations in foreign currency exchange rates when
determining the gain or loss upon the sale or maturity of equity securities.
Net currency gains and losses from investments at period end exchange rates are
reflected as a component of unrealized appreciation of investments. Net
currency gains and losses from valuing foreign currency denominated assets and
liabilities other than investments at period end ex-
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
change rates are reflected as a component of unrealized appreciation of foreign
currency denominated assets and liabilities.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts on short-term securities as adjustments
to interest income.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the net assets of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fees.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency losses and a reclassification of
distributions, resulted in a net decrease in undistributed net investment
income and a corresponding increase in accumulated net realized gains on
investments and foreign currency transactions. This reclassification had no
effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under an investment advisory agreement, the Fund pays its Adviser, Alliance
Capital Management L.P. (the "Adviser") a fee at an annual rate of 1% of the
Fund's average daily net assets. Such fee is accrued daily and paid monthly.
Pursuant to the advisory agreement, the Fund paid $173,000 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended June 30, 1999.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $817,915 for the year ended June 30, 1999.
For the year ended June 30, 1999, the Fund's expenses were reduced by $75,016
under an expense offset arrangement with Alliance Fund Services.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser serves as the Distributor of the Fund's shares. The Distributor
has advised the Fund that it has received front-end sales charges of $35,878
from the sale of Class A shares and $1,421, $328,557 and $18,552 in contingent
deferred sales charges imposed upon redemptions by shareholders of Class A,
Class B and Class C shares, respectively, for the year ended June 30, 1999.
Brokerage commissions paid on investment transactions for the year ended June
30, 1999, amounted to $2,195,358, of which $8,404 was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ"), an affiliate of the Adviser.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the Fund's average
16
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
daily net assets attributable to Class A shares and 1% of the average daily net
assets attributable to the Class B and Class C shares. There is no distribution
fee on the Advisor Class shares. The fees are accrued daily and paid monthly.
The Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities. The
Distributor has advised the Fund that it has incurred expenses in excess of the
distribution costs reimbursed by the Fund in the amount of $6,347,503 and
$637,365 for Class B and Class C shares, respectively; such costs may be
recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $294,756,097 and $508,378,776,
respectively, for the year ended June 30, 1999. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
June 30, 1999.
At June 30, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes. Gross
unrealized appreciation of investments was $123,930,667 and gross unrealized
depreciation of investments was $28,483,231 resulting in net unrealized
appreciation of $95,447,436, excluding foreign currency transactions.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year. The
Fund incurred and elected to defer post October currency losses of $1,030,211
for the year ended June 30, 1999.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sales commitments denominated
in foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contracts is included in realized gains or
losses on foreign currency transactions. Fluctuations in the value of forward
exchange currency contracts are recorded for financial reporting purposes as
unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or liquid assets in a separate account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward exchange currency
contracts entered into with respect to position hedges. Risks may arise from
the potential inability of a counterparty to meet the terms of a contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
At June 30, 1999, the Fund had no outstanding forward exchange currency
contracts.
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $0.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C, and Advisor
Class.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 20,129,070 39,736,256 $ 220,466,098 $ 492,815,245
Shares issued in
reinvestment of
dividends and
distributions 3,254,908 2,835,212 32,569,021 30,762,050
Shares converted
from Class B 64,507 10,886 724,710 137,149
Shares redeemed (31,626,451) (48,013,384) (346,387,403) (601,039,158)
Net decrease (8,177,966) (5,431,030) $ (92,627,574) $ (77,324,714)
CLASS B
Shares sold 1,893,631 5,439,686 $ 20,245,038 $ 68,476,838
Shares issued in
reinvestment of
dividends and
distributions 1,107,404 814,878 10,841,481 8,662,153
Shares converted
to Class A (66,200) (11,023) (724,710) (137,149)
Shares redeemed (5,371,341) (2,894,997) (57,094,013) (35,371,129)
Net increase
(decrease) (2,436,506) 3,348,544 $ (26,732,204) $ 41,630,713
CLASS C
Shares sold 814,567 9,900,745 $ 8,966,825 $ 123,043,119
Shares issued in
reinvestment of
dividends and
distributions 227,787 142,928 2,230,039 1,519,326
Shares redeemed (1,421,031) (8,882,163) (15,010,418) (110,861,845)
Net increase
(decrease) (378,677) 1,161,510 $ (3,813,554) $ 13,700,600
ADVISOR CLASS
Shares sold 387,963 112,659 $ 4,202,308 $ 1,479,232
Shares issued in
reinvestment of
dividends and
distributions 18,391 12,770 183,179 137,919
Shares redeemed (405,419) (17,793) (4,463,419) (216,952)
Net increase
(decrease) 935 107,636 $ (77,932) $ 1,400,199
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign companies involves special risks which
include changes in foreign exchange rates and the possibility of future
political and economic developments which could adversely affect the value of
such securities. Moreover, securities of many foreign companies and their
markets may be less liquid and their prices more volatile than those of
comparable U.S. companies. The Fund invests in securities issued by enterprises
that are undergoing, or that have undergone, privatization. Privatization is a
process through which the ownership and control of companies or assets in whole
or in part are transferred from the public sector to the private sector.
Through privatization a government or state divests or transfers all or a
portion of its interest in a state enterprise to some form of private
ownership. Therefore,
18
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
the Fund is susceptible to the government re-nationalization of these
enterprises and economic factors adversely affecting the economics of these
countries. In addition, these securities created through privatization may be
less liquid and subject to greater volatility than securities of more developed
countries.
NOTE G: RESTRICTED SECURITIES
DATE ACQUIRED U.S. $ COST
------------- -----------
B.W.I.A. International Airways, Ltd. 2/21/95 $2,999,999
Near East International LLC 9/29/95 1,000,000
Ontario Quinta AVV 8/15/94 2,052,257
Sun Interbrew, Ltd. (GDR) Non-voting shares 6/22/99 975,000
The securities shown above are restricted as to resale and have been valued at
fair value in accordance with the procedures described in Note A. The Fund will
not bear any costs, including those involved in registration under the
Securities Act of 1933, in connection with the disposition of these securities.
The value of these securities at June 30, 1999 was $4,711,000 representing 1.0%
of total net assets.
NOTE H: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expenses in the statement of operations. During the year ended
June 30, 1999, the Fund had borrowings outstanding for twenty-eight days the
weighted average interest on such borrowings was 5.24%. The Fund had no
borrowing outstanding on June 30, 1999.
19
FINANCIAL HIGHLIGHTS ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.67 $13.26 $12.13 $10.18 $9.75
INCOME FROM INVESTMENT OPERATIONS
Net investment income -0-(a) .10(a) .15(a) .10(a) .06
Net realized and unrealized gain
on investments and foreign currency
transactions .93 .85 2.55 1.85 .37
Net increase in net asset value
from operations .93 .95 2.70 1.95 .43
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.12) (.18) (.15) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (1.64) (1.36) (1.42) -0- -0-
Total dividends and distributions (1.76) (1.54) (1.57) -0- -0-
Net asset value, end of year $11.84 $12.67 $13.26 $12.13 $10.18
TOTAL RETURN
Total investment return based on net
asset value(b) 9.86% 9.11% 25.16% 19.16% 4.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $340,194 $467,960 $561,793 $672,732 $13,535
Ratio of expenses to average net assets 1.92%(c) 1.73% 1.72% 1.87% 2.56%
Ratio of expenses to average net assets
excluding interest expense 1.92%(c) 1.73% 1.71% 1.85% 2.56%
Ratio of net investment income (loss)
to average net assets (.01)% .80% 1.27% .95% .66%
Portfolio turnover rate 58% 53% 48% 28% 36%
</TABLE>
See footnote summary on page 23.
20
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.37 $13.04 $11.96 $10.10 $9.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.08)(a) .02(a). 08(a) (.02)(a) .02
Net realized and unrealized gain
on investments and foreign currency
transactions .89 .82 2.50 1.88 .34
Net increase in net asset value from
operations .81 .84 2.58 1.86 .36
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.04) (.15) (.08) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (1.64) (1.36) (1.42) -0- -0-
Total dividends and distributions (1.68) (1.51) (1.50) -0- -0-
Net asset value, end of year $11.50 $12.37 $13.04 $11.96 $10.10
TOTAL RETURN
Total investment return based on net
asset value(b) 8.91% 8.34% 24.34% 18.42% 3.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $117,420 $156,348 $121,173 $83,050 $79,359
Ratio of expenses to average net assets 2.63%(c) 2.45% 2.43% 2.83% 3.27%
Ratio of expenses to average net assets
excluding interest expense 2.63%(c) 2.45% 2.42% 2.82% 3.27%
Ratio of net investment income (loss)
to average net assets (1.43)% .20% .66% (.20)% .01%
Portfolio turnover rate 58% 53% 48% 28% 36%
</TABLE>
See footnote summary on page 23.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
FEBRUARY 8,
1995 (D)
TO
YEAR ENDED JUNE 30, JUNE 30,
------------------------------------------------- ------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.37 $13.04 $11.96 $10.10 $9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.08)(a) .05(a) .12(a) .03(a) .05
Net realized and unrealized gain
on investments and foreign currency
transactions .89 .79 2.46 1.83 .52
Net increase in net asset value from
operations .81 .84 2.58 1.86 .57
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.04) (.15) (.08) -0- -0-
Distributions from net realized gains
on investments and foreign currency
transactions (1.64) (1.36) (1.42) -0- -0-
Total dividends and distributions (1.68) (1.51) (1.50) -0- -0-
Net asset value, end of period $11.50 $12.37 $13.04 $11.96 $10.10
TOTAL RETURN
Total investment return based on net
asset value(b) 8.91% 8.34% 24.33% 18.42% 5.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $20,397 $26,635 $12,929 $2,383 $338
Ratio of expenses to average net assets 2.63%(c) 2.44% 2.42% 2.57% 1.03%(e)
Ratio of expenses to average net assets
excluding interest expense 2.62%(c) 2.44% 2.41% 2.57% 1.03%(e)
Ratio of net investment income (loss)
to average net assets (1.44)% .38% 1.06% .63% 1.04%(e)
Portfolio turnover rate 58% 53% 48% 28% 36%
</TABLE>
See footnote summary on page 23.
22
ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIO
ADVISOR CLASS
------------------------------------
OCTOBER 2,
1996 (D)
TO
YEAR ENDED JUNE 30, JUNE 30,
------------------------ ----------
1999 1998 1997
----------- ----------- ----------
Net asset value, beginning of period $12.63 $13.23 $12.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (a) .02 .19 .18
Net realized and unrealized gain
on investments and foreign currency
transactions .93 .80 2.52
Net increase in net asset value from
operations .95 .99 2.70
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.17) (.23) (.19)
Distributions from net realized gains
on investments and foreign currency
transactions (1.64) (1.36) (1.42)
Total dividends and distributions (1.81) (1.59) (1.61)
Net asset value, end of period $11.77 $12.63 $13.23
TOTAL RETURN
Total investment return based on net
asset value(b) 10.12% 9.48% 25.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,610 $1,716 $374
Ratio of expenses to average net assets 1.62%(c) 1.45% 1.96%(e)
Ratio of expenses to average net assets
excluding interest expense 1.62%(c) 1.45% 1.95%(e)
Ratio of net investment income
to average net assets .37% 1.48% 2.97%(e)
Portfolio turnover rate 58% 53% 48%
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return for a period of less than one year is not
annualized.
(c) Ratios reflect expenses grossed up for expense offset arrangement with the
Transfer Agent. For the year ended June 30, 1999 the ratios of expenses to
average net assets were 1.91%, 2.62%, 2.61%, and 1.61% for Class A, B, C and
Advisor Class shares, respectively.
(d) Commencement of distribution.
(e) Annualized.
23
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE WORLDWIDE PRIVATIZATION FUND
_______________________________________________________________________________
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALLIANCE WORLDWIDE PRIVATIZATION
FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Worldwide Privatization
Fund, Inc. (the "Fund") at June 30, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting priciples. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at June 30, 1999 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
August 16, 1999
TAX INFORMATION (UNAUDITED)
In order to meet certain requirements of the Internal Revenue Code we are
advising you that the Fund paid $41,871,236 of long term capital gain
distributions during the fiscal year ended June 30, 1999, subject to the
maximum tax rate of 20%.
In addition, the Fund intends to make an election under Internal Revenue Code
Section 853 to pass through foreign taxes paid by the Fund to its shareholders.
The total amount of foreign taxes that may be passed through to the
shareholders for the fiscal year ended June 30, 1999 is $1,222,125. The gross
foreign source income for information reporting purposes is $10,947,961.
Shareholders should not use the above information to prepare their tax returns.
The information necessary to complete your income tax returns will be included
with your Form 1099 DIV which will be sent to you separately in January 2000.
24
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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 in any particular situation.
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 price of the underlying
security rises sufficiently, the option may expire worthless to
the Fund.
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________________________________________________________________
APPENDIX B: FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES
________________________________________________________________
Futures Contracts
The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, securities issued by foreign
government entities or common stocks. U.S. futures contracts
have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different price or
interest rate from that specified in the contract. In some (but
not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
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contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
Stock Index Futures
The Fund may purchase and sell stock index futures as a
hedge against movements in the equity markets. There are several
risks in connection with the use of stock index futures by the
Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the stock
index futures and movements in the price of the securities which
are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the Fund
will experience either a loss or gain on the future which will
not be completely offset by movements in the price of the
securities which are subject to the hedge. To compensate for the
imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Fund may buy or sell stock index futures contracts
in a greater dollar amount than the dollar amount of securities
being hedged if the volatility over a particular time period of
the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by Alliance. Conversely, the Fund may
buy or sell fewer stock index futures contracts if the volatility
over a particular time period of the prices of the securities
being hedged is less than the volatility over such time period of
the stock index, or it is otherwise deemed to be appropriate by
Alliance. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market,
the market may advance and the value of securities held in the
Fund may decline. If this occurred, the Fund would lose money on
the futures and also experience a decline in value in its
portfolio securities. However, over time the value of a
diversified portfolio should tend to move in the same direction
as the market indices upon which the futures are based, although
there may be deviations arising from differences between the
composition of the Fund and the stocks comprising the index.
Where futures are purchased to hedge against a possible
increase in the price of stock before the Fund is able to invest
its cash (or cash equivalents) in stocks (or options) in an
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orderly fashion, it is possible that the market may decline
instead. If the Fund then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss
on the futures contract that is not offset by a reduction in the
price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.
Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Fund intends to purchase
or sell futures only on exchanges or boards of trade where there
appear to be active secondary markets, there is no assurance that
a liquid secondary market on any exchange or board of trade will
exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an
offset on a futures contract.
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Options on Futures Contracts
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The Fund is not a
commodity pool and all transactions in futures contracts and
options on futures contracts engaged in by the Fund must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the
CFTC. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against
adverse market conditions.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract or securities comprising an index. If
the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline
that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the
futures contract or securities comprising an index. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
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The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options on Foreign Currencies
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities,
even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the
Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to
be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rate do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
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the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversation or
exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and
other high-grade liquid debt securities in a segregated account
with its Custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or other high-grade liquid debt securities in an
amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.
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Additional Risks of Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To
the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on securities may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
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option exercise, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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________________________________________________________________
APPENDIX C: BOND RATINGS
________________________________________________________________
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impair some time in the future.
Baa: Bonds which are rated Baa are considered as
medium- grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well-
assured. Often the protection of interest and principal payments
may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
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Caa: Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Unrated: When no rating has been assigned or when a
rating has been suspended or withdrawn, it may be for reasons
unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of
the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or companies that are not rated as a matter
of policy.
3. There is a lack of essential data pertaining to the
issue or issuer.
4. The issue was privately placed, in which case the
rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory
analysis; if there is no longer available reasonable up-to-date
data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups
which Moody's believe possess the strongest investment attributes
are designated by the symbols Aa 1, A-1, Baa 1, Ba 1 and B 1.
Standard & Poor's Ratings Services
AAA: Bonds rated AAA have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
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AA: Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated
issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds
in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are
regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest.
While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may
be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
NR: Indicates that no rating has been requested, that
there is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a
matter of policy.
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APPENDIX D:
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
D-1
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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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