<PAGE> 1
This is filed pursuant to Rule 497(c)
File Nos.: 333-77839 and 811-08702
ALLIANCE ALL-MARKET ADVANTAGE FUND, INC.
845,600 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR THESE SHARES
Alliance All-Market Advantage Fund, Inc., referred to in this Prospectus as
the Fund, is issuing non-transferable rights to its stockholders. You will
receive one right for each share you own at the close of business on the record
date, June 21, 1999. These rights will entitle you to subscribe for one new
share of the Fund's common stock for every three rights you receive. Record date
stockholders who receive less than three rights will be entitled to purchase one
share. Record date stockholders who exercise all their rights may purchase
shares not acquired by other record date stockholders in this rights offering
subject to limitations described in this Prospectus. The Fund may increase the
number of shares that may be subscribed for in this offering by up to 25% of the
primary subscription (as defined in this Prospectus), or an additional 211,400
shares, for a total of 1,057,000 shares, to honor record date stockholder
requests to purchase more shares. Unless extended as described in this
Prospectus, this offer will expire at 5:00 P.M., New York City time, on July 16,
1999.
The rights are non-transferable and therefore may not be purchased or sold.
The rights will not be admitted for trading on the New York Stock Exchange,
known as the NYSE, or any other exchange. The Fund's outstanding shares are
listed, and the shares issued in this offer will be listed, on the NYSE under
the symbol "AMO." On June 18, 1999, the net asset value per Fund share, or NAV,
was $47.28, and the last reported sales price of a share on the NYSE was $44.00.
THE PURCHASE PRICE PER SHARE REFERRED TO IN THIS PROSPECTUS AS THE
SUBSCRIPTION PRICE WILL BE 95% OF THE LOWER OF (1) THE AVERAGE OF THE LAST
REPORTED SALES PRICE PER SHARE ON THE NYSE FOR THE FIVE TRADING DAYS ENDING WITH
THE DAY THE OFFER EXPIRES AND (2) THE NAV AS OF THE CLOSE OF TRADING ON THE NYSE
ON THAT DAY.
------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Estimated Subscription Price................................ $41.80 $35,346,080
Sales Load.................................................. $ 1.57 $ 1,325,478
Proceeds to the Fund*....................................... $40.23 $34,020,602
</TABLE>
-----------------------------
The estimated subscription price is based on 95% of the last reported sales
price per share on the NYSE on June 18, 1999. The proceeds to the Fund
assumes all 845,600 shares are purchased at this estimated price. If the
Fund increases the number of shares subject to subscription by up to 211,400
as described above, the proceeds to the Fund would be $42,525,752.
* Before deduction of expenses incurred by the Fund related to the offer
estimated at $500,000, including an aggregate of up to $100,000 to be paid
to the Dealer Manager as partial reimbursement for its expenses.
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is to provide long-term growth of capital through
all market conditions. Consistent with the investment style of Alliance Capital
Management's "Large Cap Growth Group," the Fund invests primarily in the equity
securities of a limited number of large, intensively researched, high-quality
companies that are judged likely to achieve superior earnings growth. Alliance
Capital Management L.P. has served as the Fund's investment adviser since the
Fund's inception in 1994.
The value of an investment in the Fund changes with changes in the values of
the Fund's investments. Many factors can affect those values. An investment in
the Fund involves certain risks. Among the principal risks of investing in the
Fund is market risk. Because the Fund uses derivatives strategies and other
leveraging techniques speculatively to enhance returns, it is subject to greater
risk and its returns may be more volatile than other funds, particularly in
periods of market declines. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS"
BEGINNING ON PAGE 7 OR PAGE 33 OF THIS PROSPECTUS.
If you do not exercise your rights, you will, upon the completion of the
offer, own a smaller proportional interest in the Fund than you do now. Because
the subscription price per share will be less than the NAV on the expiration
date and because the Fund will incur expenses related to the offering, record
date stockholders will also experience an immediate dilution, which could be
substantial, of the aggregate NAV of their shares. This dilution will
disproportionately affect record date stockholders who do not exercise their
rights in full. In addition, there also may be substantial dilution to the
extent that the Fund increases the number of shares subject to subscription by
up to 25% in order to satisfy over-subscription requests. The Fund cannot state
precisely the extent of this dilution because the Fund does not know what the
NAV will be when the offer expires, how many rights will be exercised or the
exact expenses of the offer.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read and retain it for future reference.
------------------------
PAINEWEBBER INCORPORATED
------------------------
The date of this Prospectus is June 21, 1999.
<PAGE> 2
PROSPECTUS SUMMARY
This portion of the Prospectus summarizes information contained elsewhere
in the Prospectus. The summary is not complete and does not contain all of the
information that you should consider before purchasing Fund shares. You should
read the entire Prospectus carefully, especially the risks of investing in the
shares discussed under "Risk Factors and Special Considerations."
PURPOSE OF THE OFFER The Board of Directors of the Fund has
determined that it is in the best interests of
the Fund and its existing stockholders to
increase the assets of the Fund available for
investment, thereby allowing the Fund to more
fully take advantage of available investment
opportunities, reduce the relative significance
of certain large positions in its portfolio and
improve the portfolio's tax efficiency. In
reaching its decision, the Board of Directors
was advised by Alliance Capital Management L.P.,
the Fund's investment adviser, referred to in
this Prospectus as Alliance, or the Adviser,
that the availability of new assets would give
the Fund additional investment flexibility to
take advantage of what Alliance believes to be
attractive investment opportunities without
being required to sell current portfolio
positions that it desires to retain and which,
if sold, could cause the realization of
significant capital gains by the Fund and its
stockholders. The Board of Directors also took
into account that a well-subscribed rights
offering would likely reduce the Fund's expense
ratio, which would be of long-term benefit to
stockholders. In addition, the Board of
Directors considered that this rights offering
could result in an improvement in the liquidity
of the trading market for the Fund's shares on
the NYSE. The Board also considered that this
rights offering would give record date
stockholders the opportunity to purchase shares
at a price below market price per share and/or
NAV, and might increase the level of market
interest in the Fund. The Board also considered
the proposed terms of the offer, the expenses of
the offer, and its dilutive effect, on
exercising and non-exercising record date
stockholders.
There can be no assurance that the offer will be
successful or that by increasing the size of the
Fund, the Fund's aggregate expenses, and
correspondingly, its expense ratio will be
lowered.
Alliance, as well as PaineWebber Incorporated,
the Dealer Manager for the offer who also serves
as the shareholder servicing agent for the Fund,
will benefit from the offer because they receive
fees based in part on the average net assets of
the Fund, which will increase as a result of the
offer. In addition, PaineWebber Incorporated
will receive a dealer manager fee and soliciting
dealer fees as described below.
1
<PAGE> 3
<TABLE>
<S> <C> <C>
IMPORTANT TERMS OF THE OFFER Aggregate number of 845,600 (not including up to
shares offered 211,400 additional shares
the Fund may issue to cover
over-subscription requests).
Number of non- One right for each whole
transferable rights share owned on the record
issued to each record date.
date stockholder
Subscription ratio One share for every three
rights (1-for-3); record
date stockholders issued
fewer than three rights may
purchase one share at the
subscription price.
Subscription price per 95% of the lower of (1) the
share average of the last reported
sales price of a Fund share
on the NYSE for the five
trading days ending with the
day the offer expires and
(2) the NAV as of the close
of trading on the NYSE on
that date.
Expiration date 5:00 P.M., New York City
time, on July 16, 1999,
unless the offer is
extended.
</TABLE>
OVER-SUBSCRIPTION PRIVILEGE Record date stockholders who fully exercise all
of the rights issued to them may subscribe for
shares that were not subscribed for by other
record date stockholders. If enough shares are
available, all of these requests will be honored
in full. If these requests for shares exceed the
shares available, the Fund may determine after
the expiration of the offer, in the discretion
of the Board of Directors, to issue up to an
additional 25% of the shares available pursuant
to the offer (up to an additional 211,400
shares) in order to cover these requests.
Regardless of whether the Fund issues such
additional shares, to the extent shares are not
available to honor all requests, the available
shares will be allocated pro rata among those
record date stockholders who over-subscribe
based on the number of rights originally issued
to them by the Fund.
2
<PAGE> 4
<TABLE>
<CAPTION>
EVENT DATE
IMPORTANT DATES TO REMEMBER ----- ----
<S> <C> <C>
Record Date.............. June 21, 1999
Subscription Period...... June 21, 1999 - July
16, 1999*
Expiration Date and
Pricing Date........... July 16, 1999*
Subscription Certificates
and Payment for Shares
Due.................... July 16, 1999*
Notice of Guaranteed
Delivery Due........... July 16, 1999*
Subscription Certificates
and Payment for
Guarantees of Delivery
Due**.................. July 21, 1999*
Confirmation Mailed to
Participants........... July 28, 1999*
Final Payment for
Shares***.............. August 11, 1999*
</TABLE>
----------------------------------------------------------
* Unless the offer is extended.
** A record date stockholder exercising rights
must deliver by the expiration date either
(i) a Subscription Certificate and payment
for shares or (ii) a Notice of Guaranteed
Delivery.
*** Additional amount due (in the event the
subscription price exceeds the estimated
subscription price).
A more detailed description of the Subscription
Certificate and Notice of Guaranteed Delivery
can be found on page 15.
NON-TRANSFERABILITY OF RIGHTS The rights are non-transferable and, therefore,
may not be purchased or sold. Rights not
exercised will expire without residual value
when the offer expires. The rights will not be
listed for trading on the NYSE or any other
securities exchange. The shares to be issued
pursuant to the offer will be listed for trading
on the NYSE, subject to notice of issuance.
METHOD OF EXERCISING RIGHTS The rights are evidenced by Subscription
Certificates that will be mailed to record date
stockholders or their nominees, except foreign
record date stockholders and their nominees. If
you wish to exercise your rights, you may do so
in the following ways:
1. Complete and sign the Subscription
Certificate. Mail it in the envelope provided
or deliver the completed and signed
Subscription Certificate with payment in full
to The Bank of New York at the address
indicated on the Subscription Certificate.
Your completed and signed
3
<PAGE> 5
Subscription Certificate and payment must be
received by the expiration of the offer (5:00
P.M., New York City time, on July 16, 1999,
unless the offer is extended); or
2. Contact your broker, banker or trust company
which can arrange, on your behalf, pursuant
to a Notice of Guaranteed Delivery, to
guarantee delivery of payment and delivery of
a properly completed and executed
Subscription Certificate by the close of
business on the third business day after the
expiration date of the offer. A fee may be
charged for this service. The Notice of
Guaranteed Delivery must be received on or
before the expiration of the offer.
Fractional shares will not be issued. After the
exercise of rights, record date stockholders who
have remaining less than three rights will not
be able to purchase a share upon exercise of
these remaining rights, which will expire
without any residual value. Record date
stockholders who receive less than three rights,
however, may purchase one share at the
subscription price. Record date stockholders may
request additional shares under the
over-subscription privilege.
OFFERING FEES AND EXPENSES The Fund has agreed to pay the Dealer Manager a
fee for its financial advisory and marketing
services equal to 3.75% of the aggregate
subscription price for each share issued
pursuant to the offer. The Dealer Manager will
reallow a part of its fees to other
broker-dealers which have assisted in soliciting
the exercise of rights as described in this
Prospectus. Other offering expenses incurred by
the Fund are estimated at $500,000, which
includes up to $100,000 that may be paid to the
Dealer Manager as partial reimbursement for its
expenses relating to the offer.
FOREIGN RESTRICTIONS The Fund will not mail Subscription Certificates
to record date stockholders whose record
addresses are outside the United States. Foreign
record date stockholders or their nominees will
receive written notice of the offer. Their
rights will be held by The Bank of New York, the
Subscription Agent, until instructions are
received to exercise the rights. If no
instructions are received prior to or on the
expiration date, the rights will expire.
USE OF PROCEEDS Based on the estimated subscription price of
$41.80 per share, the estimated net proceeds of
the offer are approximately $33,520,602. This
amount assumes that all 845,600 shares offered
in the primary subscription are sold and that
the offering expenses are $500,000. If, as
described above, the Fund increases the number
of shares subject to subscription by 25% in
order to satisfy over-
4
<PAGE> 6
subscription requests, the additional net
proceeds will be approximately $8,505,150.
The Fund's investment adviser anticipates that,
under current market conditions, the Fund will
take up to 30 days to invest or employ the offer
proceeds consistent with the Fund's investment
objective and policies. This process will not
take longer than three months. Until invested,
the proceeds of the offer will be held in U.S.
Government securities and other high-quality,
short-term money market instruments. These
temporary investments will not be consistent
with the Fund's objective of long-term growth of
capital through all market conditions.
INFORMATION AGENT Please direct all questions or inquiries
relating to the offer to the Fund's Information
Agent at:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 645-8640
Brokers and banks please call (212)
805-7113
Stockholders may also contact their brokers or
nominees for information with respect to the
offer.
INFORMATION REGARDING THE
FUND The Fund has been a non-diversified, closed-end
management investment company since its initial
public offering in 1994. The Fund's investment
objective is long-term growth of capital through
all market conditions. Consistent with the
investment style of Alliance's Large Cap Growth
Group, the Fund will invest in a "Core
Portfolio" of equity securities of large,
intensively researched, high-quality companies
that are judged likely to achieve superior
earnings growth. In the Adviser's view,
high-quality companies are larger capitalization
companies (companies with market capitalizations
generally expected to exceed $5 billion) that
possess, among other things, relatively long
operating histories, strong management, superior
industry positions and excellent balance sheets.
The Fund will seek to take advantage of what the
Adviser believes are opportunities presented by
unwarranted fluctuations in the prices of
securities, both to purchase or increase
positions on weakness and to sell or reduce
overpriced holdings. To take advantage of
investment opportunities in both rising and
declining markets, the Fund may make substantial
use of options, including purchasing and writing
call and put options, and may engage in short
selling and use certain other investment
practices, including futures and forward
contracts, and leverage.
The Fund's Core Portfolio, which will constitute
at least the majority of, and at times may
constitute substantially
5
<PAGE> 7
all of, its total assets, will normally consist
of the equity securities of the approximately 25
companies that are most highly regarded by
Alliance's Large Cap Growth Group. These Core
Portfolio companies will be predominantly U.S.
companies. The balance of the portion of the
Fund's portfolio that is invested in equity
securities will be invested in equity securities
of other U.S. and non-U.S. companies that the
Adviser considers to have exceptional growth
potential.
Normally, about 40-60 companies will be
represented in the Fund's portfolio. The Fund
thus differs from more typical equity investment
companies because it invests most of its assets
in a relatively small number of intensively
researched companies. The Fund may invest up to
35% of its total assets in equity securities of
non-U.S. companies. Equity securities of
non-U.S. companies will be selected by the
Adviser for investment by the Fund on the basis
of the same growth potential and other
characteristics as equity securities of U.S.
companies.
The Fund has implemented a quarterly
distribution policy pursuant to which it makes
quarterly distributions of 2.5% of the Fund's
NAV as of the beginning of each of the first
three calendar quarters each year and of at
least 2.5% of the Fund's NAV as of the beginning
of the fourth calendar quarter. If distributions
for any quarter exceed the Fund's net investment
income and net realized short-term capital
gains, the difference would be treated as
distributions of the Fund's net realized
long-term capital gains and, to the extent of
the amount of any distributions in excess of
such gains, as a return of the stockholder's
capital.
INFORMATION REGARDING THE
ADVISER The Fund's investment adviser is Alliance
Capital Management L.P., a leading international
investment adviser managing client accounts with
assets as of March 31, 1999 totaling more than
$301 billion (of which approximately $127
billion represented assets of investment
companies). As of March 31, 1999, the Adviser
managed retirement assets for many of the
largest public and private employee benefit
plans (including 30 of the nation's Fortune 100
companies), for public employee retirement funds
in 32 out of the 50 states, for investment
companies, and for foundations, endowments,
banks and insurance companies worldwide. The 54
registered investment companies, with more than
119 separate portfolios, managed by the Adviser
currently have over 4 million shareholder
accounts.
The persons primarily responsible for the
day-to-day management of the Fund are Alfred
Harrison, Vice Chairman of Alliance Capital
Management Corporation, the Adviser's general
partner, and Michael J. Reilly,
6
<PAGE> 8
Senior Vice President of Alliance Capital
Management Corporation. Both Messrs. Harrison
and Reilly are members of Alliance's Large Cap
Growth Group and have been associated with
Alliance since prior to 1994.
RISK FACTORS AND SPECIAL
CONSIDERATIONS You should consider the following factors, as
well as the other information in this
Prospectus, before making an investment in the
Fund under this offer.
The offer will result in dilution. Upon
completion of the offer, stockholders who do not
fully exercise their rights will own a smaller
proportional interest in the Fund than would be
the case if the offer had not been made.
Furthermore the subscription price per share for
the offer will be lower than the Fund's NAV. Any
rights offering priced at a discount to the
Fund's NAV and involving payment of expenses by
the Fund entails some dilution in the NAV.
Dilution is the decrease in NAV that results
from the Fund's issuance of new shares at a
discount to NAV when the rights are exercised
and from the Fund's payment of the expenses of
the offer. The offer will result in a dilution
of NAV for all stockholders, which will
disproportionately affect stockholders who do
not exercise their rights. In addition, there
also may be substantial dilution to the extent
that the Fund increases the number of shares
subject to subscription by up to 25% in order to
satisfy over-subscription requests. Although it
is not possible to state precisely the amount of
the decrease in NAV because it is not known at
the date of this Prospectus how many shares will
be subscribed for, or what the subscription
price will be, the dilution might be
substantial.
Principal risks. In this Summary, we describe
the principal risks that may affect the Fund's
portfolio as a whole. The Fund could be subject
to additional principal risks because the types
of investments made by the Fund can change over
time. This Prospectus has additional
descriptions of investments that appear in bold
type in the discussions under "Certain
Investment Practices" or "Risk Factors and
Special Considerations." These sections also
include more information about the Fund, its
investments and related risks.
Other important things for you to note:
You may lose money by investing in the
Fund.
An investment in the Fund is not a deposit
in a bank and is not insured or guaranteed
by the Federal Deposit Insurance
Corporation or any other government agency.
Among the principal risks of investing in the
Fund is market risk, which is the risk that the
value of your
7
<PAGE> 9
investment may fluctuate as stock markets
fluctuate. Because the Fund uses derivatives
strategies and other leveraging techniques
speculatively to enhance returns, it is subject
to greater risk and its returns may be more
volatile than other funds, particularly in
periods of market declines. The Fund is
"non-diversified," which means that it invests
in a smaller number of securities than many
other equity funds. As a result, changes in the
value of a single security may have a more
significant effect, either negative or positive,
on the Fund's NAV. The Fund's investments in
foreign securities have foreign risk, which is
the risk that investments in issuers located in
foreign countries may have greater price
volatility and less liquidity. Foreign risk
includes currency risk, which is the risk that
fluctuations in the exchange rates between the
U.S. dollar and foreign currencies could
negatively affect the value of the Fund's
investments.
The Fund's shares may trade at a discount to
NAV. Shares of closed-end management investment
companies frequently trade at a discount from
their NAV (the market price per share is less
than the value per share of the net assets).
This characteristic is a risk separate and
distinct from the risk that the Fund's NAV will
decrease as a result of its investment
activities and may be greater for investors
expecting to sell their shares relatively soon
after completion of this offering. The Fund
cannot predict whether its shares will trade at,
above or below NAV in the future.
There is no guarantee that the Fund will be able
to maintain its current level of dividends and
distributions. Based on information provided by
the Adviser, the Board of Directors believes
that the offer will not result in a change in
the Fund's current level of dividends per share
for the foreseeable future. There can be no
assurance, however, that the Fund will be able
to maintain its current level of dividends per
share, and the Board of Directors may, at its
sole discretion, change the Fund's current
dividend policy or its current level of
dividends per share in response to market or
other conditions.
8
<PAGE> 10
EXPENSE INFORMATION
FEE TABLE
THE FOLLOWING TABLES ARE INTENDED TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THIS OFFER WILL BEAR, DIRECTLY OR
INDIRECTLY.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of subscription price paid
directly from your investment)*....................... 3.75%
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON SHARES)**
Management Fees***...................................... 1.73%
Administration Fees****................................. 0.25%
Other Expenses*****..................................... 0.33%
Total Annual Expenses.............................. 2.31%
</TABLE>
- -------------------------
* The Fund has agreed to pay PaineWebber Incorporated, the Dealer Manager, a
fee for its financial advisory and marketing services equal to 3.75% of
the aggregate subscription price for each share issued pursuant to the
offer. The Dealer Manager will reallow to other broker-dealers
solicitation fees equal to 2.50% of the subscription price per share for
each share issued pursuant to the offer as a result of their soliciting
efforts. Other offering expenses to be incurred by the Fund are estimated
at $500,000, which includes up to $100,000 that may be paid to the Dealer
Manager as partial reimbursement for its expenses relating to the offer.
These fees and expenses will be borne by the Fund and indirectly by all of
the Fund's stockholders, including those stockholders who do not exercise
their rights.
** Amounts are estimated for the Fund's current fiscal year after giving
effect to anticipated net proceeds of the offer assuming that all of the
rights are exercised, that the maximum number of over-subscription shares
are issued and that the Fund incurs estimated offering expenses of
$500,000.
*** The Adviser receives a monthly basic fee at an annualized rate of 1.50% of
the Fund's average net assets and an adjustment to the basic fee based on
the investment performance of the Fund in relation to the investment
record of the Russell 1000 Growth(R) Index for certain prescribed periods.
The adjustment can cause the Adviser's management fee to range from 1.20%
to 1.80% of the Fund's average net assets.
**** Alliance also receives a monthly fee at the annual rate of 0.25% of the
Fund's average weekly net assets for acting as the Fund's Administrator.
***** Includes interest paid by the Fund in connection with short sales.
EXAMPLE
The following Example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund through this offering. The amounts are
based upon payment by the Fund of operating expenses at the levels set forth in
the above table.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would directly or indirectly pay the
following expenses on a $1,000 investment in the
Fund, assuming a 5% annual return throughout the
relevant period and reinvestment of all dividends
and other distributions at NAV:.................. $60 $107 $156 $292
</TABLE>
The foregoing fee table and example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly.
The Example set forth above assumes reinvestment of all dividends and other
distributions at NAV, payment of a 3.75% sales load and annual expense ratio of
2.31%. The table above and the assumption in the Example of a 5% annual return
are required by SEC regulations applicable to all management investment
companies. Your annual return may be more or less than the 5% used in this
Example. In addition, while the Example assumes reinvestment of all dividends
and other distributions at NAV, participants in the Dividend Reinvestment Plan
may receive shares purchased or issued at a price or value different from NAV.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
9
<PAGE> 11
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share
outstanding throughout each period presented. Except for the period from October
1, 1998 through March 31, 1999, the financial highlights for each period
presented have been audited by PricewaterhouseCoopers LLP, the Fund's
independent accountants, whose unqualified report is included in the Fund's
September 30, 1998 Annual Report and is incorporated into this Prospectus by
reference. The financial highlights should be read in conjunction with the
financial statements and notes thereto, which are set forth in this Prospectus
and are included in the Fund's September 30, 1998 Annual Report and March 31,
1999 Semi-Annual Report, each of which is available without charge by calling
the Fund at (212) 969-2232 or by contacting the Fund at 1345 Avenue of the
Americas, New York, New York 10105.
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 4,
SIX SEPTEMBER 30, 1994 (A) TO
MONTHS ENDED ----------------------------- SEPTEMBER 30,
MARCH 31, 1999 1998 1997 1996 1995
-------------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 32.52 $ 33.72 $ 22.19 $ 23.78 $ 19.70(b)
INCOME FROM INVESTMENT OPERATIONS
Net investment loss....................... (.41) (.77) (.58) (.48) (.09)
Net realized and unrealized gain on
investment transactions................. 16.86 4.73 14.40 1.86 5.65
Net increase in net asset value from
operations.............................. 16.45 3.96 13.82 1.38 5.56
LESS: DISTRIBUTIONS
Distributions from net realized gains..... (1.88) (5.16) (2.29) (2.97) (1.48)
Net asset value, end of period............ $ 47.09 $ 32.52 $ 33.72 $ 22.19 $ 23.78
Market value, end of period............... $ 48,875 $36,875 $31,188 $ 19.00 $ 19.50
TOTAL RETURN
Total investment return based on: (c)
Market value.............................. 37.89% 37.40% 79.27% 13.26% 5.46%
Net asset value........................... 50.77% 12.49% 65.66% 8.10% 28.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's
omitted)................................ $118,471 $81,552 $84,477 $55,582 $59,561
Ratio of expenses to average net assets... 2.47%(d) 2.57% 2.48% 2.87% 2.00%(d)
Ratio of expenses to average net assets
excluding interest expense.............. 2.47%(d) 2.52%(e) 2.43%(e) 2.62%(e) 2.00%(d)
Ratio of net investment loss to average
net assets.............................. (2.02)%(d) (2.18)% (2.07)% (2.11)% (.48)%(d)
Portfolio turnover rate................... 59% 96% 105% 199% 140%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Net of offering costs of $0.30.
(c) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market price in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on the net asset value will be lower than total investment return
based on market price in periods where there is a decrease in the discount
or an increase in the premium of the market value to the net asset value
from the beginning to the end of such periods. Total return for a period of
less than one year is not annualized.
(d) Annualized.
(e) Net of interest expense of 0.05%, 0.05% and 0.25%, respectively, on short
sales.
10
<PAGE> 12
CAPITALIZATION AT JUNE 1, 1999
<TABLE>
<CAPTION>
(1) (2) (4)
(3) AMOUNT
AMOUNT OUTSTANDING OUTSTANDING
AMOUNT HELD BY FUND FOR ITS EXCLUSIVE OF
TITLE OF CLASS AUTHORIZED OWN ACCOUNT AMOUNT UNDER (3)
- -------------- ----------- -------------------- ----------------
<S> <C> <C> <C>
Common stock, $0.01
par value.......... 300,000,000 0 2,515,754
</TABLE>
TRADING AND NAV INFORMATION
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to NAV. The Fund's shares recently have been trading at
times at a discount and at times at a premium to NAV. As discussed above, shares
of closed-end investment companies frequently trade at a discount from NAV.
The shares are listed and traded on the NYSE under the ticker symbol "AMO."
The rights will not be admitted for trading on the NYSE or any other stock
exchange. The following table shows the high and low sales prices of the Fund's
shares on the NYSE, the high and low NAV per share, and the high and low premium
or discount at which the Fund's shares were trading for each fiscal quarter
during its two most recent fiscal years and since the beginning of the current
fiscal year.
<TABLE>
<CAPTION>
PREMIUM/
MARKET (DISCOUNT) TO
PRICE* NAV NAV
----------- --------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- ---- --- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996.............. $21 1/4 $19 $25.75 $22.80 (14.27)% (19.49)%
March 31, 1997................. 23 3/8 20 3/4 27.94 24.49 (14.06) (19.07)
June 30, 1997.................. 28 3/8 20 1/4 31.02 24.28 (5.81) (20.32)
September 30, 1997............. 31 5/8 27 3/4 34.76 31.32 (7.21) (13.57)
December 31, 1997.............. 33 3/8 28 11/16 35.37 29.42 0.19 (9.64)
March 31, 1998................. 37 5/8 28 1/2 37.30 29.13 2.29 (7.05)
June 30, 1998.................. 41 13/16 35 11/16 39.88 35.91 5.05 (2.26)
September 30, 1998............. 47 7/16 34 3/8 43.87 31.71 12.77 2.15
December 31, 1998.............. 43 5/16 28 7/16 42.99 27.32 15.35 (1.36)
March 31, 1999................. 49 7/8 44 48.43 42.55 6.59 0.59
</TABLE>
- -------------------------
* Source: NYSE
The Fund's NAV at the close of business on April 14, 1999 (the last trading
date on which the Fund publicly reported its NAV prior to the announcement of
the offer) and on June 18, 1999 (the last trading date on which the Fund
publicly reported its NAV prior to the date of this Prospectus) was $48.45 and
$47.28, respectively. The last reported sales price of the Fund's shares on the
NYSE on those dates was $49.25 and $44.00, respectively.
THE FUND
The Fund was organized as a corporation under the laws of Maryland on
August 16, 1994 and has registered with the Securities and Exchange Commission,
or the SEC, under the Investment Company Act of 1940, as amended, known as the
1940 Act, as an investment company. The Fund's principal office is located at
1345 Avenue of the Americas, New
11
<PAGE> 13
York, NY 10105. The Adviser is registered with the SEC under the Investment
Advisers Act of 1940, as amended.
The Fund is a closed-end management investment company. These companies
differ from open-end management investment companies or mutual funds because
closed-end investment companies have a fixed capital base and do not redeem
shares at NAV. Many closed-end funds trade on the NYSE. Mutual funds issue
securities redeemable at NAV at any time at the option of the stockholder and
typically engage in a continuous offering of their shares. For these reasons,
mutual funds are subject to periodic asset in-flows and out-flows that can
complicate portfolio management. Closed-end investment companies do not face the
prospect of having to liquidate portfolio holdings to satisfy redemptions at the
option of stockholders or to maintain cash positions to meet the possibility of
redemptions and can therefore remain fully invested.
THE OFFER
PURPOSES OF THE OFFER
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its existing stockholders to increase the assets of
the Fund available for investment, thereby allowing the Fund to more fully take
advantage of available investment opportunities, reduce the relative
significance of certain large positions in its portfolio and improve the
portfolio's tax efficiency. In reaching its decision, the Board of Directors was
advised by the Adviser that the availability of new assets would give the Fund
additional investment flexibility to take advantage of what the Adviser believes
to be attractive investment opportunities without being required to sell current
portfolio positions that it desires to retain, and which, if sold, could cause
the realization of significant capital gains by the Fund and its stockholders.
The Board of Directors also took into account that a well-subscribed rights
offering would likely reduce the Fund's expense ratio, which would be of
long-term benefit to stockholders. In addition, the Board of Directors
considered that this rights offering could result in an improvement in the
liquidity of the trading market for the Fund's shares on the NYSE. The Board
also considered that this rights offering would give record date stockholders
the opportunity to purchase shares at a price below market price per share
and/or NAV, and might increase the level of market interest in the Fund. The
Board also considered the proposed terms of the offer, the expenses of the
offer, and its dilutive effect on exercising and non-exercising record date
stockholders.
There can be no assurance that the offer will be successful or that by
increasing the size of the Fund, the Fund's aggregate expenses, and
correspondingly, its expense ratio will be lowered.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings of shares from time to time for a number of shares
and on terms that may or may not be similar to this offer. Any such future
offering will be made in accordance with the 1940 Act.
TERMS OF THE OFFER
The Fund is issuing to its stockholders of record as of the close of
business on June 21, 1999, non-transferable rights entitling the holders to
subscribe for an aggregate of 845,600 shares of the Fund's common stock
(1,057,000 shares if the Fund increases the number of shares available by up to
25% in connection with the over-subscription privilege described below). The
Fund is issuing to each record date stockholder one right for each whole share
owned as of the record date. Only record date stockholders will be issued rights
and will be
12
<PAGE> 14
entitled to participate in the offer. Three rights entitle the holder to
subscribe for one Fund share (1-for-3). A record date stockholder's right to
acquire, during the subscription period at the subscription price, one share for
every three rights held is referred to in this Prospectus as the primary
subscription. Record date stockholders who receive less than three rights will
be entitled to purchase one share at the subscription price.
The rights may be exercised at any time during the subscription period,
which commences on June 21, 1999 and ends at 5:00 P.M., New York City time, on
July 16, 1999, unless the subscription period is extended. The rights are
evidenced by Subscription Certificates that will be mailed to record date
stockholders, except foreign record date stockholders.
Unsubscribed shares will be offered, by means of an over-subscription
privilege, to those record date stockholders who have exercised all rights
issued to them and who wish to acquire more than the number of shares they are
otherwise entitled to purchase pursuant to the primary subscription.
Over-subscription shares will be allotted as more fully discussed below.
The first regular quarterly dividend to be paid on shares acquired upon
exercise of rights will be the third quarterly dividend, the record date for
which occurs after the issuance of the shares. The Fund's present policy is to
pay dividends on the last business day, generally any day the NYSE is open, of
each quarter to stockholders of record approximately 10 days prior to the
payment date. It is expected that the first dividend received by stockholders
with respect to shares acquired in the offer will be paid on the last business
day of September, 1999.
Fractional shares will not be issued on the exercise of fractional rights.
Accordingly, shares may be purchased in the primary subscription only pursuant
to the exercise of whole rights. For example, if a record date stockholder owns
100 shares, that record date stockholder will receive 100 rights; although the
record date stockholder may exercise 33.33 rights that record date stockholder
will only be able to purchase 33 shares, with the unexercised fractional rights
expiring. However, record date stockholders holding fewer than three shares will
be entitled to subscribe for one share pursuant to the primary subscription.
There is no minimum number of rights that must be exercised in order for
the offer to close.
OVER-SUBSCRIPTION PRIVILEGE
If record date stockholders do not exercise all the rights issued to them,
any shares represented by unexercised rights will be offered by means of the
over-subscription privilege to the record date stockholders who have exercised
all the rights issued to them and who wish to subscribe for additional shares.
Only record date stockholders who exercise all the rights issued to them may
indicate on the Subscription Certificate, which they or their nominees submit
with respect to the exercise of the rights issued to them, how many shares they
desire to purchase pursuant to the over-subscription privilege. If sufficient
shares remain after completion of the primary subscription, all
over-subscription requests will be honored in full. If sufficient shares are not
available after completion of the primary subscription to honor all
over-subscription requests, the Fund may determine after the expiration of the
offer, in the discretion of the Board of Directors, to issue up to an additional
25% of the shares available pursuant to the offer (up to an additional 211,400
shares) in order to cover the over-subscription requests. Regardless of whether
the Fund issues such additional shares, and to the extent shares are not
available to honor all over-subscription requests, the available shares will be
allocated among those who over-subscribe so that the number of shares issued to
participating record date stockholders will generally be in proportion to the
number of shares owned by such stockholders on the record date. The allocation
process may involve a series of
13
<PAGE> 15
allocations in order to assure that the total number of shares available for
over-subscription is distributed on a pro rata basis.
Banks, brokers, trustees and other nominee holders of rights will be
required to certify to the subscription agent, before any over-subscription
privilege may be exercised with respect to any particular beneficial owner, as
to the aggregate number of rights exercised pursuant to the primary subscription
and the number of shares subscribed for pursuant to the over-subscription
privilege by such beneficial owner and that such beneficial owner's primary
subscription was exercised in full. Nominee Holder Over-Subscription Forms and
Beneficial Owner Certification Forms will be distributed to banks, brokers,
trustees and other nominee holders of rights with the Subscription Certificates.
The Fund will not offer or sell any shares that are not subscribed for
pursuant to the primary subscription or the over-subscription privilege.
SUBSCRIPTION PRICE
The subscription price for each share to be issued pursuant to the offer
will be 95% of the lower of (1) the average of the last reported sales price of
a Fund share on the NYSE for the five trading days ending with the day the offer
expires and (2) the NAV as of the close of trading on the NYSE on that day. For
example, if the average of the last reported sales price per share on the NYSE
on the expiration date and on the four preceding business days is $44.00, and
the closing NAV per share on the expiration date is $47.28, the subscription
price will be $41.80 (95% of $44.00). If, however, the average of the last
reported sales price per share on the NYSE on the expiration date and on the
four preceding business days is $44.00, and the closing NAV per share on the
expiration date is $40.00, the subscription price will be $38.00 (95% of
$40.00).
The Fund announced the offer on April 15, 1999. The Fund's NAV at the
close of business on April 14, 1999 (the last trading date on which the Fund
publicly reported its NAV prior to the announcement) and on June 18, 1999 (the
last trading date on which the Fund publicly reported its NAV prior to the date
of this Prospectus) was $48.45 and $47.28, respectively. The last reported sales
price of the Fund's shares on these dates was $49.25 and $44.00, respectively.
NON-TRANSFERABILITY OF RIGHTS
The rights are non-transferable and, therefore, may not be purchased or
sold. Rights not exercised will expire without residual value when the offer
expires. The rights will not be listed for trading on the NYSE or any other
securities exchange. However, the shares to be issued pursuant to the offer will
be listed for trading on the NYSE, subject to notice of issuance.
EXPIRATION OF THE OFFER
The offer will expire at 5:00 P.M., New York City time, on July 16, 1999,
unless the offer is extended. The rights will expire on the expiration date.
Because the offer expires and the shares will be priced on the same date, record
date stockholders who decide to acquire shares in the primary subscription or
pursuant to the over-subscription privilege will not know the subscription price
of the shares when they make their decision. Any extension of the offer will be
followed as promptly as practicable by an announcement of that fact. The
announcement will be issued no later than 9:00 A.M., New York City time, on the
next business day following the expiration date. The Fund may make any
announcement regarding the extension of the offer by a release to the Dow Jones
News Service or other means as the Fund deems appropriate.
14
<PAGE> 16
SUBSCRIPTION AGENT
The Subscription Agent is The Bank of New York. The Subscription Agent will
receive for its administrative, processing, invoicing and other services as
Subscription Agent, a fee estimated to be approximately $15,000, plus
reimbursement for its out-of-pocket expenses related to the offer estimated to
be approximately $10,000. The Subscription Agent is also the Fund's transfer
agent, dividend-paying agent and registrar for the shares. Questions regarding
the Subscription Certificates should be directed to (800) 507-9357 (toll free);
stockholders may also consult their brokers or nominees.
Completed Subscription Certificates must be sent together with proper
payment of the subscription price for all shares subscribed for in the primary
subscription and pursuant to the over-subscription privilege (for record date
stockholders) to the Subscription Agent by one of the methods described below.
Alternatively, Notice of Guaranteed Delivery may be sent by facsimile to
(212) 815-9357 to be received by the Subscription Agent prior to 5:00 P.M., New
York City time, on the expiration date. Facsimiles should be confirmed by
telephone at (800) 507-9357. The Fund will accept only properly completed and
executed Subscription Certificates actually received at any of the addresses
listed below, prior to 5:00 P.M., New York City time, on the expiration date or
by the close of business on the third business day after the expiration date
following timely receipt of a Notice of Guaranteed Delivery.
<TABLE>
<CAPTION>
BY FIRST CLASS MAIL: BY HAND OR OVERNIGHT COURIER:
- -------------------- -----------------------------
<S> <C>
The Bank of New York The Bank of New York
Church Street Station 101 Barclay Street
P.O. Box 11248 Receive & Deliver Window
New York, NY 10286-1248 New York, NY 10286
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES
LISTED ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
METHOD FOR EXERCISING RIGHTS
Rights are evidenced by Subscription Certificates that, except as described
below under "Foreign Restrictions," will be mailed to record date stockholders
or, if a record date stockholder's shares are held by Cede or any other
depository or nominee on their behalf, to Cede or such depository or nominee.
Rights may be exercised by completing and signing the Subscription Certificate
that accompanies this Prospectus and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment in full for the shares at the
estimated subscription price by the expiration date. Rights may also be
exercised by contacting your broker, banker or trust company, which can arrange,
on your behalf, to guarantee payment and delivery of a properly completed and
executed Subscription Certificate pursuant to a Notice of Guaranteed Delivery by
the close of business on the third business day after the expiration date. A fee
may be charged for this service. Because fractional shares will not be issued,
record date stockholders who have remaining, after exercising rights, less than
three rights, will be unable to purchase a share upon the exercise of these
remaining rights. These remaining rights will expire without residual value and
stockholders will not be entitled to receive any cash in lieu thereof. For
example, if a record date stockholder owns 301 shares, that record date
stockholder will receive 301 rights, but may only exercise 300 rights for the
purchase of 100 shares, with the unexercised remaining rights expiring. However,
record date stockholders who receive fewer than three shares will be entitled to
subscribe for one share at the subscription price pursuant to the primary
subscription. Record date stockholders who fully
15
<PAGE> 17
exercise their rights may request additional rights pursuant to the
over-subscription privilege. Completed Subscription Certificates must be
received by the Subscription Agent prior to 5:00 P.M., New York City time, on
the expiration date at one of the addresses set forth above (unless the
guaranteed delivery procedures are complied with as described below under
"Payment for Shares").
Stockholders Who are Record Owners. To exercise their rights, record date
stockholders may choose between either option to exercise their rights set forth
under "Payment for Shares" below. If time is of the essence, option (2) under
"Payment for Shares" below will permit delivery of the Subscription Certificate
and payment after the expiration date.
Stockholders Whose Shares are Held By a Nominee. Record date stockholders
whose shares are held by a nominee such as a bank, broker or trustee must
contact that nominee to exercise their rights. In that case, the nominee will
complete the Subscription Certificate on behalf of the record date stockholder
and arrange for proper payment by one of the methods set forth under "Payment
for Shares" below.
Nominees. Nominees who hold shares for the account of others should notify
the respective beneficial owners of such shares as soon as possible to ascertain
the beneficial owners' intentions and to obtain instructions with respect to the
rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the proper
payment as described under "Payment for Shares" below.
INFORMATION AGENT
Any questions or requests for assistance concerning the method of
subscribing for shares or for additional copies of this Prospectus or
Subscription Certificates or Notices of Guaranteed Delivery may be directed to
the Information Agent at its telephone number and address listed below:
Shareholder Communications Corporation
17 State Street
New York, NY 10004
Toll Free: (800) 645-8640
Brokers and banks, please call: (212) 805-7113
Record date stockholders may also contact their brokers or nominees for
information with respect to the offer. The Information Agent will receive a fee
estimated to be $7,500, plus reimbursement for its out-of-pocket expenses
related to the offer, estimated to be a maximum of $17,500.
PAYMENT FOR SHARES
Record date stockholders who wish to acquire shares in the primary
subscription and pursuant to the over-subscription privilege may choose between
the following methods of payment:
(1) A record date stockholder may send the Subscription Certificate
together with payment for the shares acquired in the primary
subscription and any additional shares subscribed for pursuant to the
over-subscription privilege to the subscription agent. Payment should
be calculated on the basis of the estimated subscription price of
$41.80 per share for all shares subscribed. A subscription will be
accepted when payment, together with a properly completed and executed
Subscription Certificate, is received by the Subscription Agent's
office at one of the addresses set forth above no later than 5:00 P.M.,
New York City time, on the expiration date. The
16
<PAGE> 18
Subscription Agent will deposit all checks and money orders received by
it for the purchase of shares into a segregated interest-bearing
account (the interest from which will inure to the benefit of the Fund)
pending proration and distribution of shares. A PAYMENT PURSUANT TO
THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A
BANK OR BRANCH LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO
"ALLIANCE ALL-MARKET ADVANTAGE FUND" AND MUST ACCOMPANY A PROPERLY
COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH PAYMENT TO BE
ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL COLLECTION OF
CHECKS BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS
DAYS TO CLEAR, STOCKHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Alternatively, a bank, a trust company or a NYSE member subscription
will be accepted by the Subscription Agent if, prior to 5:00 P.M., New
York City time, on the expiration date, the Subscription Agent has
received a Notice of Guaranteed Delivery by facsimile or otherwise from
a bank, a trust company or a NYSE member, guaranteeing delivery of (i)
payment of the estimated subscription price of $41.80 per share for the
shares subscribed for in the primary subscription and any additional
shares requested pursuant to the over-subscription privilege, and (ii)
a properly completed and executed Subscription Certificate. The
Subscription Agent will not honor a Notice of Guaranteed Delivery
unless a properly completed and executed Subscription Certificate and
full payment for the shares is received by the Subscription Agent by
the close of business on the third business day after the expiration
date (July 21, 1999, unless the offer is extended).
Within eight business days after the expiration date, (July 28, 1999,
unless the offer is extended), the confirmation date, a confirmation will be
sent by the Subscription Agent to each subscribing record date stockholder (or,
if the stockholder's shares are held by Cede or any other depository or nominee
on such record date stockholder's behalf, to Cede or such depository or
nominee), showing (i) the number of shares acquired in the primary subscription,
(ii) the number of shares, if any, acquired pursuant to the over-subscription
privilege, (iii) the subscription price per share and total purchase price of
the shares, and (iv) any additional amount payable by such record date
stockholder to the Fund or any excess to be refunded by the Fund to such
stockholder, in each case based on the subscription price. If any record date
stockholder exercises his or her right to acquire shares pursuant to the over-
subscription privilege, any such excess payment that would otherwise be refunded
to the record date stockholder will be applied by the Fund toward payment for
shares acquired pursuant to the exercise of the over-subscription privilege. Any
additional payment required from a record date stockholder must be received by
the subscription agent within ten business days after the confirmation date
(August 11, 1999, unless the offer is extended). Any excess payment to be
refunded by the Fund to a record date stockholder will be mailed by the
Subscription Agent to such record date stockholder as promptly as possible. All
payments by a record date stockholder must be in U.S. dollars by money order or
check drawn on a bank or branch located in the United States and payable to
"ALLIANCE ALL-MARKET ADVANTAGE FUND."
The Subscription Agent will deposit all checks received by it prior to the
final payment date into a segregated interest-bearing account (which interest
will inure to the benefit of the Fund) pending proration and distribution of the
shares.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the shares purchased are subject to collection of checks and
actual payment pursuant to any Notice of Guaranteed Delivery.
17
<PAGE> 19
If a record date stockholder who acquires shares pursuant to the primary
subscription or the over-subscription privilege does not make payment of any
additional amounts due by the tenth business day after the confirmation date,
the Fund reserves the right to take any or all of the following actions: (i)
sell such subscribed and unpaid-for shares to other record date stockholders,
(ii) apply any payment actually received toward the purchase of the greatest
whole number of shares that could be acquired by such record date stockholder
upon the exercise of the primary subscription and/or over-subscription
privilege, and/or (iii) exercise any and all other rights or remedies to which
the Fund may be entitled.
THE METHOD OF DELIVERY TO THE FUND OF SUBSCRIPTION CERTIFICATES AND PAYMENT
OF THE SUBSCRIPTION PRICE WILL BE AT THE ELECTION AND RISK OF THE EXERCISING
RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Subscription
Agent determines in its sole discretion. The Subscription Agent will not be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS
PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE."
DELIVERY OF SHARE CERTIFICATES
Certificates representing shares acquired in the primary subscription will
be mailed promptly after the expiration of the offer once full payment for such
shares has been received and cleared. Certificates representing shares acquired
pursuant to the over-subscription privilege will be mailed as soon as
practicable after full payment for such shares has been received and cleared and
all allocations have been completed. Participants in the Dividend Reinvestment
Plan will have any shares acquired in the primary subscription and pursuant to
the over-subscription privilege credited to their accounts under the Dividend
Reinvestment Plan. Participants in the Dividend Reinvestment Plan wishing to
exercise rights issued with respect to the shares held in their accounts under
the Dividend Reinvestment Plan must exercise such rights in accordance with the
procedures set forth above. Record date stockholders whose shares are held of
record by Cede or by any other depository or nominee on their behalf or their
broker-dealer's behalf will have any shares acquired in the primary subscription
credited to the account of Cede or such other depository or nominee. Shares
acquired pursuant to the over-subscription privilege will be certificated, and
certificates representing such shares will be sent directly to Cede or such
other depository or nominee. Share certificates will not be issued for shares
credited to Dividend Reinvestment Plan accounts.
18
<PAGE> 20
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to record date stockholders
whose record addresses are outside the United States. Foreign record date
stockholders or their nominees will receive written notice of the offer. The
rights issued to foreign record date stockholders will be held by the
Subscription Agent for their accounts until instructions are received to
exercise the rights. Rights issued to foreign record date stockholders will
expire unexercised if instructions are not submitted to the Subscription Agent
prior to or on the expiration date.
FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
The following is a general summary of the material federal income tax
consequences of the offer under the provisions of the U.S. Internal Revenue Code
of 1986, as amended, referred to below as the Code, and the regulations
thereunder as now in effect that are generally applicable to record date
stockholders that are United States persons within the meaning of the Code, and
does not cover foreign, state or local taxes. The Code and regulations are
subject to change by legislative or administrative action, which may be
retroactive. Exercising rights holders should consult their tax advisers
regarding specific questions as to foreign, federal, state or local taxes.
Stockholders will not recognize any taxable income either upon the receipt
or the exercise of the rights. If the fair market value of the rights on the
date of distribution is less than 15% of the fair market of the stockholder's
shares of the Fund's common stock to which the rights relate and the stockholder
does not make the election described below, the stockholder's basis in the
rights is zero. A stockholder may, however, irrevocably elect to allocate its
existing basis in the related shares between such shares and the rights based
upon the relative fair market values of such shares and the rights as of the
date of their issuance. The stockholder's basis in the shares would then be
reduced by an amount equal to the basis allocated to the rights. This election
must be made in a statement attached to the stockholder's federal income tax
return for the year in which the rights are received. If the fair market value
of the rights on the date of distribution is equal to at least 15% of the
stockholder's shares to which they relate, the stockholder will be required to
allocate its existing basis in those shares between such shares and the rights
based upon the relative fair market values of such shares and the rights as of
the date of their issuance. As with respect to the election described above, the
stockholder's basis in the shares would then be reduced by an amount equal to
the basis allocated to the rights. The basis of any shares acquired by a
stockholder's exercise of its rights will be equal to the sum of the
subscription price of the shares, the basis of the rights and any servicing fee
charged to the stockholder by the stockholder's broker, bank or trust company.
The gain or loss recognized by a stockholder upon the sale of a share acquired
by the exercise of a right will be capital gain or loss (assuming the share is
held as a capital asset at the time of sale). This gain or loss will be
long-term capital gain or loss if the share has been held for more than one year
at the time of sale. A stockholder's holding period for a share acquired upon
the exercise of a right begins with the date of exercise. No loss will be
realized if rights which have a tax basis expire without exercise. In such
event, the basis in the unexercised rights will be added back to the
stockholder's basis in the related shares.
NOTICE OF NAV DECLINE
The Fund has undertaken to suspend the offer until it amends this
Prospectus if, subsequent to June 21, 1999 (the effective date of the Fund's
registration statement), the Fund's NAV declines more than 10% from its NAV as
of that date. In such event, the Fund would extend the expiration date and
notify record date stockholders that the NAV has
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declined more than 10%, that the offer is suspended and that exercising rights
holders may cancel their exercise of rights.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Stockholders who are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended, (including corporate savings
and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and
individual retirement accounts, collectively, retirement plans, should be aware
that additions to the retirement plan (other than rollovers or
trustee-to-trustee transfers from other retirement plans) in order to exercise
rights would be treated as contributions to the retirement plan and, when taken
together with contributions previously made, may result in, among other things,
excise taxes for excess or nondeductible contributions. In the case of
retirement plans qualified under section 401(a) of the Code and certain other
retirement plans, additional cash contributions could cause the maximum
contribution limitations of section 415 of the Code or other qualification rules
to be violated. They may also be a reportable distribution and there may be
other adverse tax and ERISA consequences if rights are sold or transferred by a
retirement plan.
Retirement plans and other tax exempt entities, should also be aware that
if they borrow in order to finance their exercise of rights, they may become
subject to the tax on unrelated business taxable income under section 511 of the
Code.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules, that may bear upon the exercise of
rights. Due to the complexity of these rules and the penalties for
noncompliance, retirement plans should consult with their counsel and other
advisors regarding the consequences under ERISA and the Code of their exercise
of rights.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York,
a broker-dealer and member of the National Association of Securities Dealers,
Inc., will act as the Dealer Manager for the offer. The Dealer Manager is also
the Fund's Shareholder Servicing Agent. Under the terms and subject to the
conditions contained in the Dealer Manager Agreement dated the date hereof, the
Dealer Manager will provide financial advisory and marketing services in
connection with the offer and will solicit the exercise of rights and
participation in the over-subscription privilege by record date stockholders.
The offer is not contingent upon any number of rights being exercised. The Fund
has agreed to pay the Dealer Manager a fee for financial advisory and marketing
services equal to 3.75% of the aggregate subscription price for each share
issued pursuant to the offer. The Dealer Manager will reallow to other
broker-dealers solicitation fees equal to 2.50% of the subscription price per
share for each share issued pursuant to the offer as a result of their
soliciting efforts.
In addition, the Fund has agreed to reimburse the Dealer Manager up to an
aggregate of $100,000 for its reasonable expenses incurred in connection with
the offer. The Fund and the Adviser have each agreed to indemnify the Dealer
Manager or contribute to losses arising out of certain liabilities including
liabilities under the Securities Act. The Dealer Manager Agreement also provides
that the Dealer Manager will not be subject to any liability to the Fund in
rendering the services contemplated by such agreement except for any act of bad
faith, willful misconduct or gross negligence of the Dealer Manager or reckless
disregard by the Dealer Manager of its obligations and duties under such
agreement.
The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity-related securities of the Fund or securities
convertible into such securities for a period
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<PAGE> 22
of 180 days after the date of the Dealer Manager Agreement, except for the
shares issued in reinvestment of dividends or other distributions or other
limited circumstances.
USE OF PROCEEDS
If all the rights are exercised in full at the subscription price of $41.80
per share, the net proceeds of the offer to the Fund assuming all 845,600 shares
offered in the primary subscription are sold are estimated to be approximately
$33,520,602, after deducting offering expenses payable by the Fund estimated at
approximately $500,000. If the Fund increases the number of shares subject to
subscription by up to 25%, or 211,400 shares, in order to satisfy
over-subscription requests, the additional net proceeds will be approximately
$8,505,150. The Adviser anticipates that the Fund will take up to 30 days from
its receipt of the net proceeds of the offer to invest such proceeds, but in no
event will any such use of proceeds take longer than three months. Pending the
use of the proceeds of the offer, the proceeds will be held in U.S. Government
securities and other high-quality, short-term money market instruments. These
temporary investments will not be consistent with the Fund's objective of
long-term growth of capital through all market conditions.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE AND STRATEGY
The Fund's investment objective is to provide long-term growth of capital
through all market conditions. Consistent with the investment style of
Alliance's Large Cap Growth Group, the Fund will invest in a "Core Portfolio" of
equity securities (common stocks, securities convertible into common stocks and
rights and warrants to subscribe for or purchase common stocks) of large,
intensively researched, high-quality companies that are judged likely to achieve
superior earnings growth. In the Adviser's view, high-quality companies are
larger capitalization companies (companies with market capitalizations generally
expected to exceed $5 billion) that possess, among other things, relatively long
operating histories, strong management, superior industry positions and
excellent balance sheets. The term "high quality" does not reflect ratings from
any rating agency. The Fund will seek to take advantage of what the Adviser
believes are opportunities presented by unwarranted fluctuations in the prices
of securities, both to purchase or increase positions on weakness and to sell or
reduce overpriced holdings. To take advantage of investment opportunities in
both rising and declining markets, the Fund may make substantial use of options,
including purchasing and writing call and put options, and may engage in short
selling and may use certain other investment practices, including futures and
forward contracts, and leverage.
The Fund's Core Portfolio, which will constitute at least the majority of,
and at times may constitute substantially all of, its total assets, will
normally consist of the equity securities of the approximately 25 companies that
are most highly regarded by Alliance's Large Cap Growth Group. These Core
Portfolio companies will be predominantly U.S. companies. The balance of the
portion of the Fund's portfolio that is invested in equity securities will be
invested in equity securities of other U.S. and non-U.S. companies that the
Adviser considers to have exceptional growth potential.
Normally, about 40-60 companies will be represented in the Fund's
portfolio. The Fund thus differs from more typical equity investment companies
because it invests most of its assets in a relatively small number of
intensively researched companies. The Fund may invest up to 35% of its total
assets in equity securities of non-U.S. companies. The Fund defines non-U.S.
companies to be entities (i) that are organized under the laws of a country
other than the United States and have their principal office in a country other
than the United States, or
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(ii) the equity securities of which are traded principally in securities markets
outside the United States. Equity securities of non-U.S. companies will be
selected by the Adviser for investment by the Fund on the basis of the same
growth potential and other characteristics as equity securities of U.S.
companies. The Fund may invest up to 5% of its total assets in illiquid
securities.
Alfred Harrison, Vice Chairman of Alliance Capital Management Corporation,
the general partner of Alliance, and Michael J. Reilly, Senior Vice President of
Alliance Capital Management Corporation, make day-to-day investment decisions
for the Fund. Both Messrs. Harrison and Reilly are members of Alliance's Large
Cap Growth Group. Alliance depends heavily upon the fundamental analysis and
research of its large internal research staff in making investment decisions for
the Fund. The research staff generally follows a primary research universe of
approximately 600 companies that are considered by the Adviser to have strong
management, superior industry positions, excellent balance sheets, and the
ability to demonstrate superior earnings growth. As one of the largest
multi-national investment firms, the Adviser has access to considerable
information concerning all of the companies it follows, an in-depth
understanding of the products, services, markets, and competition of these
companies, and a good knowledge of most of these companies' managements.
The Adviser's analysts prepare their own earnings estimates and financial
models for each company followed. While each analyst has responsibility for
following companies in one or more identified sectors and/or industries, the
lateral structure of the Adviser's research organization and constant
communication among the analysts result in decision-making based on the relative
attractiveness of stocks among industry sectors. The focus during this process
is on the early recognition of change on the premise that value is created
through the dynamics of changing company, industry, and economic fundamentals.
The Adviser's research emphasizes identifying companies whose substantially
above average prospective earnings growth is not fully reflected in current
market valuations.
The Adviser continually reviews its primary research universe of
approximately 600 companies to maintain a list of favored securities, the
"Alliance 100," considered by the Adviser to have the most clearly superior
earnings potential and valuation attraction. The Adviser's concentration on a
limited universe of companies allows it to devote its extensive resources to
constant intensive research of these companies. Companies are continually added
to and deleted from the Alliance 100 as fundamentals and valuations change.
Alliance's Large Cap Growth Group, in turn, further refines, on a weekly basis,
the selection process for the Fund, with each portfolio manager in the Group
selecting the 25 such companies which appear to the manager most attractive at
current prices. These individual ratings are then aggregated and ranked to
produce a composite list of the approximately 25 most highly regarded stocks,
the Favored 25. As noted above, the Fund's Core Portfolio will be invested in
the Favored 25 and will constitute at least the majority of, and at times may
constitute substantially all of, the Fund's total assets.
In the management of the Fund's investment portfolio, the Adviser will seek
to utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Fund's portfolio positions. The Fund will strive to
capitalize on unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. Under normal
circumstances, the Fund will remain substantially fully invested and will not
take significant cash positions for market timing purposes. Rather, during a
market decline, while adding to positions in favored stocks, the Fund will tend
to become somewhat more aggressive, gradually reducing the number of companies
represented in the Fund's portfolio. Conversely, in rising markets, while
reducing or eliminating fully valued positions, the Fund will tend to become
somewhat more conservative, gradually
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<PAGE> 24
increasing the number of companies represented in the Fund's portfolio. Through
this "buying into declines" and "selling into strength," the Adviser seeks to
gain positive returns in good markets while providing some measure of protection
in poor markets.
The Fund's investment objective and its policy of investing, under normal
circumstances, at least 65% of the value of its total assets in the equity
securities of companies that, in the Adviser's opinion, are likely to achieve
superior earnings growth are fundamental and cannot be changed without the
approval of the Fund's stockholders. The Fund's investment policies that are not
designated as fundamental policies may be changed by the Fund without
stockholder approval, but the Fund will not change its investment policies
without contemporaneous notice to its stockholders. The Fund is designed
primarily for long-term investment and investors should not consider it a
trading vehicle. As with all investment companies, there can be no assurance
that the Fund's investment objective will be achieved.
The Fund also may:
- engage in short sales of securities with respect to up to 30% of its
total assets;
- invest up to 20% of its total assets in convertible securities of
companies whose common stocks are eligible for purchase by the Fund;
- invest up to 5% of its total assets in rights or warrants with respect to
equity securities deemed appropriate for inclusion in the Fund's
portfolio;
- write covered put and call options and purchase put and call options on
securities of the type in which the Fund may invest, on U.S. and foreign
securities exchanges and over the counter, including options on market
indices, and write uncovered options for cross hedging purposes;
- enter into contracts for the purchase and sale for future delivery of
common stocks and purchase and write put and call options on such futures
contracts;
- enter into contracts for the purchase and sale for the future delivery of
foreign currencies or contracts based on financial indices, including any
index of U.S. Government securities or securities issued by foreign
government entities and write put and call options on such futures
contracts;
- purchase and sell stock index futures for hedging purposes against
movements in the equity markets;
- purchase and write put and call options on foreign currencies;
- purchase or sell forward foreign currency exchange contracts;
- enter into forward commitments for the purchase or sale of securities up
to 30% of its total assets;
- enter into reverse repurchase agreements and dollar rolls;
- enter into standby commitment agreements;
- enter into currency swaps for hedging purposes;
- make secured loans of its securities of up to 30% of its total assets;
and
- enter into repurchase agreements.
There can be no assurance that at any given time the Fund will engage in
any of these practices even if they are available or, if the Fund does utilize a
particular practice, that its use will achieve the desired result.
Because the Fund is non-diversified and invests in a smaller number of
securities than many other equity funds, your investment has the risk that
changes in the value of a single
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security may have a significant effect, either negative or positive, on the
Fund's NAV. In addition, because the Fund may borrow money or leverage its
portfolio, the value of an investment in the Fund will be more volatile and all
other risks will tend to be compounded. The Fund may create leverage by using
reverse repurchase agreements, derivatives or by borrowing money. The Fund has,
at times, made substantial use of its ability to leverage its portfolio through
borrowing money and engaging in short sales.
CERTAIN INVESTMENT PRACTICES
The Fund may engage in the following investment practices:
Convertible Securities. The Fund may invest up to 20% of its total assets
in the convertible securities of companies whose common stocks are eligible for
purchase by the Fund. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying common stock,
although the higher yield tends to make the price of the convertible security
less volatile than that of the underlying equity security. As with debt
securities, the market values of convertible securities tend to decrease as
interest rates rise and increase as interest rates fall. While convertible
securities generally offer lower interest yields than non-convertible debt
securities of similar quality, they offer investors the potential to benefit
from increases in the market prices of the underlying common stock.
The Fund will not invest in convertible debt securities rated below Baa by
Moody's and BBB by S&P, or, if not rated, determined by Alliance to be of
equivalent quality. Securities rated Baa by Moody's or BBB by S&P, and
comparable unrated securities as determined by Alliance 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. The Fund will not retain a convertible debt security
that is downgraded below Baa or BBB, or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase by
the Fund.
Currency Swaps. Currency swaps involve the individually negotiated
exchange by the Fund with another party of a series of payments in specified
currencies. 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 swap counterparty 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 account by the Fund's custodian. The Fund will enter into currency
swaps for hedging purposes only. 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 counterparty 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.
Forward Commitments. Forward commitments for the purchase or sale of
securities may include purchases on a "when-issued" basis or purchases or sales
on a "delayed delivery" basis. In some cases, a forward commitment may be
conditioned upon the occurrence of a
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subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price 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 the Fund may negotiate settlements beyond two
months. 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.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving securities or delivering them, as
the case may be. If the Fund chose to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive against a forward commitment, it may realize a gain or incur a loss.
Any significant commitment of Fund assets to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of the Fund's net
asset value. No forward commitments will be entered into if, as a result, the
Fund's aggregate commitments under the transactions would be more than 30% of
its total assets. In the event the other party to a forward commitment
transaction were to default, the Fund might lose the opportunity to invest money
at favorable rates or to dispose of securities at favorable prices.
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.
Forward Foreign Currency Exchange Contracts. The Fund may purchase or sell
forward foreign currency exchange contracts to attempt to minimize the risk of
adverse changes in the relationship between the U.S. dollar and other
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.
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. 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"). The Fund will not position hedge with
respect to a particular currency to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that currency. Instead of entering into a position
hedge, 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"). Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it does not enter into forward
contracts.
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<PAGE> 27
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 securities placed in a segregated account
declines, additional cash or securities 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 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.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of securities decline. These transactions also preclude the opportunity
for gain if the value of the hedge currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the anticipated devaluation level.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currency or other commodity called for by the contract at
a specified price on a specified date. A "purchase" of a futures contract means
the incurring of an obligation to acquire the securities or foreign currency or
other commodity 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.
The Fund will purchase options on futures contracts written or purchased
that are 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 market values of the outstanding futures
contracts of the Fund and the currencies and futures contracts subject to
outstanding options written by the Fund would exceed 50% of the market value of
its total assets.
The Fund's custodian will place liquid assets in a separate account of the
Fund having a value equal to the aggregate amount of the Fund's commitments
under futures contracts.
Illiquid Securities. The Fund may invest up to 5% of its total assets in
illiquid securities. Illiquid securities generally include (i) direct placements
or other securities that are subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., when trading in
the security is suspended or, in the case of unlisted securities, when market
makers do not exist or will not entertain bids or offers), including many
individually negotiated currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days.
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Because of the absence of a trading market for illiquid securities, the
Fund may not be able to realize the price at which they are carried on the
Fund's books upon sale. Alliance will monitor the illiquidity of the Fund's
investments in such securities. To the extent permitted by applicable law,
securities that may be resold pursuant to Rule 144A of the Securities Act will
not be treated as "illiquid" for purposes of the foregoing restriction so long
as such securities meet liquidity guidelines established by the Fund's
Directors.
The Fund may not be able to readily sell securities for which there is no
ready market. To the extent that these securities are foreign securities, there
is no law in many of the countries in which the Fund may invest similar to the
Securities Act requiring an issuer to register the 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.
There may, however, be contractual restrictions on resale of securities.
Loans of Portfolio Securities. The Fund may make secured loans of its
portfolio securities to entities with which it can enter into repurchase
agreements, provided that cash and/or liquid high grade debt securities equal to
at least 100% of the market value of the securities loaned are deposited and
maintained by the borrower with the Fund. The risk in lending portfolio
securities, as with other extensions of credit, consists of the possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Fund any
income from the securities. The Fund may invest any cash collateral in portfolio
securities and earn additional income, or receive an agreed-upon amount of
income from a borrower who has delivered equivalent collateral. The Fund will
have the right to regain record ownership of loaned securities to exercise
beneficial 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, director, employee
or affiliate of the Fund or of the Adviser.
Options on Securities. An option gives the purchaser of the option, upon
payment of a premium, the right to deliver to (in the case of a put) or receive
from (in the case of a call) the writer of the option 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, 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 another security it holds, or
holds a call option on the underlying security with an exercise price equal to
or less than that of the call option it has written or 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 underlying securities with an exercise price equal to or
greater than that of the put option it has written.
A call option is for cross-hedging purposes if the Fund does not own the
underlying security and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire. In
such circumstances, the Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Fund's custodian liquid assets in
an amount not less than the market value of the underlying security, marked to
market daily. The Fund will only write "covered" put and call options unless
such options are
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for cross-hedging purposes. 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 an option, the Fund would be in a position to realize a gain
if, during the option period, the price of the underlying security increased (in
the case of a call) or decreased (in the case of a put) by an amount in excess
of the premium paid; otherwise the Fund would experience a loss equal to the
premium paid for the option.
If an option written by the Fund were exercised, the Fund would be
obligated to purchase (in the case of a put) or sell (in the case of a call) the
underlying security at the exercise price. The risk involved in writing an
option is that, if the option is exercised, the underlying security would then
be purchased or sold by the Fund at a disadvantageous price. Entering into a
closing transaction (i.e., by disposing of the option prior to its exercise)
could reduce these risks. The Fund retains the premium received from writing a
put or call option whether or not the option is exercised. The writing of call
options could result in increases in the Fund's portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate.
The Fund will 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 only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy by
Alliance. Alliance has adopted procedures for monitoring the creditworthiness of
such 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 an advantageous time.
Options on Securities 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 exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
Options on Foreign Currencies. 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 securities to be
acquired. As in the case of other kinds of options, the writing of an option on
a foreign currency constitutes only a partial hedge, up to the amount of the
premium received, 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, the Fund may forfeit the entire amount of the
premium plus related transaction costs.
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" in such securities. A repurchase agreement
arises when a buyer purchases a security and simultaneously agrees to resell it
to the vendor at an agreed-upon future date, normally a day or a few days later.
The resale price is greater than the purchase price, reflecting an agreed-upon
interest rate for the period the buyer's money is invested in the security. Such
agreements permit 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
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System of collateral in an amount equal to, or in excess of, the resale price.
If a vendor defaults on its repurchase obligation, the Fund would suffer a loss
to the extent that the proceeds from the sale of the collateral were less than
the repurchase price. If a vendor goes bankrupt, the Fund might be delayed in,
or be prevented from, selling the collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase
agreements involve sales by the Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash.
Dollar rolls involve sales by the Fund of securities for delivery in the
current month and the Fund's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian in which it
will maintain liquid assets equal in value to its obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or becomes insolvent,
the Fund's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are speculative techniques and are considered
borrowings by the Fund.
Rights and Warrants. The Fund will invest in rights or warrants only if
the underlying equity securities themselves are deemed appropriate by Alliance
for inclusion in the Fund's portfolio. Rights and warrants entitle the holder to
buy equity securities at a specific price for a specific period of time. Rights
are similar to warrants except that they have a substantially shorter duration.
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 underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying securities,
although the value of a right or warrant may decline because of a decrease in
the value of the underlying stock, the passage of time, or a change in
perception as to the potential of the underlying stock, or any combination of
these factors.
If the market price of the underlying security is below the exercise price
of the warrant on the expiration date, the warrant will expire worthless.
Moreover, a right or warrant ceases to have value if it is not exercised prior
to the expiration date.
Short Sales. The Fund will utilize short selling in order to attempt both
to protect its portfolio against the effects of potential downtrends in the
securities markets and as a means of enhancing its overall performance. In
identifying short selling opportunities, Alliance's
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Large Cap Growth Group will use the fundamental analysis and investment research
strategy described above to identify a small group of companies that it believes
may decline in price as a result of fundamental or market developments. The Fund
is permitted to engage in short sales of its securities with respect to up to
30% of its total assets.
A short sale is a transaction in which the Fund sells a security it does
not own but has borrowed in anticipation that the market price of that security
will decline. The Fund may be required to pay a fee to borrow the security and
to pay over to the lender any payments received on the security.
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. Although the Fund's gain is limited by the price at which it sold the
security short, its potential loss is unlimited.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, the Fund may also make short sales "against the box". In this type of
short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.
Standby Commitment Agreements. Standby commitment agreements commit the
Fund, for a stated period of time, to purchase a stated amount of a security
that may be issued and sold to the Fund at the option of the issuer. The price
and coupon of the security are fixed at the time of the commitment. At the time
of entering into the agreement, the Fund is paid a commitment fee, regardless of
whether the security ultimately is issued, typically equal to approximately 0.5%
of the aggregate purchase price of the security 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
considered advantageous to the Fund and 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 making the 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 is no guarantee 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.
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 a stock index future and movements in the price of the securities which
are the subject of the hedge. The price of a stock index future may move more
than or less than the price of the securities being hedged. If the price of a
stock index future 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 futures contract. If the price
of the index future moves more than the price of the stock, the Fund will
experience either a loss
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or gain on the futures contract 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 a stock index future, 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 stock 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
index futures are based, although there may be deviations arising from
differences between the composition of the Fund and the stocks comprising the
index.
Where a stock index futures contract is 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 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 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.
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 a 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 futures 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. As described above, however, there is no guarantee that
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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.
General. The successful use of the foregoing investment practices draws
upon Alliance's special skills and experience with respect to such instruments
and usually depends on Alliance's ability to forecast price movements or
currency exchange rate movements correctly. Should prices or exchange rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the
transactions 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.
The Fund's ability to dispose of its positions in futures contracts,
options and forward contracts depends on the availability of liquid markets in
such instruments. Markets in options and futures contracts 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, it
might not be possible to effect a closing transaction in the option (i.e.,
dispose of the option) with the result that (i) an option purchased by the Fund
would have to be exercised in order for the Fund to realize any profit and (ii)
the Fund may not be able to sell portfolio securities or currencies covering an
option written by the Fund until the option expires or it delivers the
underlying security, currency or futures contract upon exercise. Therefore, no
assurance can be given that the Fund will be able to utilize these instruments
effectively. In addition, the Fund's ability to engage in options and futures
transactions may be limited by tax considerations and the use of certain hedging
techniques may adversely impact the characterization of income to the Fund for
U.S. federal income tax purposes.
Future Developments. The Fund may, following written notice to its
stockholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
Temporary Defensive Position. For temporary defensive purposes, the Fund
may reduce its position in equity securities and invest in, without limit,
certain types of short-term, liquid, high-grade or high quality debt securities.
These securities may include U.S. Government securities, qualifying bank
deposits, money market instruments, prime commercial paper and other types of
short-term debt securities, including notes and bonds. While the Fund is
investing for temporary defensive purposes, it may not meet its investment
objective.
Portfolio Turnover. The portfolio turnover rate for the Fund is included
in the Financial Highlights section. The Fund is actively managed and, in some
cases in response to market conditions, the Fund's portfolio turnover may exceed
100%. A higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Fund and its stockholders. High portfolio
turnover also may result in realization of substantial net short-term capital
gains, which, when distributed, are taxable to stockholders.
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INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its stockholders. The
percentage limitations set forth below, as well as those described elsewhere in
this Prospectus, apply only at the time an investment is made or other relevant
action is taken by the Fund.
The Fund may not:
1. Purchase more than 10% of the outstanding voting securities of any one
issuer;
2. Invest 25% or more of its total assets in securities of issuers
conducting their principal business activities in the same industry,
except that this restriction does not apply to U.S. Government
securities;
3. Make loans except through (a) the purchase of debt obligations in
accordance with its investment objective and policies; (b) the lending
of portfolio securities; or (c) the use of repurchase agreements;
4. Borrow money or issue senior securities except the Fund may, in
accordance with the provisions of the 1940 Act, (i) borrow from a bank
or other entity in a privately arranged transaction or through reverse
repurchase agreements or dollar rolls if after such borrowing there is
asset coverage of at least 300% as defined in the 1940 Act and (ii)
borrow for temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund;
5. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings;
6. Invest in companies for the purpose of exercising control; or
7. (a) Purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests therein
and securities that are secured by real estate, provided such securities
are securities of the type in which the Fund may invest; (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 other 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
Securities Act.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund is subject to a number of risks and special
considerations, including the following:
MARKET RISK
This is the risk that the value of the Fund's investments will fluctuate as
the stock or bond markets fluctuate and that prices overall will decline over
short or longer-term periods.
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DILUTION
Upon completion of the offer, stockholders who do not fully exercise their
rights will own a smaller proportional interest in the Fund than would be the
case if the offer had not been made. The subscription price per share is 95% of
the lower of (1) the average of the last reported sales price of a Fund share on
the NYSE for the five trading days ending with the day the offer expires and (2)
the NAV as of the close of trading on the NYSE on that date. The subscription
price is lower than the Fund's NAV. Any rights offering priced at a discount to
the Fund's NAV entails some dilution in the NAV. Dilution is the decrease in NAV
that results from the Fund's issuance of new shares at a discount to NAV when
the rights are exercised and from the Fund's payment of the expenses of the
offer. The offer will result in a dilution of NAV for all Fund stockholders,
which will disproportionately affect stockholders who do not exercise their
rights. In addition, there also may be substantial dilution to the extent that
the Fund increases the number of shares subject to subscription by up to 25% in
order to satisfy over-subscription requests. Although it is not possible to
state precisely the amount of the decrease in NAV because it is not known at the
date of this Prospectus how many shares will be subscribed for, or what the
subscription price will be, the dilution could be substantial. For example,
assuming all the rights are exercised at the estimated subscription price of
$41.80 which is 95% of the Fund's market price as of June 18, 1999, the Fund
issues an additional 25% of shares to satisfy over-subscription requests and
assuming the deduction of all expenses related to the issuance of the shares,
the Fund's NAV per share would be reduced by approximately $2.22 per share or
4.70%. This dilution of NAV will disproportionately affect stockholders who do
not exercise their rights.
FOREIGN SECURITIES
Alliance will select investments of non-U.S. companies on the basis of the
same growth potential and other characteristics as investments in U.S.
companies. Investment in equity securities of non-U.S. companies, however,
involves special considerations not generally associated with a portfolio
invested only in equity securities of U.S. companies. 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. 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, stockholder proxy requirements and timely disclosure of
information. The reporting, accounting and auditing standards of foreign
countries may differ, in some cases significantly, from U.S. standards in
important respects and less information may be available to investors in foreign
securities than to investors in U.S. securities. Substantially less information
is publicly available about certain non-U.S. issuers than is available about
U.S. issuers. 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 is also subject to currency risk which is the risk that
fluctuations in the exchange rates between the U.S. dollar and foreign
currencies may negatively affect the value of the Fund's investments.
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MANAGEMENT RISK
The Fund is subject to management risk because it is an actively managed
investment fund. Alliance will apply its investment techniques and risk analyses
in making investment decisions for the Fund, but there is no guarantee that its
techniques will produce the intended result.
DERIVATIVE AND LEVERAGE RISK
The Fund may, when Alliance believes that market conditions are
appropriate, utilize the market technique of borrowing in order to take full
advantage of available investment opportunities. The Fund also may make
substantial use of derivatives and employ specialized trading techniques such as
short sales, options, futures and forwards to increase its exposure to certain
selected securities. The Fund may, although it has no present intention of doing
so, borrow money from a bank or other entity in a privately arranged transaction
to increase the money available to the Fund to invest in securities when the
Fund believes that the return from the securities financed will be greater than
the interest expense paid on the borrowing. The Fund also may borrow to finance
repurchases of or tender offers for its shares when the Fund deems it desirable
in order to avoid the untimely disposition of portfolio securities. Such
borrowings involve additional risk to the Fund, since the interest expense may
be greater than the income from or appreciation of the securities carried by the
borrowings and since the value of the securities carried may decline below the
amount borrowed. Alliance employs these trading techniques speculatively to
enhance returns and not merely as hedging tools. These techniques are riskier
than many investment strategies and will result in greater volatility for the
Fund, particularly in periods of market declines.
The 1940 Act requires the Fund to maintain "asset coverage" of not less
than 300% of its "senior securities representing indebtedness," as those terms
are defined and used in the 1940 Act. In addition, the Fund may not make any
cash distributions to its stockholders if, after the distribution, there would
be less than 300% asset coverage of a senior security representing indebtedness
for borrowings (excluding for this purpose certain evidences of indebtedness
made by a bank or other entity and privately arranged, and not intended to be
publicly distributed). This limitation on the Fund's ability to make
distributions could under certain circumstances impair the Fund's ability to
maintain its qualification for taxation as a "regulated investment company."
Any investment gains made with the proceeds obtained from borrowings in
excess of interest paid on the borrowings will cause the net income per share
and the NAV of the Fund's common stock to be greater than would otherwise be the
case. On the other hand, if the investment performance of the additional
securities purchased fails to cover their cost (including any interest paid on
the money borrowed) to the Fund, then the net income per share and NAV of the
Fund's shares will be less than would otherwise be the case. This is the
speculative factor known as leverage.
Borrowing is a form of leverage and as such will pose certain risks for the
Fund's stockholders, including the possibility of higher volatility of both the
NAV and market value of the Fund's shares. There can be no assurance that the
Fund will be able to realize a higher net return on its investment portfolio
than the then current interest rate on any borrowing. Any decline in the value
of the Fund's assets will be borne entirely by stockholders in the form of
reductions in the Fund's NAV, and any requirement that the Fund sell assets at a
loss in order to repay any borrowing or for other reasons would make it more
difficult for the NAV to recover. Accordingly, the effect of leverage in a
declining market may result in a greater decline in the NAV of the Fund's share
than if the Fund were not leveraged, which may be reflected in a greater decline
in the market price of the Fund's shares.
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ANTI-TAKEOVER PROVISIONS OF THE FUND'S ARTICLES OF INCORPORATION AND BY-LAWS MAY
LIMIT CERTAIN THIRD-PARTY ACTIONS.
The Fund's Articles of Incorporation and By-Laws referred to in this
Prospectus as the charter documents, contain certain "anti-takeover" provisions
that limit (i) the ability of other entities or persons to acquire control of
the Fund, (ii) the Fund's freedom to engage in certain transactions, and (iii)
the ability of the Board or the Fund's stockholders to amend the charter
documents or to effect changes in the Fund's management. These provisions also
may dissuade third parties from making offers to purchase shares at a premium
over market price.
DISCOUNT FROM NAV
Shares of closed-end funds frequently trade at a market price that is less
than the value of the net assets attributable to those shares. The possibility
that shares of the Fund will trade at a discount from NAV is a separate risk
from the risk that the Fund's NAV will decrease. In some cases, shares of
closed-end funds may trade at a premium to NAV. The Fund's shares have traded in
the market above, at, and below NAV since the commencement of the Fund's
operations. The Fund cannot predict whether its shares will trade below, at, or
above NAV in the future.
The risk of purchasing shares of a closed-end management investment company
that might trade at a discount is more pronounced for investors who wish to sell
their shares in a relatively short period of time. For those investors,
realization of gain or loss on their investments is likely to be more dependent
upon the existence of a premium or discount than upon portfolio performance.
An alternative investment option to the Fund is the Alliance Select
Investor Series, Premier Portfolio, a portfolio of an open-end management
investment company with substantially the same investment objective and policies
as the Fund. Because the Premier Portfolio is a portfolio of an open-end
investment company, you may invest in it at the Premier Portfolio's NAV without
the risk of the shares trading at a discount to the Premier Portfolio's NAV. An
investment in the Premier Portfolio may be redeemed at any time at the Premier
Portfolio's NAV. The Premier Portfolio, however, has a minimum initial
investment amount of $50,000 and it is not possible to invest in the Premier
Portfolio at a discount to its NAV (as is possible with respect to an investment
in the Fund by subscribing for shares in this offering).
NON-DIVERSIFIED STATUS
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. Because the Fund, as a non-diversified investment
company, may invest in a smaller number of individual issuers than a diversified
investment company, an investment in the Fund may, under certain circumstances,
present greater risk to an investor than an investment in a diversified
investment company.
QUARTERLY DISTRIBUTIONS
The Fund has implemented a quarterly distribution policy pursuant to which
the Fund distributes quarterly each year to stockholders (i) with respect to
each of the first three calendar quarters of the year, an amount equal to 2.5%
of the Fund's NAV determined as of the beginning of the quarter, and (ii) with
respect to the fourth calendar quarter of each year, an amount equal to at least
2.5% of the Fund's NAV as of the beginning of that quarter. If distributions for
any quarter exceed the Fund's net investment income and net realized short-term
capital gains, the difference would be treated as distributions of the Fund's
net realized
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long-term capital gains and, to the extent of the amount of any distributions in
excess of such gains, as a return of the stockholder's capital. The reduction of
the Fund's assets by the amount of the excess will have the likely effect of
increasing the Fund's expense ratio. In order to make distributions, the Fund
may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not suggest that action. The Fund's final
distribution for each calendar year will include any remaining undistributed net
investment income and net realized short-term capital gains and long-term
capital gains realized during the year, provided that if the Fund's
undistributed net investment income and net realized short-term and long-term
capital gains for the year exceeded the minimum required amount for the previous
quarters' distributions as described above, the Fund might choose not to
distribute all or a portion of such excess equal to the Fund's net realized
long-term capital gains for the year.
Based on information provided by the Adviser, the Board of Directors
believes that the offer will not result in a change in the Fund's current level
of dividends per share for the foreseeable future. There can be no assurance,
however, that the Fund will be able to maintain its current level of dividends
per share, and the Board of Directors may, in its sole discretion, change the
Fund's current dividend policy or its current level of dividends per share in
response to market or other conditions.
YEAR 2000
Many computer systems and applications in use today process transactions
using two-digit date fields for the year of the transaction, rather than the
full four digits. If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900," which could result in
processing inaccuracies and computer system failures at or after the Year 2000.
This is commonly known as the Year 2000 problem. The Fund and its major service
providers, including Alliance, utilize a number of computer systems and
applications that have been either developed internally or licensed from third
party suppliers. In addition, the Fund and its major service providers,
including Alliance, are dependent on third party suppliers for certain systems
applications and for electronic receipt of information critical to their
business. Should any of the computer systems employed by the Fund or its major
service providers, including Alliance, fail to process year 2000 related
information properly, that could have a significant negative impact on the
Fund's operations and the services that are provided to the Fund's stockholders.
To the extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, the value of the Fund's shares may be
materially affected. In addition, for the Fund's investments in foreign markets,
it is possible that foreign companies and markets will not be as prepared for
Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Fund and Alliance. The Fund
has been advised that, during 1997, Alliance began a formal Year 2000 initiative
which established a structured and coordinated process to deal with the Year
2000 issue. As part of its initiative, Alliance established a Year 2000 project
office to manage the Year 2000 initiative, focusing on both information
technology and non-information technology systems. Alliance has also retained
the services of a number of consulting firms which have expertise in advising
and assisting with regard to Year 2000 issues. Alliance reports that by June 30,
1998 it had completed its inventory and assessment of its domestic and
international computer systems and applications, identified mission critical
systems and non-mission critical systems and determined which of these systems
are not Year 2000 compliant. All third party suppliers of mission critical
computer systems and applications have been contacted to verify whether their
systems and applications will be Year 2000 compliant and their responses are
being evaluated. Substantially all of those contacted have responded and
approximately 90% have
37
<PAGE> 39
informed Alliance that their systems and applications are or will be Year 2000
compliant. Alliance will seek alternative solutions or third party suppliers for
all suppliers who do not furnish a satisfactory response by June 30, 1999. The
same process is being performed for non-mission critical systems and is
estimated to be completed by June 30, 1999. Alliance has remediated, replaced or
retired all of its non-compliant mission critical systems and applications which
can impact the Fund. After each system has been remediated, it is tested with
19XX dates to determine if it still performs its intended business function
correctly. Next, each system undergoes a simulation test using dates occurring
after December 31, 1999. Inclusive of the replacement and retirement of some of
its systems, Alliance has completed these testing phases for approximately 89%
of non-mission critical systems. Integrated systems tests will then be conducted
to verify that the systems will continue to work together. Full integration
testing of all mission critical and non-mission critical systems is estimated to
be completed by June 30, 1999. Testing of interfaces with third-party suppliers
has begun and will continue throughout 1999. The same process is being performed
for non-mission critical systems and is estimated to be completed by June 30,
1999. Alliance reports that it has completed an inventory of its facilities and
related technology applications and has begun to evaluate and test these
systems. Alliance reports that it anticipates that these systems will be fully
operable in the year 2000. Alliance, with the assistance of a consulting firm,
is developing Year 2000 specific contingency plans with emphasis on mission
critical functions. These plans seek to provide alternative methods of
processing in the event of a failure that is outside Alliance's control. The
estimated date for the completion of these plans is June 30, 1999.
There are many risks associated with Year 2000 issues, including the risks
that the computer systems and applications used by the Fund and its major
service providers will not operate as intended and that the systems and
applications of third party providers to the Fund and its service providers will
not be Year 2000 compliant. Likewise, there can be no assurance the compliance
schedules outlined above will be met or that the actual cost incurred will not
exceed current cost estimates. Should the significant computer systems and
applications used by the Fund, or its major service providers or the systems of
its important third party suppliers be unable to process date sensitive
information accurately after 1999, the Fund and its service providers may be
unable to conduct its normal business operations and to provide stockholders
with the required services. In addition, the Fund and its service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The Fund
and Alliance cannot determine which risks, if any, are most reasonably likely to
occur or the effects of any particular failure to be Year 2000 compliant.
Certain statements provided by Alliance in this section entitled "Year 2000," as
such statements relate to Alliance, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. To the fullest
extent permitted by law, the foregoing Year 2000 discussion is a "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act, 15 U.S.C. Sec 1 (1998).
MANAGEMENT OF THE FUND
THE INVESTMENT ADVISER
The Fund's Adviser, Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105, is a leading international investment
adviser managing client accounts with assets as of March 31, 1999 totaling more
than $301 billion (of which approximately $127 billion represented the assets of
investment companies). As of March 31, 1999, Alliance managed retirement assets
for many of the largest public and private employee benefit plans (including 30
of the nation's Fortune 100 companies), for public employee retirement funds in
32 out of the 50 states, for investment companies, and for foundations,
38
<PAGE> 40
endowments, banks and insurance companies worldwide. The 54 registered
investment companies managed by Alliance comprising more than 119 separate
investment portfolios currently have over 4 million shareholder accounts.
The Adviser determines the composition of the Fund's portfolio, places all
orders for the purchase and sale of securities and for other transactions, and
oversees the settlement of the Fund's securities and other portfolio
transactions. The Adviser also provides administrative services to the Fund.
These include, among other things, providing officers and office space,
preparing or assisting in preparing materials for stockholder and regulatory
bodies and overseeing the provision to the Fund of custodial and accounting
services.
The persons primarily responsible for the day to day management of the Fund
are Alfred Harrison, Vice Chairman of Alliance Capital Management Corporation
and Michael J. Reilly, Senior Vice President of Alliance Capital Management
Corporation. Both Messrs. Harrison and Reilly are members of Alliance's Large
Cap Growth Group and, as such, have had management responsibility with respect
to the Fund since its inception.
Alliance Capital Management Corporation ("ACMC"), the sole general partner
of, and the owner of a 1% general partnership interest in the Adviser, is an
indirect wholly-owned subsidiary of The Equitable Life Assurance Society of the
United States ("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable Companies
Incorporated ("ECI"). ECI is a holding company controlled by AXA, a French
insurance holding company. As of March 1, 1999, AXA and certain of its
subsidiaries beneficially owned approximately 58.4% of ECI's outstanding common
stock. ECI is a public company with shares traded on the New York Stock
Exchange.
AXA, a French company, is the holding company for an international group of
insurance and related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically with activities
principally in Western Europe, North America, the Asia/Pacific area and, to a
lesser extent, in Africa and South America. AXA is also engaged in asset
management, investment banking, securities trading, brokerage, real estate and
other financial services activities principally in the United States, as well as
in Western Europe and the Asia/Pacific area.
For insurance regulatory purposes the shares of capital stock of ECI
beneficially owned by AXA and its subsidiaries have been deposited into a voting
trust which has an initial term of 10 years commencing in 1992. The trustees of
the voting trust (the "Voting Trustees") have agreed to protect the legitimate
economic interests of AXA, but with a view of ensuring that certain minority
shareholders of AXA do not exercise control over ECI or certain of its insurance
subsidiaries. As of March 1, 1999, AXA, ECI, Equitable and certain subsidiaries
of Equitable were the beneficial owners of approximately 56.6% of the issued and
outstanding units representing assignments of beneficial ownership of limited
partnership interests ("Units") in the Adviser.
Based on information provided by AXA, on March 1, 1999, approximately 20.7%
of the issued ordinary shares (representing 32.7% of the voting power) of AXA
were owned directly and indirectly by Finaxa, a French holding company. As of
March 1, 1999, 61.7% of the shares (representing 72.3% of the voting power) of
Finaxa were owned by four French mutual insurance companies (the "Mutuelles
AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle, owned 35.4% of the
shares, representing 41.5% of the voting power of Finaxa, and 22.7% of the
shares of Finaxa (representing 13.7% of the voting power) were owned by Paribas,
a French bank. Including the ordinary shares owned by Finaxa, on March 1, 1999,
the Mutuelles AXA directly and indirectly owned approximately 23.9% of the
issued ordinary
39
<PAGE> 41
shares (representing 37.6% of the voting power) of AXA. The Voting Trustees may
be deemed to be beneficial owners of all Units beneficially owned by AXA and its
subsidiaries. By virtue of the provisions of the voting trust agreement, AXA may
be deemed to have shared voting power with respect to the Units. In addition,
the Mutuelles AXA, as a group, and Finaxa may be deemed to be beneficial owners
of all Units beneficially owned by AXA and its subsidiaries. AXA and its
subsidiaries have the power to dispose or direct the disposition of all shares
of the capital stock of ECI deposited in the voting trust. The Mutuelles AXA, as
a group, and Finaxa may be deemed to share the power to vote or to direct the
vote and to dispose or to direct the disposition of all the Units of the Adviser
beneficially owned by AXA and its subsidiaries. By reason of their relationship,
AXA, the Voting Trustees, the Mutuelles AXA, Finaxa, ECI, Equitable, Equitable
Holdings, L.L.C., Equitable Investment Corporation, Alliance Capital Management
Corporation and Equitable Capital Management Corporation may be deemed to share
the power to vote or to direct the vote and to dispose or direct the disposition
of all or a portion of the Units beneficially owned by AXA and its subsidiaries.
INVESTMENT ADVISORY AGREEMENT
The Advisory Agreement between the Fund and the Adviser provides that the
Adviser furnishes investment advice and recommendations to the Fund. Under the
Advisory Agreement, the Adviser receives a basic fee at an annualized rate of
1.50% of the Fund's average net assets and an adjustment to the basic fee based
on the investment performance of the Fund in relation to the investment record
of the Russell 1000 Growth Index (the "Index") for certain prescribed periods as
described below.
The Russell 1000(R) universe of securities is compiled by Frank Russell
Company and is segmented into two style indices, the Russell 1000 Growth Index
and the Russell 1000 Value(R) Index, both based on the capitalization-weighted
median price-to-book of each of the securities. At each reconstitution, the
Russell 1000 constituents are ranked by their adjusted price-to-book ratio and
their I/B/E/S forecast long-term growth mean. These rankings are converted to
standardized units and combined to produce a composite value score or CVS. The
securities are then ranked by their CVS, and a probability algorithm is applied
to the CVS distribution to assign growth and value weights to each security. In
general, securities with lower CVS are considered growth, securities with higher
CVS are considered value, and securities with a CVS in the middle are considered
to have both growth and value characteristics, and are weighted proportionately
in the growth and value index. The Russell 1000 Growth Index is, accordingly,
designed to include those Russell 1000 securities with a greater-than-average
growth orientation. In contrast with the securities in the Russell 1000 Value
Index, companies in the Russell 1000 Growth Index tend to exhibit higher
price-to-book and price-earnings ratios, lower dividend yields and higher
forecasted growth values. The Russell 1000 Growth Index reflects changes in
market prices, and assumes reinvestment of investment income.
The basic fee is a monthly fee equal to 1/12th of 1.5% (1.5% on an
annualized basis) of the average of the net assets of the Fund at the end of
each month included in the applicable performance period. The performance period
is a rolling 36 month period ending with the most recent calendar month. The
basic fee for each such month may be increased or decreased at the rate of
1/12th of 0.05% per percentage point, depending on the extent, if any, by which
the investment performance of the Fund, measured by the percentage change in the
Fund's NAV, exceeds by more than two percentage points, or is exceeded by more
than two percentage points by, the percentage change in the investment record of
the Index for such performance period. The maximum increase or decrease in the
basic fee for any month may not exceed 1/12th of 0.30%. Accordingly, for each
month the maximum monthly fee as adjusted
40
<PAGE> 42
for performance is 1/12th of 1.80% and is payable if the investment performance
of the Fund exceeded the percentage change in the investment record of the Index
by eight or more percentage points for the performance period, and the minimum
monthly fee rate as adjusted for performance is 1/12th of 1.20% and is payable
if the percentage change in the investment record of the Russell 1000 Growth
Index exceeded the investment performance of the Fund by eight or more
percentage points for the performance period.
The following table illustrates the full range of permitted increases or
decreases to the basic fee.
<TABLE>
<CAPTION>
DIFFERENCE BETWEEN
THE PERCENTAGE CHANGE IN
NAV OF THE FUND AND
PERCENTAGE CHANGE IN THE ADJUSTMENT
RUSSELL 1000 GROWTH TO 1.50% ANNUAL FEE
INDEX* BASIC FEE RATE AS ADJUSTED
- ------------------------ ---------- ----------------
<S> <C> <C>
+8 +.30% 1.80%
+7 +.25% 1.75%
+6 +.20% 1.70%
+5 +.15% 1.65%
+4 +.10% 1.60%
+3 +.05% 1.55%
+/-2 0 1.50%
-3 -.05% 1.45%
-4 -.10% 1.40%
-5 -.15% 1.35%
-6 -.20% 1.30%
-7 -.25% 1.25%
-8 -.30% 1.20%
</TABLE>
- -------------------------
* Measured over the performance period, which will be a rolling 36-month period
ending with the most recent calendar month.
In calculating the investment performance of the Fund and the Index, all
dividends and distributions during the performance period will be treated as
having been reinvested, and no effect will be given to gain or loss resulting
from any issuance, sale or repurchase of the Fund's shares. Fractions of a
percentage point will be rounded to the nearer whole point (to the higher point
if exactly one-half).
For the fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996, the Fund paid total advisory fees to the Adviser of
$1,528,461, $1,101,452 and $879,811, respectively.
The Adviser will benefit from the offer because the Adviser's fee is based
on the average of the net assets of the Fund at the end of each month included
in the applicable performance period. It is not possible to state precisely the
amount of additional compensation the Adviser will receive as a result of the
offer because it is not known how many shares will be subscribed for and because
the proceeds of the offer will be invested in additional portfolio securities
which will fluctuate in value. However, based on the estimated proceeds from the
offer, assuming all the rights are exercised in full at the estimated
subscription price of $41.80 per share, assuming the Fund issues an additional
25% of shares to satisfy over-subscription requests and after payment of the
Dealer Manager and estimate of expenses the Adviser
41
<PAGE> 43
would receive additional annual advisory fees based on the basic fee of
approximately $630,386 as a result of the increase in assets under management
over the Fund's current assets under management.
The Fund bears all costs of its operation other than those incurred by the
Adviser under the Investment Advisory Agreement. In particular, the Fund pays:
brokerage and commission expenses; federal, state, local (if any) and foreign
taxes, including issue and transfer taxes, incurred by or levied on the Fund;
interest charges on borrowings; the organizational and offering expenses of the
Fund; fees and expenses of registering or qualifying the shares of the Fund
under the appropriate federal and state securities laws; fees and expenses of
listing and maintaining the listing of the Fund's shares on any securities
exchange; expenses of printing and distributing reports to stockholders; costs
of proxy solicitation; fees, charges and expenses of the Fund's administrator,
custodian, registrar, transfer and dividend paying agent and shareholder
servicing agent; compensation of directors, officers and employees who do not
devote any part of their time to the affairs of the Adviser or its affiliates;
legal and auditing expenses; the cost of stock certificates representing the
Fund's shares; and costs of stationery and supplies. Under the Investment
Advisory Agreement, the Adviser provides the Fund with office space, facilities
and business equipment and provides the services of executive and clerical
personnel for administering certain of the other affairs of the Fund. The
Adviser compensates Directors of the Fund if such persons are employed by the
Adviser or its affiliates.
The Investment Advisory Agreement provides that the Adviser shall only be
liable for willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under the Investment Advisory Agreement.
DIRECTORS AND OFFICERS
The directors and officers of the Fund, and their addresses, ages and
principal occupations for at least the past five years are set forth below.
Unless otherwise specified, the address of each of the following persons is 1345
Avenue of the Americas, New York, New York 10105.
DIRECTORS
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH REGISTRANT AGE DURING PAST 5 YEARS
- ---------------- --------------- --- ---------------------
<S> <C> <C> <C>
John D. Carifa*............. Chairman of the 54 President and Chief
Board and Operating Officer and a
President Director of Alliance Capital
Management Corporation
("ACMC"), the general
partner of the Adviser, with
which he has been associated
since prior to 1994.
Ruth Block.................. Director 68 Formerly an Executive Vice-
P.O. Box 4623 President and Chief
Stamford, Connecticut Insurance Officer of The
06903 Equitable Life Assurance
Society of the United
States. She is a Director of
Ecolab Incorporated
(specialty chemicals) and BP
Amoco Corporation (oil and
gas).
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH REGISTRANT AGE DURING PAST 5 YEARS
- ---------------- --------------- --- ---------------------
<S> <C> <C> <C>
David H. Dievler............ Director 69 Independent Consultant
P.O. Box 167 Formerly a Senior Vice
Spring Lake, New Jersey President of ACMC until
07762 December 1994.
John H. Dobkin.............. Director 57 Formerly President of
150 White Plains Road Historic Hudson Valley
Tarrytown, New York 10591 (historic preservation) from
1994 through May 1999.
Previously, he was Director
of the National Academy of
Design.
William H. Foulk, Jr. ...... Director 66 Investment Adviser and
Room 1000 Independent Consultant. He
2 Greenwich Plaza was formerly Senior Manager
Greenwich, Connecticut of Barrett Associates, Inc.,
06830 a registered investment
adviser, with which he had
been associated since prior
to 1994.
Dr. James M. Hester......... Director 75 President of the Harry Frank
25 Cleveland Lane Guggenheim Foundation, with
Princeton, New Jersey which he has been associated
08540 since prior to 1994. He was
formerly President of New
York University and The New
York Botanical Garden and
Rector of the United Nations
University.
Clifford L. Michel.......... Director 59 Member of the law firm of
St. Bernard's Road Cahill Gordon & Reindel,
Gladstone, New Jersey with which he has been
07934 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).
Donald J. Robinson.......... Director 64 Senior Counsel of the law
98 Hell's Peak Road firm of Orrick, Herrington &
Weston, Vermont 05161 Sutcliffe since January of
1995. He was formerly a
senior partner and member of
the Executive Committee of
that firm. He was also a
Trustee of the Museum of the
City of New York from
1977-1995.
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH REGISTRANT AGE DURING PAST 5 YEARS
- ---------------- --------------- --- ---------------------
<S> <C> <C> <C>
Robert C. White............. Director 78 Formerly Assistant Treasurer
30835 Rivercrossing of Ford Motor Company and
Bingham Farms, MI 48025 until September 30, 1994, a
Vice President and the Chief
Financial Officer of the
Howard Hughes Medical
Institute.
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH REGISTRANT AGE DURING PAST 5 YEARS
- ---------------- --------------- --- ---------------------
<S> <C> <C> <C>
John D. Carifa.............. Chairman of the 53 See biography under
Board and "Directors," above.
President
Kathleen A. Corbet.......... Senior Vice 39 Executive Vice President of
President ACMC, with which she has
been associated since prior
to 1994.
Alfred Harrison............. Senior Vice 61 Vice Chairman of the Board
President of ACMC, with which he has
been associated since prior
to 1994.
Thomas J. Bardong........... Vice President 54 Senior Vice President of
ACMC, with which he has been
associated since prior to
1994.
John A. Koltes.............. Vice President 56 Senior Vice President of
ACMC, with which he has been
associated since prior to
1994.
Michael J. Reilly........... Vice President 34 Senior Vice President of
ACMC, with which he has been
associated since prior to
1994.
Edmund P. Bergan, Jr........ Secretary 49 Senior Vice President and
the General Counsel of
Alliance Fund Distributors,
Inc. ("AFD") and Alliance
Fund Services, Inc. ("AFS")
and Vice President and
Assistant General Counsel of
ACMC, with which he has been
associated since prior to
1994.
Mark D. Gersten............. Treasurer and 48 Senior Vice President of
500 Plaza Drive Chief AFS, with which he has been
Secaucus, New Jersey 07094 Financial associated since prior to
Officer 1994.
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH REGISTRANT AGE DURING PAST 5 YEARS
- ---------------- --------------- --- ---------------------
<S> <C> <C> <C>
Vincent S. Noto............. Controller 34 Vice President of AFS, with
500 Plaza Drive which he has been associated
Secaucus, New Jersey 07094 since prior to 1994.
</TABLE>
- -------------------------
* An "interested person" of the Fund, as defined in the 1940 Act.
The Board of Directors is divided into three classes, each class having a
term of three years. Each year the term of one class expires. The Fund does not
pay any fees to, or reimburse expenses of, its Directors who are considered
"interested persons" of the Fund, as defined in the 1940 Act.
The table below indicates the aggregate compensation paid by the Fund to
each of the Directors during its fiscal year ended September 30, 1998, the
aggregate compensation paid to each of the Directors during calendar year 1998
by all of the funds to which Alliance provides investment advisory services,
referred to below as the Alliance Fund Complex, and the total number of funds in
the Alliance Fund Complex for which each of the Directors serves as a director
or trustee. 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.
<TABLE>
<CAPTION>
TOTAL NUMBER
OF INVESTMENT
COMPANIES IN
TOTAL THE ALLIANCE
COMPENSATION FUND COMPLEX,
FROM THE INCLUDING THE
AGGREGATE ALLIANCE FUND FUND, AS TO
COMPENSATION COMPLEX, WHICH THE
FROM THE FUND INCLUDING THE DIRECTOR IS A
NAME OF DIRECTOR FOR THE FISCAL FUND DURING DIRECTOR OF
OR OFFICER YEAR 1998 1998 TRUSTEE
- ---------------- -------------- ------------- -------------
<S> <C> <C> <C>
John D. Carifa..................... 0 0 50
Ruth Block......................... $4,376 $180,763 37
David H. Dievler................... $4,376 $216,288 43
John H. Dobkin..................... $4,379 $185,363 41
William H. Foulk, Jr............... $4,373 $241,003 45
Dr. James M. Hester................ $4,379 $172,913 37
Clifford L. Michel................. $4,379 $187,763 38
Donald J. Robinson................. $4,376 $193,709 41
Robert C. White.................... $8,500 $ 83,000 10
</TABLE>
HOLDINGS OF FUND SHARES
As far as is known to the Fund, no person owned beneficially five percent
or more of the outstanding shares of the Fund at June 1, 1999. The Depository
Trust Company ("DTC") held of record 97.81% of the outstanding shares at June 1,
1999. As far as is known to the Fund, no person other than DTC owned of record
shares of the Fund representing more than five percent of the voting power of
the Fund's outstanding shares at June 1, 1999. The Adviser of the Fund
beneficially owned 5,000 shares at June 1, 1999.
45
<PAGE> 47
As of June 1, 1999, all Directors and officers of the Fund owned in the
aggregate less than 1% of the Fund's shares.
ADMINISTRATOR
The Adviser is also the Fund's Administrator and as such performs or
arranges for the performance of the following services:
- prepares and assembles reports required to be sent to Fund stockholders
and arranges for the printing and dissemination of such reports;
- assembles reports required to be filed with the SEC and files such
completed reports with the SEC;
- arranges for the dissemination to stockholders of the Fund's proxy
materials and oversees the tabulation of proxies by the Fund's transfer
agent;
- negotiates the terms and conditions under which custodian services will
be provided to the Fund and the fees to be paid by the Fund to its
custodian;
- negotiates the dividend disbursing services fees to be paid by the Fund
and reviews the provision of dividend disbursing services to the Fund;
- calculates, or arranges for the calculation of, the NAV of the Fund's
shares;
- calculates the basic fee payable to the Adviser and the adjustment to the
basic fee based on the investment performance of the Fund in relation to
the investment record of the Russell 1000 Growth Index;
- determines the amounts available for distribution as dividends and
distributions to be paid by the Fund to its stockholders; prepares and
arranges for the printing of dividend notices to stockholders; and
provides the Fund's dividend disbursing agent and custodian with such
information as is required for them to effect the payment of dividends
and distributions and to implement the Fund's dividend reinvestment plan;
- assists in providing to the Fund's independent accountants such
information as is necessary for such accountants to prepare and file the
Fund's federal income and excise tax returns and the Fund's state and
local tax returns;
- monitors compliance of the Fund's operation with the 1940 Act and with
its investment policies and limitations;
- monitors compliance of the Fund's operations, with respect to engaging in
short sales, with the 1940 Act and the Code;
- provides accounting and bookkeeping services (including the maintenance
of such accounts, books and records of the Fund as may be required by
Section 31(a) of the 1940 Act and the rules and regulations thereunder);
and
- makes such reports and recommendations to the Fund's Board of Directors
as the Board reasonably requests or deems appropriate.
The Administrator will benefit from the offer because it will receive fees
based in part on the average net assets of the Fund. For the services rendered
to the Fund and related expenses borne by the Administrator, the Fund pays the
Administrator a monthly fee at the annual rate of .25 of 1% of the Fund's
average weekly net assets. For the fiscal years ended September 30, 1998,
September 30, 1997 and September 30, 1996, the Fund paid total administrative
fees to the Administrator of $221,977, $174,039 and $142,915, respectively. For
purposes of the calculation of the fee payable to the Administrator, average
weekly net assets are determined on the basis of the average net assets of the
Fund for each weekly period (ending on Friday) ending during the month. The net
assets for each weekly period are determined by averaging
46
<PAGE> 48
the net assets on Friday of such weekly period with the net assets on Friday of
the immediately preceding weekly period. If a Friday is not a Fund business day,
then the calculation will be based on the net assets of the Fund on the Fund
business day immediately preceding such Friday.
PORTFOLIO TRADING
Subject to the general supervision of the Board of Directors, the Adviser
is responsible for decisions to buy and sell securities and other portfolio
holdings for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions. 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 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 effected may be useful to the Adviser in connection
with advisory clients other than the Fund.
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 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
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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.
During the fiscal periods ended September 30, 1996, 1997 and 1998 the Fund
incurred brokerage commissions amounting in the aggregate to $195,295, $216,191,
and $250,574, respectively. During the fiscal periods ended September 30, 1996,
1997 and 1998, brokerage commissions amounting in the aggregate to $0, $0, and
$0, respectively were paid to DLJ and brokerage commissions amounting in the
aggregate to $0 were paid to brokers utilizing the Pershing Division of DLJ.
During the fiscal period ended September 30, 1998, 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 0% of the Fund's aggregate brokerage commissions. During the fiscal
period ended September 30, 1998, of the Fund's aggregate dollar amount of
brokerage transactions involving the payment of commissions, 0% were effected
through DLJ and 0% were effected through brokers utilizing the Pershing Division
of DLJ. During the fiscal period ended September 30, 1998, transactions in
portfolio securities of the Fund aggregating $210,314,741 with associated
brokerage commissions of approximately $78,014 were allocated to persons of
firms supplying research services to the Fund or the Adviser.
Some of the Fund's portfolio transactions in equity securities may 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.
DETERMINATION OF NAV
The Fund determines NAV no less frequently than the close of trading on the
NYSE (generally 4:00 P.M. New York City time) on the last business day of each
week (generally Friday). 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 NYSE 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 NYSE or on a foreign
securities NYSE (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 NYSE 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 NYSE or on a
foreign securities exchange but listed on other
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United States national securities exchanges or traded on The Nasdaq Stock
Market, Inc. are valued in like manner. Portfolio securities traded on the NYSE
and on one or more foreign or other national securities exchanges, and portfolio
securities not traded on the NYSE 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 source.
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.
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 NYSE 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.
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.
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If such quotations are not available as of the close of the NYSE, the rate of
exchange will be determined in good faith by, or under the direction of, the
Board of Directors.
TENDER OFFER AND SHARE REPURCHASES
As discussed above, shares of closed-end investment companies frequently
trade at a discount from NAV. To address this possibility, the Board of
Directors presently contemplates that the Fund may from time to time consider
either the repurchase or tender offer of its shares on the open market. Since
commencement of the Fund's operations, no such open market purchases or tender
offers have been made. The Fund may borrow money to finance the repurchase of
shares.
There can be no assurance that repurchases or tenders will result in the
Fund's shares trading at a price which is equal to its NAV. The Fund anticipates
that the market price of the Fund's shares will usually vary from NAV. The
market price of the Fund's shares will be determined, among other things, by the
relative demand for and supply of the Fund's shares in the market, the Fund's
investment performance, the Fund's dividends and yield and investor perception
of the Fund's overall attractiveness as an investment as compared with other
investment alternatives. Nevertheless, the fact that the Fund's shares may be
the subject of repurchases or tender offers from time to time may enhance its
attractiveness to investors and thus reduce the spread between market price and
NAV that may otherwise exist.
Although the Board of Directors believes that share repurchases and tenders
generally would have a favorable effect on the market price of the Fund's
shares, it should be recognized that the acquisition of shares of the Fund will
decrease the total assets of the Fund and therefore have the effect of
increasing the Fund's expense ratio. Furthermore, any interest on borrowings to
finance Fund shares from repurchase transactions will reduce the Fund's net
income.
Even if a tender offer has been made, it is the Board of Directors'
announced policy, which may be changed by the Board of Directors, not to accept
tenders or effect repurchases if (1) such transactions, if consummated, would
(a) result in the delisting of the Fund's shares from the NYSE (the NYSE having
advised the Fund that it would consider delisting if the aggregate market value
of the Fund's outstanding publicly held common stock is less than $5.0 million,
the number of publicly held shares of common stock falls below 600,000 or the
number of round-lot holders falls below 1,200), (b) result in a violation of
applicable asset coverage requirements, (c) impair the Fund's status as a
regulated investment company under the Code (which would make the Fund a taxable
entity, causing the Fund's income to be taxed at the corporate level in addition
to the taxation of stockholders who receive dividends from the Fund); (2) the
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with the Fund's investment objective and policies in order to
repurchase shares; or (3) there is, in the Board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging, in the Board's
judgment, such transactions or otherwise materially adversely affecting the
Fund, (b) suspension of or limitation on prices for trading securities generally
on the NYSE or any foreign exchange on which portfolio securities of the Fund
are traded, (c) declaration of a banking moratorium by federal, state or foreign
authorities or any suspension of payment by banks in the United States, New York
State or foreign countries in which the Fund invests, (d) limitation affecting
the Fund or issuers of its portfolio securities imposed by federal, state or
foreign authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or other countries in which the Fund invests, or (f) other event
or condition which would have a material adverse effect on the Fund or its
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stockholders if shares were repurchased. The Board of Directors may modify these
conditions from time to time in light of experience and may determine to make a
tender offer even if one of the above conditions exists.
Any tender offer made by the Fund will be at a price equal to the NAV of
the shares as of the close of business on the date the offer ends. Each offering
document will contain such information as is required under the federal
securities law. Each offering document will also disclose the federal income tax
consequences of the Fund's repurchase of shares pursuant to the tender offer.
When a tender offer is authorized to be made by the Board a stockholder wishing
to accept the offer will be required to tender all (but not less than all) of
their shares. The Fund will purchase shares tendered by a stockholder at any
time during the period of the tender offer in accordance with the terms of the
offer unless it determines to accept none of them (based upon one of the
conditions set forth above). Each person tendering shares will be required to
submit a check in an amount not to exceed $25 payable to the Fund, which will be
used to help defray the costs associated with effecting the tender offer. This
fee will be imposed upon each tendering stockholder whose tendered shares are
purchased in the tender offer and will be imposed regardless of the number of
shares purchased. The Fund expects the cost to the Fund of effecting a tender
offer will be greater than the aggregate of all service charges received from
those who tender their shares. Costs associated with the tender offer will be
charged against capital of the Fund. During the period of a tender offer, the
Fund's stockholders will be able to obtain the Fund's current NAV by use of a
toll-free telephone number.
Shares that have been purchased by the Fund will be retired and will be
authorized but unissued shares. The purchase of shares by the Fund will reduce
the Fund's net asset value. The portfolio turnover rate of the Fund may or may
not be affected by the Fund's repurchase of shares pursuant to a tender offer.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Fund has implemented a quarterly distribution policy that distributes
quarterly each year to stockholders (i) with respect to each of the first three
calendar quarters of the year, an amount equal to 2.5% of the Fund's NAV
determined as of the beginning of the quarter, and (ii) with respect to the
fourth calendar quarter of each year, an amount equal to at least 2.5% of the
Fund's NAV as of the beginning of that quarter. If distributions for any quarter
exceed the Fund's net investment income and net realized short-term capital
gains, the difference would be treated as distributed from net realized
long-term capital gains if sufficient and to the extent not sufficient from
other Fund assets as a return of capital. The reduction of the Fund's assets by
the amount of the excess will have the likely effect of increasing the Fund's
expense ratio. In order to make distributions, the Fund may have to sell
investments at an inopportune time. The Fund's final distribution for each
calendar year will include remaining undistributed net investment income,
realized short-term capital gains, and realized long-term capital gains,
provided that if the Fund's undistributed net investment income and net realized
short-term and long-term capital gains for the year exceeded the minimum
required amount for the previous quarters distributions as described above, the
Fund might choose not to distribute all or a portion of such excess equal to the
Fund's net realized long-term capital gains for the year.
If, for any calendar year, for U.S. federal income tax purposes, the total
amount distributed exceeds the aggregate of net investment income and net
realized capital gains, the difference, distributed from the Fund's assets, will
generally be treated as a tax-free return of capital (up to the amount of the
stockholder's tax basis in his shares). You are advised to consult your own
advisers with respect to the particular tax consequences to you of these
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distributions. The Fund's Board of Directors may change its distribution policy
without stockholder approval.
Under the Fund's Dividend Reinvestment Plan or plan, all stockholders whose
shares are registered in their own names will have all distributions reinvested
automatically in additional shares of the Fund by The Bank of New York, as plan
agent under the plan, unless a stockholder elects to receive cash. An election
to receive cash may be revoked or reinstated at the option of the stockholder.
Stockholders whose shares are held in the name of a broker or nominee will have
distributions reinvested automatically by the broker or nominee in additional
shares under the plan, unless the service is not provided by the broker or
nominee, or unless the stockholder elects to receive distributions in cash. If
the service is not available, such distributions will be paid in cash.
Stockholders whose shares are held in the name of a broker or nominee should
contact the broker or nominee for details. All distributions to investors who
elect not to participate (or whose broker or nominee elects not to participate)
in the plan, will be paid by check mailed directly to the recordholder by the
plan agent, as dividend paying agent.
If the Board declares a dividend or capital gains distribution payable
either in Fund shares or in cash, as stockholders may have elected, then
nonparticipants in the plan will receive cash and participants in the plan will
receive the equivalent in Fund shares valued at the lower of market price or
NAV. Whenever market price is equal to or exceeds NAV at the time shares are
valued for the purpose of determining the number of shares equivalent to the
cash dividend or capital gains distribution, participants will be issued shares
at the NAV most recently determined as described above, but in no event less
than 95% of the market price. If the NAV of Fund shares at such time exceeds the
market price of the shares at such time, or if the Fund should declare a
dividend or capital gains distribution payable only in cash, the plan agent will
buy Fund shares in the open market, on the NYSE or elsewhere, for the
participants' accounts. If, before the plan agent has completed its purchases,
the market price exceeds the Fund's NAV, the average per share purchase price
paid by the plan agent may exceed the Fund's NAV, resulting in the acquisition
of fewer shares than if the dividend or capital gains distribution had been paid
in Fund shares issued by the Fund. The plan agent will apply all cash received
as a dividend or capital gains distribution to purchase shares on the open
market as soon as practicable after the payment date of such dividend or capital
gains distribution, but in no event later than 30 days after such date, except
where necessary to comply with applicable provisions of the federal securities
laws.
The plan agent maintains all stockholder accounts in the plan and furnishes
written confirmations of all transactions in such accounts, including
information needed by stockholders for personal and tax records. Fund shares in
the account of each plan participant are held by the plan agent in
noncertificated form in the name of the participant, and each participant's
proxy will include those shares purchased pursuant to the plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The plan agent's fees for handling the reinvestment of
dividends and capital gains distributions are paid by the Fund. There are no
brokerage charges with respect to shares issued directly by the Fund as a result
of dividends or capital gains distributions payable either in stock or in cash.
However, each participant is to pay a pro rata share of brokerage commissions
incurred with respect to the plan agent's open market purchases in connection
with the reinvestment of dividends and capital gains distributions.
The automatic reinvestment of dividends and capital gains distributions
does not relieve participants of any income tax which may be payable on such
dividends or distributions.
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Experience under the plan may indicate that changes are desirable.
Accordingly, the Fund has reserved the right to amend or terminate the plan as
applied to any dividend or capital gains distribution paid after written notice
of the change sent to the members of the plan at least 90 days before the record
date for such dividend or capital gains distribution. The plan also may be
amended or terminated by the plan agent, with the Fund's prior written consent
but, except when necessary or appropriate to comply with applicable law or the
rules or policies of a regulatory body, only on at least 90 days' written notice
to participants in the plan. All correspondence concerning the plan should be
directed to The Bank of New York, 101 Barclay Street, New York, New York 10286.
FEDERAL TAXATION
The following summary addresses only principal United States federal income
tax considerations pertinent to the Fund and to stockholders of the Fund who are
United States citizens or residents or United States corporations. The effects
of federal income tax law on stockholders who are nonresident alien individuals,
foreign corporations or other foreign persons may be substantially different.
The summary is based upon the advice of counsel for the Fund and upon current
law and interpretations thereof. No confirmation has been obtained from the
relevant tax authorities. There is no assurance that the applicable laws and
interpretations will not change.
In view of the individual nature of tax consequences, each stockholder is
advised to consult the stockholder's own tax adviser with respect to the
specific consequences of being a stockholder of the Fund, including the effect
and applicability of federal, state, local, foreign and other tax laws and the
effects of changes therein.
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." To so qualify, the Fund must, among other
things, (i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currency, or certain
other income (including, but not limited to, gains from options, futures and
forwards contracts) derived with respect to its business of investing in stock,
securities or currency; and (ii) diversify its holdings so that, at the end of
each quarter of its taxable year, the following two conditions are met: (a) at
least 50% of the value of the Fund's assets is represented by cash, 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 the securities of other
regulated investment companies) or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
If the Fund qualifies as a regulated investment company for any taxable
year and makes timely distributions to its stockholders of 90% or more of its
investment company taxable income for that year (calculated without regard to
its net capital gain, i.e., the excess of its net long-term capital gain over
its net short-term capital loss), it will not be subject to federal income tax
on the portion of its taxable income for the year (including any net capital
gain) that it distributes to stockholders. If the Fund retains such taxable
income, it will be subject under current rates to federal income tax on the
amount retained at a maximum rate of 35%.
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The Fund will also avoid the 4% federal excise tax that would otherwise
apply to certain undistributed income for a given calendar year if it makes
timely distributions to the stockholders equal to at least the sum of (i) 98% of
its ordinary income for the calendar 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 and 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
stockholders 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 stockholders for the year declared, and not for the year in which the
stockholders 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 an amount to avoid being subject to one or both of
such federal taxes.
If in any taxable year the Fund fails to qualify as a regulated investment
company, the Fund will be taxed in the same manner as an ordinary corporation,
and distributions to its stockholders will not be deductible by the Fund in
computing its taxable income. In addition, in the event of failure to qualify,
the Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, will constitute dividends (eligible for the
corporate dividends-received deduction, subject to certain requirements) which
are taxable to stockholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the stockholders' hands
as long-term capital gains.
Dividends and Distributions. Dividends of the Fund's net ordinary income
and distributions of any net realized short-term capital gain will be taxable to
stockholders as ordinary income to the extent of the Fund's current and
accumulated earnings and profits for the year of the distribution period.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a stockholder has held shares in the Fund. If, because of
the Fund's distribution policies, the amount of the distributions by the Fund
with respect to any calendar year exceed the sum of the Fund's ordinary income
and net realized gains for the year, the amount of such excess will be treated
as a nontaxable return of capital to the stockholder to the extent of the
stockholder's tax basis in his shares in the Fund. The amount of any
distributions in excess of such tax basis will be taxed as capital gain or loss
assuming the stockholder holds such shares as a capital asset.
Any dividend or distribution received by a stockholder 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 stockholder, although in
effect a return of capital to that particular stockholder, would be taxable to
the stockholder as described above. Dividends are taxable in the manner
discussed above regardless of whether they are paid to the stockholder in cash
or are reinvested in additional shares of the Fund. The investment objective of
the Fund is such that only a small portion, if any, of the Fund's distributions
is expected to qualify for dividends-received deduction for corporate
stockholders.
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After the end of the taxable year, the Fund will notify stockholders of the
federal income tax status of any distributions made by the Fund to stockholders
during such year.
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. A stockholder will realize gain or loss on the sale
or redemption of Fund shares in an amount equal to the difference between the
stockholder's adjusted tax basis in the shares sold or redeemed and the amount
realized on their disposition. Such gain or loss generally will be capital gain
or loss except in the case of dealers or certain financial institutions. Such
gain or loss will be long-term capital gain or loss if the stockholder has held
such shares for more than one year at the time of the sale or redemption and
short-term capital gain or loss if the holding period is one year or less. If a
stockholder 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 stockholder 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 stockholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a stockholder 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 tax basis
of the shares acquired.
Foreign Taxes. Income received by the Fund also may be subject to foreign
income taxes, including withholding taxes. It is not possible 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.
Backup Withholding. The Fund may be required to withhold for federal
income tax at the rate of 31% of all taxable distributions payable to
noncorporate stockholders 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 stockholders and certain other stockholders 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 the
stockholder's federal income tax liability or refunded.
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND
The following discussion related to certain significant United States
federal income tax consequences to the Fund with respect to the determination of
its "investment company taxable income" each year. This discussion assumes that
the Fund will be taxed as a regulated investment company for each of its taxable
years.
Currency Fluctuations, "Section 988" Gains or Losses. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are
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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 gain or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of the Fund's investment company taxable income available
to be distributed to its stockholders as ordinary income, rather than increasing
or decreasing the amount of the Fund's net capital gain. Because section 988
losses reduce the amount of ordinary dividends the Fund will be allowed to
distribute for a taxable year, such section 988 losses may result in all or a
portion of prior dividend distributions for such year being recharacterized as
nontaxable return of capital to stockholders, rather than as an ordinary
dividend, reducing each stockholder's basis in his Fund shares. If such
distributions exceed such stockholder's basis, such excess 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 generally 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 stockholders 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.
With respect to equity options or options traded over-the-counter 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.
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
stockholders 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
56
<PAGE> 58
value of the option. The foregoing rules will also apply to other put and call
options 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 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.
The Fund may be subject to other state and local taxes than those discussed
above. Also, distributions by the Fund may be subject to additional state, local
and foreign taxes depending on each stockholder's particular circumstances.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Fund consists of 300,000,000 shares of
common stock, $0.01 par value. As of the date of this Prospectus, 2,515,754
shares are outstanding.
DESCRIPTION OF FUND SHARES
Each share has equal voting, dividend, distribution and liquidation rights.
The shares outstanding are, and the shares offered hereby when issued will be,
fully paid and nonassessable. Stockholders are entitled to one vote per share.
All voting rights for the election of Directors are noncumulative, which means
that the holders of more than 50% of the shares can elect 100% of the Directors
then nominated for election if they choose to do so and, in that event, the
holders of the remaining shares will not be able to elect any Directors. The
foregoing description and the description under "Certain Anti-Takeover
Provisions of the Articles of Incorporation and Bylaws" are subject to the
provisions contained in the Fund's Articles of Incorporation and Bylaws.
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
The Fund presently has provisions in its Articles of Incorporation and
Bylaws (together, the "Charter Documents") that are intended to limit (i) the
ability of other entities or persons to acquire control of the Fund, (ii) the
Fund's freedom to engage in certain
57
<PAGE> 59
transactions and (iii) the ability of the Fund's Directors or stockholders to
amend the Charter Documents or effect changes in the Fund's management. These
provisions of the Charter Document may be regarded as "anti-takeover"
provisions. At the first annual meeting of stockholders, the Board of Directors
was divided into three classes. Upon the expiration of the term of office of
each class the Directors in such class will be elected for a term of three years
to succeed the Directors whose terms of office expire. Accordingly, only those
Directors in one class may be changed in any one year, and it would require two
years to change a majority of the Board of Directors (although under Maryland
law procedures are available for the removal of Directors for cause even if they
are not then standing for re-elections, and under Securities and Exchange
Commission regulations, procedures are available for including stockholder
proposals in management's annual proxy statement). Such system of electing
Directors is intended to have the effect of maintaining the continuity of
management and, thus, make it more difficult for the Fund's stockholders to
change the majority of the Directors. A director may be removed from office only
for cause and by a vote of at least 75% of the outstanding shares of the Fund
entitled to vote for the election of Directors. Under Maryland law and the
Fund's Articles of Incorporation, the affirmative vote of the holders of a
majority of the votes entitled to be cast is required for the consolidation of
the Fund with another corporation, a merger of the Fund with or into another
corporation (except for certain mergers in which the Fund is the successor), a
statutory share exchange in which the Fund is not the successor, a sale or
transfer of all or substantially all of the Fund's assets and any amendment to
the Fund's Articles of Incorporation (except for amendments to certain
provisions of the Articles of Incorporation that require the affirmative vote of
75% of the votes entitled to be cast). The affirmative vote of 75% (which is
higher than that required under Maryland law or the 1940 Act) of the outstanding
shares of the Fund is required to authorize the liquidation or dissolution of
the Fund in the absence of approval of the liquidation or dissolution by a
majority of the Continuing Directors of the Fund (defined for this purpose as
those Directors who are either members of the Board of Directors on the date of
closing of the initial public offering of the shares of the Fund or subsequently
become Directors and whose elections are approved by a majority of the
Continuing Directors then on the Board. If a majority of the Continuing
Directors approve the liquidation or dissolution of the Fund, then such action
shall require an affirmative vote of a majority of the outstanding shares of the
Fund. In addition, the affirmative vote of 75% (which is higher than that
required under Maryland law or the 1940 Act) of the outstanding shares of the
Fund is required generally to authorize any of the following transactions
involving a corporation, person or entity, that is directly or indirectly
through affiliates, the beneficial owner of more than 5% of the outstanding
shares of the Fund (a "Principal Stockholder"), or to amend the provisions of
the Articles of Incorporation relating to such transactions:
i. merger, consolidation or statutory share exchange of the Fund with or
into any Principal Stockholder;
ii. issuance of any securities of the Fund to any Principal Stockholder
for cash except upon (a) reinvestment of dividends pursuant to a
dividend reinvestment plan, (b) issuance of any securities pursuant to
the exercise of any stock subscription rights distributed by the Fund
or (c) a public offering by the Fund registered under the Securities
Act;
iii. sale, lease or exchange of all or any substantial part of the assets
of the Fund to any Principal Stockholder (except assets having an
aggregate fair market value of less than $1,000,000);
58
<PAGE> 60
iv. sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any Principal Stockholder (except assets having
an aggregate fair market value of less than $1,000,000).
However, such vote would not be required when, under certain conditions,
the Continuing Directors approve the transactions described in (i)-(iv) above,
although in certain cases involving merger, consolidation or statutory share
exchange or sale of all or substantially all of the Fund's assets, the
affirmative vote of a majority of the outstanding shares of the Fund would
nevertheless be required. The affirmative vote of 75% (which is higher than that
under Maryland law or the 1940 Act) of the outstanding shares of the Fund is
required to convert the Fund to an open-end investment company and to amend the
Fund's Articles of Incorporation to effect any such conversion. For the full
text of these provisions, reference is made to the Articles of Incorporation and
Bylaws of the Fund, on file with the Securities and Exchange Commission.
The provisions of the Charter Documents described above could have the
effect of depriving the owners of shares of the Fund of opportunities to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund in a tender offer or similar
transaction. See "Tender Offers and Repurchase of Shares." The overall effect of
these provisions is to render more difficult the accomplishment of a merger or
the assumption of control by a Principal Stockholder. The Board of Directors of
the Fund has considered the foregoing anti-takeover provisions and concluded
that they are in the best interests of the Fund and its stockholders.
The Fund is required by the rules of the NYSE to hold annual meetings of
stockholders. The most recent annual meeting of stockholders was held on March
9, 1999. The next annual meeting of stockholders will be held between March 9,
2000 and April 9, 2000.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT,
REGISTRAR AND SHAREHOLDER SERVICING AGENT
The Bank of New York, 101 Barclay Street, New York, New York 10286, acts as
the Fund's custodian, transfer agent, dividend paying agent and registrar. The
Fund's portfolio of securities and cash, when invested in securities of foreign
countries, will be held by its subcustodians, subject to approval by the Board
of Directors of the Fund as and when appropriate in accordance with the rules of
the SEC.
The Dealer Manager also acts as shareholder servicing agent for the Fund
and (i) provides services and makes efforts to publicize the Fund on an ongoing
basis to investors, including both clients of the shareholder servicing agent
and other investors, and reminds investors, and prospective investors of the
Fund's features and benefits, including communications with clients and their
representatives, periodic seminars or conference calls, internal and external
publications, presentations at retail system meetings, responses to questions
from potential or current stockholders and specific stockholder contact where
appropriate; (ii) makes available to brokers and investors market price, NAV and
yield information regarding the Fund for the purpose of helping to maintain the
visibility of the Fund to brokers and clients (including investors and
prospective investors in the Fund); and (iii) provides financial advice and
consultation at the request of the Fund with respect of the Fund with respect to
consideration by the Board of Directors of the Fund of share repurchases or
tender offers. For these services, the Fund pays the shareholder servicing agent
a fee equal on an annual basis to 0.10 of 1% of the Fund's average weekly net
assets and payable at the end of each calendar month. The shareholder servicing
agreement by its terms continues until September 30, 1999 and thereafter for
successive one year periods unless terminated by either party upon written
notice 60 days prior to the anniversary date thereof. In this regard, as part
59
<PAGE> 61
of its ongoing oversight responsibilities, the Board of Directors will monitor
the performance of the shareholder servicing agent and the continuing
appropriateness of that agreement.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Fund
by Seward & Kissel LLP, New York, New York. Certain matters will be passed upon
for the Dealer Manager by Rogers & Wells LLP, New York, New York. Seward &
Kissel will rely upon the opinion of Venable, Baetjer and Howard, LLP for
matters relating to Maryland law.
REPORTS TO STOCKHOLDERS
The Fund will send semi-annual and audited annual reports to its
stockholders, including a list of investments held. A copy of the Fund's annual
report for the fiscal year ended September 30, 1998 was mailed to stockholders
on November 30, 1998 and its semi-annual report for the six months ended March
31, 1999 was mailed to stockholders on May 28, 1999.
EXPERTS
The audited Financial Statements included in this Prospectus have been
audited by PricewaterhouseCoopers LLP, independent public accountants, as
indicated in their reports and are included in reliance upon the authority of
the firm as experts in giving the report. The address of PricewaterhouseCoopers
LLP is 1177 Avenue of the Americas, New York, NY 10036-2798.
FURTHER INFORMATION
On occasion, the Fund may compare its performance to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc. or
other industry publications. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
The Fund has filed with the SEC, Washington, D.C. 20549, a registration
statement under the Securities Act relating to the shares offered by this
Prospectus. Further information concerning these shares and the Fund may be
found in that registration statement on file with the SEC, of which this
Prospectus constitutes a part. The Fund also files reports and other information
with the SEC. The registration statements and these reports and other
information can be inspected, without charge, and copied, for a fee, at the
public reference facilities maintained by the SEC at 450 5th Street, Washington,
D.C. 20549. The Fund's filings are also available to the public on the SEC's
internet site (http://www.sec.gov). The reports and other information concerning
the Fund may also be inspected at the offices of the NYSE.
60
<PAGE> 62
ALLIANCE ALL-MARKET ADVANTAGE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALLIANCE
ALL-MARKET ADVANTAGE 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 All-Market Advantage Fund,
Inc. (the "Fund") at September 30, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period November 4, 1994 (commencement of
operations) through September 30, 1995, in conformity with generally accepted
accounting principles. 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 September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
November 18, 1998
F-1
<PAGE> 63
ALLIANCE ALL-MARKET ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
--------------- -----------
<S> <C> <C>
COMMON STOCKS -- 74.5%
TECHNOLOGY -- 38.5%
COMMUNICATION EQUIPMENT -- 10.1%
America Online, Inc.(a)........................... 10,000 $ 1,112,500
Lucent Technologies, Inc.(a)...................... 7,000 483,438
Nokia Corp. ADR(b)................................ 84,500 6,627,969
-----------
8,223,907
COMPUTER HARDWARE -- 15.2%
Compaq Computer Corp. ............................ 60,000 1,897,500
Dell Computer Corp.(a)(c)......................... 139,200 9,152,400
EMC Corp.(c)...................................... 24,100 1,378,219
-----------
12,428,119
COMPUTER SOFTWARE -- 4.8%
Microsoft Corp.(a)(c)............................. 35,600 3,918,225
NETWORKING SOFTWARE -- 7.8%
Cisco Systems, Inc.(a)(c)......................... 103,050 6,369,778
SEMICONDUCTOR COMPONENTS -- 0.6%
Intel Corp. ...................................... 5,500 471,625
-----------
31,411,654
FINANCE -- 16.0%
BANKING -- REGIONAL -- 1.7%
Norwest Corp.(a).................................. 19,500 698,344
U.S. Bancorp...................................... 20,000 711,250
-----------
1,409,594
BROKERAGE & MONEY MANAGEMENT -- 2.1%
Merrill Lynch & Co., Inc.(a)...................... 36,000 1,705,500
INSURANCE -- 2.4%
Progressive Corp.(a).............................. 9,000 1,014,750
Travelers Group, Inc.(a).......................... 24,000 900,000
-----------
1,914,750
MORTGAGE BANKING -- 3.0%
Fannie Mae Corp. ................................. 27,000 1,734,750
H. F. Ahmanson & Co.(a)........................... 8,600 477,300
Washington Mutual, Inc. .......................... 8,000 270,000
-----------
2,482,050
</TABLE>
F-2
<PAGE> 64
ALLIANCE ALL-MARKET ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
--------------- -----------
<S> <C> <C>
MISCELLANEOUS -- 6.8%
Associates First Capital Corp. Cl. A(a)........... 21,000 $ 1,370,250
Household International, Inc.(a).................. 32,100 1,203,750
MBNA Corp.(a)..................................... 102,150 2,924,044
-----------
5,498,044
-----------
13,009,938
CONSUMER SERVICES -- 11.2%
AIRLINES -- 2.5%
Northwest Airlines, Inc. Cl. A(c)................. 34,200 857,137
UAL Corp.(a)(c)................................... 18,300 1,186,069
-----------
2,043,206
BROADCASTING & CABLE -- 5.0%
AirTouch Communications, Inc.(a)(c)............... 32,000 1,824,000
Tele-Communications Liberty Media Group Cl.
A(c)............................................ 60,500 2,219,594
-----------
4,043,594
RETAIL -- GENERAL MERCHANDISE -- 3.7%
Dayton Hudson Corp................................ 39,000 1,394,250
Home Depot, Inc.(a)............................... 15,000 592,500
Kohl's Corp.(c)................................... 27,400 1,068,600
-----------
3,055,350
-----------
9,142,150
SHARES OR
CONTRACTS(D)
-------
HEALTHCARE -- 6.2%
DRUGS -- 2.8%
Pfizer, Inc.(a)................................... 17,000 1,800,937
Warner-Lambert Co.(a)............................. 6,500 490,750
-----------
2,291,687
MEDICAL PRODUCTS -- 3.4%
HBO & Co.(a)...................................... 39,200 1,131,900
IMS Health, Inc.(a)............................... 13,000 805,187
Medtronic, Inc.(a)................................ 13,400 775,525
-----------
2,712,612
-----------
5,004,299
MULTI-INDUSTRY -- 2.6%
CAPITAL GOODS -- 2.6%
Tyco International Ltd.(a)........................ 39,000 2,154,750
Total Common Stocks (cost $33,877,467)............ 60,722,791
</TABLE>
F-3
<PAGE> 65
ALLIANCE ALL-MARKET ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES OR
CONTRACTS(D) VALUE
--------------- -----------
<S> <C> <C>
CALL OPTIONS PURCHASED -- 27.2%(C)
AirTouch Communications, Inc.
expiring Jan '99 @ $20.......................... 550 $ 2,062,500
expiring Jan '00 @ $20.......................... 150 556,875
Bristol-Myers Squibb Co.
expiring Jan '99 @ $60.......................... 250 1,110,937
expiring Jan '00 @ $60.......................... 100 468,750
Citicorp
expiring Jan '99 @ $60.......................... 20 68,500
Coca-Cola Co.
expiring Jan '99 @ $35.......................... 50 118,125
Dayton Hudson Corp.
expiring Jan '99 @ $22.50....................... 240 324,000
Fannie Mae
expiring Jan '00 @ $40.......................... 80 217,000
General Electric Co.
expiring Jan '99 @ $30.......................... 100 502,500
expiring Jan '00 @ $50.......................... 100 337,500
Home Depot, Inc.
expiring Jan '99 @ $30 (e)...................... 580 2,142,375
expiring Jan '00 @ $27.50....................... 200 307,500
expiring Jan '00 @ $35.......................... 250 590,625
CONTRACTS(D) OR
PRINCIPAL
AMOUNT
(000)
-------
MBNA Corp.
expiring Jan '99 @ $13.375...................... 135 311,344
expiring Jan '99 @ $15.......................... 180 254,250
expiring Jan '99 @ $16.625...................... 225 417,656
expiring Jan '99 @ $20.......................... 100 91,250
Merck & Co., Inc.
expiring Jan '99 @ $55.......................... 150 1,125,000
expiring Jan '99 @ $60.......................... 20 140,250
Morgan Stanley, Dean Witter & Co.
expiring Jan '99 @ $30.......................... 400 595,000
NationsBank Corp.
expiring Jan '99 @ $35.......................... 230 457,125
Pfizer, Inc.
expiring Jan '99 @ $30.......................... 150 1,151,250
expiring Jan '99 @ $50.......................... 100 562,500
Philip Morris Cos., Inc.
expiring Jan '99 @ $23.375...................... 505 1,174,125
</TABLE>
F-4
<PAGE> 66
ALLIANCE ALL-MARKET ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONTRACTS(D) OR
PRINCIPAL
AMOUNT
(000) VALUE
--------------- -----------
<S> <C> <C>
Schering-Plough Corp.
expiring Jan '99 @ $25.......................... 425 $ 3,352,187
Tyco International Ltd.
expiring Jan '00 @ $30.......................... 640 1,768,000
United Technologies Corp.
expiring Jan '99 @ $50.......................... 230 618,125
Wal-Mart Stores, Inc.
expiring Jan '00 @ $30.......................... 50 135,625
expiring Jan '00 @ $35.......................... 350 774,375
expiring Jan '00 @ $40.......................... 50 101,250
Walt Disney Co.
expiring Jan '99 @ $50.......................... 425 387,813
Total Call Options Purchased
(cost $15,225,920).............................. 22,224,312
SHORT TERM INVESTMENT -- 1.3%
COMMERCIAL PAPER -- 1.3%
General Electric Capital Corp. 5.70%, 10/01/98
(amortized cost ($1,049,000).................... 1,049 1,049,000
TOTAL INVESTMENTS -- 103.0%
(cost $50,152,387).............................. 83,996,103
CONTRACTS(D)
-------
CALL OPTIONS WRITTEN -- (1.4%)(C)
Chicago Board Options Exchange NASDAQ 100 Index
expiring Oct '98 @ $1,280....................... 15 (136,312)
expiring Oct '98 @ $1,300....................... 30 (231,000)
expiring Oct '98 @ $1,320....................... 5 (31,063)
expiring Oct '98 @ $1,360....................... 10 (38,000)
expiring Oct '98 @ $1,380....................... 10 (25,625)
expiring Oct '98 @ $1,400....................... 20 (40,000)
Cisco Systems, Inc.
expiring Oct '98 @ $65.......................... 130 (20,313)
Dell Computer Corp.
expiring Oct '98 @ $60.......................... 100 (75,000)
expiring Oct '98 @ $62.50....................... 140 (80,500)
expiring Oct '98 @ $70.......................... 70 (12,688)
Merrill Lynch & Co., Inc.
expiring Oct '98 @ $45.......................... 100 (42,500)
Nokia Corp.
expiring Oct '98 @ $80(b)....................... 100 (36,250)
</TABLE>
F-5
<PAGE> 67
ALLIANCE ALL-MARKET ADVANTAGE FUND
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CONTRACTS(D) VALUE
--------------- -----------
<S> <C> <C>
Standard & Poor's 500 Index
expiring Oct '98 @ $995......................... 30 $ (142,500)
expiring Oct '98 @ $1,010....................... 20 (70,000)
expiring Oct '98 @ $1,025....................... 20 (54,000)
expiring Oct '98 @ $1,030....................... 20 (48,000)
expiring Oct '98 @ $1,050....................... 65 (96,687)
Total Call Options Written (premiums received
$1,306,240)..................................... (1,180,438)
TOTAL INVESTMENTS, NET OF OUTSTANDING CALL OPTIONS
WRITTEN -- 101.6%
(cost $48,846,147).............................. 82,815,665
Other assets less liabilities -- (1.6%)........... (1,263,646)
NET ASSETS -- 100%................................ $81,552,019
</TABLE>
- -------------------------
(a) Security or a portion thereof, has been segregated to collateralize open
options written. This collateral has a total market value of approximately
$25,968,392.
(b) Country of origin -- Finland.
(c) Non-income producing.
(d) One contract relates to 100 shares unless otherwise indicated.
(e) One contract relates to 150 shares.
Glossary of Terms:
ADR -- American Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 68
ALLIANCE ALL-MARKET ADVANTAGE FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $50,152,387).... $83,996,103
Receivable for investment securities sold................. 3,302,994
Dividends receivable...................................... 19,468
Deferred organization expenses and other assets........... 19,112
Total assets...................................... 87,337,677
-----------
LIABILITIES
Due to custodian.......................................... 325,058
Outstanding call options written, at value (premiums
received $1,306,240)................................... 1,180,438
Dividend payable.......................................... 2,464,879
Payable for investment securities purchased............... 1,437,159
Advisory fee payable...................................... 123,649
Administration fee payable................................ 17,620
Accrued expenses.......................................... 236,855
Total liabilities................................. 5,785,658
NET ASSETS.................................................. $81,552,019
-----------
COMPOSITION OF NET ASSETS
Capital stock, at par..................................... $ 25,080
Additional paid-in capital................................ 49,470,792
Accumulated net realized loss on investment
transactions........................................... (1,913,371)
Net unrealized appreciation of investments and options
written................................................ 33,969,518
$81,552,019
NET ASSET VALUE PER SHARE (based on 2,508,017 shares
outstanding).............................................. $ 32.52
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE> 69
ALLIANCE ALL-MARKET ADVANTAGE FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of
$10,345)........................................ $ 284,590
Interest........................................... 60,878 $ 345,468
----------
EXPENSES
Advisory fee....................................... 1,528,461
Administrative..................................... 221,977
Custodian.......................................... 161,142
Audit and legal.................................... 96,327
Shareholder servicing.............................. 88,710
Printing........................................... 53,599
Directors' fees and expenses....................... 39,672
Transfer agency.................................... 17,625
Registration....................................... 16,058
Dividends on securities sold short................. 5,226
Amortization of organization expenses.............. 4,000
Miscellaneous...................................... 3,995
----------
Total expenses before interest..................... 2,236,792
Interest expense on short sales.................... 41,327
----------
Total expenses..................................... 2,278,119
-----------
Net investment loss................................ (1,932,651)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SHORT SALES AND OPTIONS WRITTEN
Net realized gain on long transactions............. 10,885,551
Net realized gain on short sale transactions....... 36,031
Net realized loss on written option transactions... (2,055,105)
Net change in unrealized appreciation of
investments, short sales and options written.... 2,937,240
-----------
Net gain on investments............................ 11,803,717
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $ 9,871,066
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-8
<PAGE> 70
ALLIANCE ALL-MARKET ADVANTAGE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss.............................. $(1,932,651) $(1,439,672)
Net realized gain on investment, short sale and
written option transactions................... 8,866,477 12,310,009
Net change in unrealized appreciation of
investments, short sales and options
written....................................... 2,937,240 23,766,594
----------- -----------
Net increase in net assets from operations....... 9,871,066 34,636,931
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments................. (12,924,008) (5,741,965)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance
of common stock............................... 127,507 -0-
----------- -----------
Total increase (decrease)........................ (2,925,435) 28,894,966
NET ASSETS
Beginning of year................................ 84,477,454 55,582,488
----------- -----------
End of year...................................... $81,552,019 $84,477,454
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-9
<PAGE> 71
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance All-Market Advantage Fund, Inc. (the "Fund") was incorporated
under the laws of the state of Maryland on August 16, 1994 and is registered
under the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. 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 prices 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 prices. 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. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provision for federal income or excise taxes is
required.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $20,000 have been deferred and are
being amortized on a straight-line basis through November, 1999.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income (or expense on securities sold short) is recorded on the
ex-dividend date. Investment transactions are accounted for on the date
securities are purchased or sold. Investment gains and losses are determined on
the identified cost basis.
F-10
<PAGE> 72
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. 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 net investment loss, resulted in a net decrease in accumulated
net realized gain on investment transactions and a corresponding increase in
accumulated net investment loss. This reclassification had no affect on net
assets.
NOTE B: ADVISORY, ADMINISTRATIVE FEES AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Investment Adviser") a monthly fee at an
annualized rate of 1.50% of the Fund's average weekly net assets (the "Basic
Fee") and an adjustment to the Basic Fee based upon the investment performance
of the Fund in relation to the investment record of the Russell 1000 Growth
Index for certain prescribed periods. During the year ended September 30, 1998,
the fee as adjusted, amounted to 1.72% of the Fund's average net assets.
Under the terms of an Administrative Agreement, the Fund pays its
Administrator, Alliance Capital Management L.P., a monthly fee equal to the
annualized rate of 0.25 of 1% of the Fund's average weekly net assets. The
Administrator provides administrative functions to the Fund as well as other
clerical services. The Administrator also prepares financial and regulatory
reports for the Fund.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance
Fund Services, Inc. ("AFS"), an affiliate of the Investment Adviser, the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund. The
Fund reimbursed AFS$1,215 during the year ended September 30, 1998.
Under terms of a Shareholder Servicing Agreement, the Fund pays its
Shareholder Servicing Agent, Paine Webber Inc. a quarterly fee equal to the
annualized rate of 0.10 of 1% of the Fund's average weekly net assets.
Brokerage commissions paid on investment transactions for the year ended
September 30, 1998 amounted to $250,574, none of which was paid to brokers
utilizing the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp., an affiliate of the Adviser.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
investments, short-term options, and U.S. government securities) aggregated
$80,730,704 and $94,323,383, respectively, for the year ended September 30,
1998. There were no purchases or sales of U.S. government or government agency
obligations for the year ended September 30, 1998.
At September 30, 1998, the cost of investments for federal income tax
purposes was $49,206,916. Accordingly, gross unrealized appreciation of
investments was $35,977,558 and
F-11
<PAGE> 73
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
gross unrealized depreciation of investments was $2,368,809 resulting in net
unrealized appreciation of $33,608,749.
1. OPTIONS TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) options on
market indices and covered put and call options on U.S. securities that are
traded on U.S. securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a
premium whether or not the option is exercised. Additionally, the Fund bears the
risk of loss of the premium and any change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of securities
acquired through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, the premium received by the Fund is
recorded as a liability and is subsequently adjusted to the current market value
of the option written.
Premiums received from writing options which expire unexercised are
recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a written call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has realized a gain or loss.
If a written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. In writing covered options, the Fund bears the
market risk of an unfavorable change in the price of the security underlying the
written option. Exercise of an option written by the Fund could result in the
Fund selling or buying a security at a price different from the current market
value. Losses from written market index options may be unlimited.
Transactions in options written for the year ended September 30, 1998 were
as follows:
<TABLE>
<CAPTION>
NUMBER PREMIUMS
OF CONTRACTS RECEIVED
------------ ------------
<S> <C> <C>
Options outstanding at beginning of year.... 350 $ 1,191,160
Options written............................. 13,464 26,336,503
Options terminated in closing purchase
transactions.............................. (12,804) (25,834,686)
Options expired............................. (125) (386,737)
------- ------------
Options outstanding at September 30, 1998... 885 $ 1,306,240
======= ============
</TABLE>
2. SECURITIES SOLD SHORT
The Fund may sell securities short. A short sale is a transaction in which
the Fund sells securities it does not own, but has borrowed, in anticipation of
a decline in the market price of the securities. The Fund is obligated to
replace the borrowed securities at their market price at
F-12
<PAGE> 74
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the time of replacement. The Fund's obligation to replace the securities
borrowed in connection with a short sale will be fully secured by collateral
deposited with the broker. In addition, the Fund will consider the short sale to
be a borrowing by the Fund that is subject to the asset coverage requirements of
the 1940 Act. Short sales by the Fund involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security because losses from short sales may be
unlimited, whereas losses from purchases can not exceed the total amount
invested. The Fund is currently paying an interest expense of 6.25% to the
prospective brokers on the market value of the short sales.
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $0.01 par value common stock authorized. Of
the 2,508,017 shares outstanding at September 30, 1998, the Investment Adviser
owned 5,000 shares. During the year ended September 30, 1998, the Fund issued
3,017 shares in connection with the Fund's dividend reinvestment plan. During
the year ended September 30, 1997, the Fund did not issue shares in connection
with the Fund's dividend reinvestment plan.
F-13
<PAGE> 75
ALLIANCE ALL-MARKET ADVANTAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NOVEMBER 4, 1994(A)
--------------------------------- TO SEPTEMBER 30,
1998 1997 1996 1995
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 33.72 $ 22.19 $ 23.78 $ 19.70(b)
INCOME FROM INVESTMENT OPERATIONS
Net investment loss.................... (.77) (.58) (.48) (.09)
Net realized and unrealized gain on
investment transactions.............. 4.73 14.40 1.86 5.65
Net increase in net asset value from
operations........................... 3.96 13.82 1.38 5.56
LESS: DISTRIBUTIONS
Distributions from net realized
gains................................ (5.16) (2.29) (2.97) (1.48)
Net asset value, end of period......... $ 32.52 $ 33.72 $ 22.19 $ 23.78
Market value, end of period............ $36.875 $31.188 $ 19.00 $ 19.50
TOTAL RETURN
Total investment return based on:(c)
Market value......................... 37.40% 79.27% 13.26% 5.46%
Net asset value...................... 12.49% 65.66% 8.10% 28.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................. $81,552 $84,477 $55,582 $59,561
Ratio of expenses to average net
assets............................... 2.57% 2.48% 2.87% 2.00%(d)
Ratio of expenses to average net assets
excluding interest expense........... 2.52%(e) 2.43%(e) 2.62%(e) 2.00%(d)
Ratio of net investment loss to average
net assets........................... (2.18)% (2.07)% (2.11)% (.48)%(d)
Portfolio turnover rate................ 96% 105% 199% 140%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Net of offering costs of $0.30.
(c) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market price in periods where there is an increase in the discount or a
decrease in the premium of the market price to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on the net asset value will be lower than total investment return
based on market value in periods where there is a decrease in the discount
or an increase in the premium of the market value to the net asset value
from the beginning to the end of such periods. Total return for a period of
less than one year is not annualized.
(d) Annualized.
(e) Net of interest expense of 0.05%, 0.05% and 0.25%, respectively, on short
sales (see Note C).
F-14
<PAGE> 76
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCKS -- 77.4%
TECHNOLOGY -- 35.7%
COMMUNICATION EQUIPMENT -- 13.4%
EMC Corp.(a)................................................ 37,700 $ 4,816,175
Lucent Technologies, Inc.................................... 13,000 1,400,750
Nokia Corp. ADR (Finland)................................... 62,000 9,656,500
------------
15,873,425
COMPUTER HARDWARE -- 7.6%
Dell Computer Corp.(b)...................................... 190,000 7,766,250
Sun Microsystems, Inc.(a)(b)................................ 10,300 1,286,856
------------
9,053,106
COMPUTER SOFTWARE -- 4.2%
Microsoft Corp.(a)(b)....................................... 55,200 4,947,300
INTERNET CONTENT -- 0.1%
Ziff-Davis, Inc.(b)......................................... 2,500 90,000
NETWORKING SOFTWARE -- 6.4%
Ascend Communications, Inc.(b).............................. 8,000 669,500
Cisco Systems, Inc.(a)(b)................................... 63,050 6,907,916
------------
7,577,416
SEMICONDUCTOR COMPONENTS -- 4.0%
Intel Corp.(a).............................................. 39,500 4,695,562
------------
42,236,809
HEALTHCARE -- 15.5%
DRUGS -- 9.8%
Bristol-Myers Squibb Co.(a)................................. 36,000 2,315,250
Schering-Plough Corp.(a).................................... 85,000 4,701,563
Pfizer, Inc.(a)............................................. 33,500 4,648,125
------------
11,664,938
MEDICAL PRODUCTS -- 5.7%
IMS Health, Inc............................................. 30,000 993,750
Mckesson HBOC, Inc.......................................... 72,522 4,786,452
Medtronic, Inc.(a).......................................... 13,400 961,450
------------
6,741,652
------------
18,406,590
</TABLE>
F-15
<PAGE> 77
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
CONSUMER SERVICES -- 15.4%
BROADCASTING & CABLE -- 6.9%
AirTouch Communications, Inc.(a)(b)......................... 30,000 $ 2,898,750
AT&T Corp -- Liberty Media Group Cl. A...................... 61,500 3,236,437
Chancellor Media Corp. Cl. A(a)(b).......................... 43,200 2,035,800
------------
8,170,987
RETAIL -- GENERAL MERCHANDISE -- 8.5%
Dayton Hudson Corp.(a)...................................... 20,000 1,332,500
Home Depot, Inc.(a)......................................... 105,000 6,536,250
Kohl's Corp.(a)............................................. 30,400 2,154,600
------------
10,023,350
------------
18,194,337
FINANCE -- 7.1%
BANKING -- REGIONAL -- 0.6%
Wells Fargo Co.............................................. 19,500 683,719
BROKERAGE & MONEY MANAGEMENT -- 1.2%
Morgan Stanley, Dean Witter & Co.(a)........................ 14,000 1,399,125
INSURANCE -- 0.8%
Citigroup, Inc.............................................. 16,000 1,022,000
MORTGAGE BANKING -- 1.6%
Fannie Mae Corp............................................. 27,000 1,869,750
SHARES OR
CONTRACTS(C)
---------
MISCELLANEOUS -- 2.9%
MBNA Corp.(a)............................................... 143,225 3,419,497
------------
8,394,091
MULTI-INDUSTRY -- 1.5%
CAPITAL GOODS -- 1.5%
Tyco International, Ltd.(a)................................. 25,200 1,808,100
CONSUMER GOODS -- 1.1%
ELECTRICAL EQUIPMENT -- 0.4%
General Electric Co......................................... 5,000 553,125
MISCELLANEOUS -- 0.7%
United Technologies Corp.(a)................................ 6,000 812,625
------------
1,365,750
</TABLE>
F-16
<PAGE> 78
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
SHARES OR
CONTRACTS(C) VALUE
--------------- ------------
<S> <C> <C>
UTILITIES -- 1.1%
TELEPHONE UTILITY -- 1.1%
MCI WorldCom, Inc.(b)....................................... 14,300 $ 1,266,444
Total Common Stocks
(cost $43,169,880)........................................ 1,311,997 91,672,121
CALL OPTIONS PURCHASED -- 25.1%(B)
AirTouch Communications, Inc.
expiring Jul '99 @ $10.................................... 500 2,365,625
expiring Jan '00 @ $20.................................... 150 1,162,500
Associates First Capital Corp. Cl. A
expiring Jan '00 @ $20.................................... 300 768,750
expiring Jan '00 @ $22.50................................. 300 710,625
BankAmerica Corp.
expiring Jan '00 @ $40.................................... 305 972,188
Bristol-Myers Squibb Co.
expiring Jan '00 @ $30.................................... 200 707,500
expiring Jan '00 @ $40.................................... 100 260,000
expiring Jan '01 @ $35.................................... 100 321,250
Citigroup, Inc.
expiring Jan '00 @ $35.................................... 150 451,875
Colgate-Palmolive Co.
expiring Jan '00 @ $60.................................... 75 258,750
Dayton Hudson Corp.
expiring Jan '00 @ $27.50................................. 200 800,000
Fannie Mae Corp.
expiring Jan '00 @ $35.................................... 300 705,000
General Electric Co.
expiring Jan '00 @ $50.................................... 100 620,000
Home Depot, Inc.
expiring Jan '00 @ $17.50................................. 250 1,128,125
IBM Corp.
expiring Jan '00 @ $90.................................... 80 730,000
Kroger Co.
expiring Jan '00 @ $30.................................... 150 468,750
Lowe's Cos., Inc.
expiring Jan '00 @ $30.................................... 300 967,500
expiring Jan '00 @ $37.50................................. 100 256,250
MBNA Corp.
expiring Jan '00 @ $15.................................... 1,230 1,199,250
MCI WorldCom, Inc.
expiring Jan '00 @ $25.................................... 190 1,230,250
expiring Jan '00 @ $40.................................... 90 473,625
expiring Jan '00 @ $50.................................... 75 311,250
Merck & Co., Inc.
expiring Jan '00 @ $40.................................... 150 618,750
Merrill Lynch & Co., Inc.
expiring Jan '00 @ $50.................................... 135 555,187
</TABLE>
F-17
<PAGE> 79
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
SHARES OR
CONTRACTS(C) VALUE
--------------- ------------
<S> <C> <C>
Morgan Stanley, Dean Witter & Co.
expiring Jan. '00 @ $50................................... 100 $ 518,750
Nokia Corp. (ADR)
expiring Jan '00 @ $60.................................... 70 687,750
expiring Jan '00 @ $70.................................... 80 708,000
Pfizer, Inc.
expiring Jan '00 @ $70.................................... 100 716,250
Philip Morris Cos., Inc.
expiring Jan '00 @ $30.................................... 300 232,500
expiring Jan '00 @ $35.................................... 200 87,500
Time Warner, Inc.
expiring Jan '00 @ $32.50................................. 150 598,125
expiring Jan '00 @ $35.................................... 75 280,312
Tyco International, Ltd.
expiring Jan '00 @ $30.................................... 640 2,776,000
expiring Jan '00 @ $40.................................... 200 700,000
CONTRACTS(C) OR
PRINCIPAL
AMOUNT
(000)
---------
United Technologies Corp.
expiring Jan '00 @ $70.................................... 210 1,425,375
Wal-Mart Stores, Inc.
expiring Jan '00 @ $30.................................... 50 316,250
expiring Jan '00 @ $35.................................... 350 2,058,438
expiring Jan '00 @ $40.................................... 50 269,375
Waste Management
expiring Jan '00 @ $30.................................... 195 318,094
Total Call Options Purchased
(cost $22,665,670)........................................ 29,735,719
PUT OPTIONS PURCHASED -- 0.5%(B)
Standard & Poor's 500 Index
expiring Apr '99 @ $1,350................................. 10 61,000
expiring Apr '99 @ $1,390................................. 10 76,000
expiring Apr '99 @ $1,400................................. 30 344,250
expiring Jun '99 @ $1,450................................. 5 80,062
Total Put Options Purchased (cost $527,486)................. 561,312
SHORT TERM INVESTMENT -- 0.3%
COMMERCIAL PAPER -- 0.3%
General Electric Capital Corp. 5.03%, 4/01/99
(amortized cost $401,000)................................. $ 401 401,000
TOTAL INVESTMENTS -- 103.3%
(cost $66,764,036)........................................ 122,370,152
</TABLE>
F-18
<PAGE> 80
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
CONTRACTS(C) OR
PRINCIPAL
AMOUNT
(000) VALUE
--------------- ------------
<S> <C> <C>
CALL OPTIONS WRITTEN -- (0.8%)(B)
Chicago Board Options Exchange NASDAQ 100 Index
expiring Apr '99 @ $1,980................................. 10 $ (183,000)
expiring Apr '99 @ $2,020................................. 10 (127,875)
expiring Apr '99 @ $2,040................................. 20 (197,000)
expiring Apr '99 @ $2,060................................. 20 (184,250)
Cisco Systems, Inc.
expiring Apr '99 @ $105................................... 70 (44,625)
Microsoft Corp.
expiring Apr '99 @ $82.50................................. 70 (54,250)
expiring Apr '99 @ $87.50................................. 70 (28,000)
Standard & Poor's 500 Index
expiring Apr '99 @ $1,275................................. 10 (37,500)
expiring Apr '99 @ $1,300................................. 35 (51,625)
Total Call Options Written
(premiums received $762,814).............................. (908,125)
TOTAL INVESTMENTS, NET OF OUTSTANDING CALL OPTIONS
WRITTEN -- 102.5%
(cost $66,001,222)........................................ 121,462,027
Other assets less liabilities -- (2.5%)..................... (2,990,855)
NET ASSETS -- 100%.......................................... $118,471,172
</TABLE>
- ---------------
(a) Security, or a portion thereof, has been segregated to collateralize open
options written. This collateral has a total market value of approximately
$23,824,041.
(b) Non-income producing.
(c) One contract relates to 100 shares unless otherwise indicated.
Glossary:
ADR -- American Depositary Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
F-19
<PAGE> 81
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $66,764,036).... $122,370,152
Cash...................................................... 183,952
Receivable for investment securities sold................. 268,691
Dividends receivable...................................... 91,099
Deferred organization expenses and other assets........... 12,397
Total assets...................................... 122,926,291
- --------------------------------------------------------------------------
LIABILITIES
Outstanding call options written, at value (premiums
received $762,814)..................................... 908,125
Dividend payable.......................................... 2,688,838
Payable for investment securities purchased............... 489,244
Advisory fee payable...................................... 167,698
Administration fee payable................................ 24,657
Accrued expenses and other liabilities.................... 176,557
Total liabilities................................. 4,455,119
NET ASSETS.................................................. $118,471,172
- --------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital stock, at par..................................... $ 25,157
Additional paid-in capital................................ 49,741,734
Undistributed net investment loss......................... (5,740,917)
Accumulated net realized gain on investment
transactions........................................... 18,984,393
Net unrealized appreciation of investments and options
written................................................ 55,460,805
$118,471,172
NET ASSET VALUE PER SHARE (based on 2,515,686 shares
outstanding).............................................. $ 47.09
- --------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-20
<PAGE> 82
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 214,044
Interest.................................................. 17,641 $ 231,685
EXPENSES
Advisory fee.............................................. 884,555
Administrative............................................ 128,673
Custodian................................................. 74,141
Audit and legal........................................... 52,151
Shareholder servicing..................................... 51,470
Printing.................................................. 33,525
Directors' fees and expenses.............................. 24,000
Registration.............................................. 4,720
Transfer agency........................................... 2,824
Amortization of organization expenses..................... 1,995
Miscellaneous............................................. 3,310
Total expenses before interest............................ 1,261,364
Interest expense on short sales........................... 2,223
Total expenses............................................ 1,263,587
Net investment loss....................................... (1,031,902)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SHORT
SALES AND OPTIONS WRITTEN
Net realized gain on long transactions.................... 21,532,569
Net realized gain on short sale transactions.............. 33,773
Net realized loss on written option transactions.......... (668,578)
Net change in unrealized appreciation of investments and
options written........................................ 21,491,287
Net gain on investments................................... 42,389,051
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $41,357,149
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-21
<PAGE> 83
STATEMENT OF CHANGES IN NET ASSETS
ALLIANCE ALL-MARKET ADVANTAGE FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30,
(UNAUDITED) 1998
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss....................................... $ (1,031,902) $ (1,932,651)
Net realized gain on investment, short sale and written
option transactions.................................... 20,897,764 8,866,477
Net change in unrealized appreciation of investments and
options written........................................ 21,491,287 2,937,240
Net increase in net assets from operations................ 41,357,149 9,871,066
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gain on investments.......................... (4,709,015) (12,924,008)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of common
stock.................................................. 271,019 127,507
Total increase (decrease)................................. 36,919,153 (2,925,435)
NET ASSETS
Beginning of year......................................... 81,552,019 84,477,454
End of period............................................. $118,471,172 $ 81,552,019
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-22
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance All-Market Advantage Fund, Inc. (the "Fund") was incorporated
under the laws of the state of Maryland on August 16, 1994 and is registered
under the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. 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 prices 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 prices. 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. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provision for federal income or excise taxes is
required.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $20,000 have been deferred and are
being amortized on a straight-line basis through November, 1999.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income (or expense on securities sold short) is recorded on the
ex-dividend date. Investment transactions are accounted for on the date
securities are purchased or sold. Investment gains and losses are determined on
the identified cost basis.
5. 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.
F-23
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
NOTE B: ADVISORY, ADMINISTRATIVE FEES AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Investment Adviser") a monthly fee at an
annualized rate of 1.50% of the Fund's average weekly net assets (the "Basic
Fee") and an adjustment to the Basic Fee based upon the investment performance
of the Fund in relation to the investment record of the Russell 1000 Growth
Index for certain prescribed periods. During the six months ended March 31,
1999, the fee as adjusted, amounted to 1.73% of the Fund's average net assets.
Under the terms of an Administrative Agreement, the Fund pays its
Administrator, Alliance Capital Management L.P., a monthly fee equal to the
annualized rate of 0.25 of 1% of the Fund's average weekly net assets. The
Administrator provides administrative functions to the Fund as well as other
clerical services. The Administrator also prepares financial and regulatory
reports for the Fund.
Under the terms of a Shareholder Inquiry Agency Agreement with Alliance
Fund Services, Inc. ("AFS"), an affiliate of the Investment Adviser, the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund.
During the six months ended March 31, 1999, there was no reimbursement paid to
AFS.
Under terms of a Shareholder Servicing Agreement, the Fund pays its
Shareholder Servicing Agent, Paine Webber Inc. a quarterly fee equal to the
annualized rate of .10 of 1% of the Fund's average weekly net assets.
Brokerage commissions paid on investment transactions for the six months
ended March 31, 1999 amounted to $121,209, none of which was paid to brokers
utilizing the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp., an affiliate of the Adviser.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term
investments, short-term options, and U.S. government securities) aggregated
$58,573,860 and $71,963,350, respectively, for the six months ended March 31,
1999. There were no purchases or sales of U.S. government or government agency
obligations for the six months ended March 31, 1999.
At March 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $57,453,728 and
gross unrealized depreciation of investments was $1,847,612 resulting in net
unrealized appreciation of $55,606,116.
1. OPTIONS TRANSACTIONS
The Fund purchases and writes (sells) options on market indices and covered
put and call options on U.S. securities that are traded on U.S. securities
exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a
premium whether or not the option is exercised. Additionally, the Fund bears the
risk of loss of the premium and any change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of securities
acquired through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
F-24
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
When the Fund writes an option, the premium received by the Fund is
recorded as a liability and is subsequently adjusted to the current market value
of the option written.
Premiums received from writing options which expire unexercised are
recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a written call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has realized a gain or loss.
If a written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. In writing covered options, the Fund bears the
market risk of an unfavorable change in the price of the security underlying the
written option. Exercise of an option written by the Fund could result in the
Fund selling or buying a security at a price different from the current market
value. Losses from written market index options may be unlimited.
Transactions in options written for the six months ended March 31, 1999
were as follows:
<TABLE>
<CAPTION>
NUMBER PREMIUMS
OF CONTRACTS RECEIVED
------------ ----------
<S> <C> <C>
Options outstanding at beginning of year................. 885 $1,306,240
Options written.......................................... 3,460 6,301,198
Options terminated in closing purchase transactions...... (4,030) (6,844,624)
------ ----------
Options outstanding at March 31, 1999.................... 315 $ 762,814
====== ==========
</TABLE>
2. SECURITIES SOLD SHORT
The Fund may sell securities short. A short sale is a transaction in which
the Fund sells securities it does not own, but has borrowed, in anticipation of
a decline in the market price of the securities. The Fund is obligated to
replace the borrowed securities at their market price at the time of
replacement. The Fund's obligation to replace the securities borrowed in
connection with a short sale will be fully secured by collateral deposited with
the broker. In addition, the Fund will consider the short sale to be a borrowing
by the Fund that is subject to the asset coverage requirements of the 1940 Act.
Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security because losses from short sales may be unlimited,
whereas losses from purchases can not exceed the total amount invested. The Fund
is currently paying an interest expense of 5.59% to the prospective brokers on
the market value of the short sales.
NOTE D: CAPITAL STOCK
There are 300,000,000 shares of $0.01 par value common stock authorized. Of
the 2,515,686 shares outstanding at March 31, 1999, the Investment Adviser owned
5,000 shares. During the six months ended March 31, 1999, the Fund issued 7,669
shares in connection with the Fund's dividend reinvestment plan.
NOTE E: YEAR 2000
Many computer systems and applications in use today process transactions
using two-digit date fields for the year of the transaction, rather than the
full four digits. If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900," which could result in
processing inaccuracies and computer system failures. This is commonly known as
the Year 2000 problem. Should any of the computer systems employed by the Fund's
major service providers fail to process Year 2000 related
F-25
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ALLIANCE ALL-MARKET ADVANTAGE FUND
information properly, that could have a significant negative impact on the
Fund's operations and the services that are provided to the Fund's shareholders.
In addition, to the extent that the operations of issuers of securities held by
the Fund are impaired by the Year 2000 problem, or prices of securities held by
the Fund decline as a result of real or perceived problems relating to the Year
2000, the value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's Investment Manager, began to address the year 2000 issue several years
ago in connection with the replacement or upgrading of certain computer systems
and applications. During 1997, Alliance began a formal Year 2000 initiative,
which established a structured and coordinated process to deal with the Year
2000 issues. Alliance reports that it has completed its assessment of the Year
2000 issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications
for the majority of its significant systems and applications that will be in use
on January 1, 2000, will be completed and tested in early 1999. Full integration
testing of these systems and testing of interfaces with third-party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Transfer Agent and
Custodian that they are also in the process of reviewing their systems with the
same goals. As of the date of this report, the Fund and Alliance have no reason
to believe that the Transfer Agent and Custodian will be unable to achieve these
goals.
F-26
<PAGE> 88
ALLIANCE ALL-MARKET ADVANTAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS NOVEMBER 4,
ENDED 1994(A)
MARCH 31, TO
1999 YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
----------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 32.52 $ 33.72 $ 22.19 $ 23.78 $ 19.70(b)
INCOME FROM INVESTMENT OPERATIONS
Net investment loss................. (.41) (.77) (.58) (.48) (.09)
Net realized and unrealized gain on
investment transactions........... 16.86 4.73 14.40 1.86 5.65
Net increase in net asset value from
operations........................ 16.45 3.96 13.82 1.38 5.56
LESS: DISTRIBUTIONS
Distributions from net realized
gains............................. (1.88) (5.16) (2.29) (2.97) (1.48)
Net asset value, end of period...... $ 47.09 $ 32.52 $ 33.72 $ 22.19 $ 23.78
Market value, end of period......... $ 48.875 $36.875 $31.188 $ 19.00 $ 19.50
TOTAL RETURN
Total investment return based on:(c)
Market value...................... 37.89% 37.40% 79.27% 13.26% 5.46%
Net asset value................... 50.77% 12.49% 65.66% 8.10% 28.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted).......................... $118,471 $81,552 $84,477 $55,582 $59,561
Ratio of expenses to average net
assets............................ 2.47%(d) 2.57% 2.48% 2.87% 2.00%(d)
Ratio of expenses to average net
assets excluding interest
expense........................... 2.47%(d) 2.52%(e) 2.43%(e) 2.62%(e) 2.00%(d)
Ratio of net investment loss to
average net assets................ (2.02)%(d) (2.18)% (2.07)% (2.11)% (.48)%(d)
Portfolio turnover rate............. 59% 96% 105% 199% 140%
</TABLE>
- ---------------
(a) Commencement of operations.
(b) Net of offering costs of $0.30.
(c) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market price in periods where there is an increase in the discount or a
decrease in the premium of the market price to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on the net asset value will be lower than total investment return
based on market value in periods where there is a decrease in the discount
or an increase in the premium of the market value to the net asset value
from the beginning to the end of such periods. Total return for a period of
less than one year is not annualized.
(d) Annualized.
(e) Net of interest expense of 0.05%, 0.05% and 0.25%, respectively, on short
sales (see Note C).
F-27
<PAGE> 89
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED ACCORDINGLY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 1
Expense Information..................... 9
Financial Highlights.................... 10
The Fund................................ 11
The Offer............................... 12
Use of Proceeds......................... 21
Investment Objective and Policies....... 21
Risk Factors and Special
Considerations........................ 33
Management of the Fund.................. 38
Portfolio Trading....................... 47
Determination of NAV.................... 48
Tender Offer and Share Repurchases...... 50
Dividends and Distributions; Dividend
Reinvestment Plan..................... 51
Federal Taxation........................ 53
Description of Capital Stock............ 57
Custodian, Transfer Agent, Dividend
Disbursing Agent, Registrar and
Shareholder Servicing Agent........... 59
Legal Matters........................... 60
Reports to Stockholders................. 60
Experts................................. 60
Further Information..................... 60
Financial Statements.................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
[Alliance Capital Logo]
845,600 SHARES OF
COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH
SHARES
ALLIANCE
ALL-MARKET
ADVANTAGE
FUND, INC.
------------------------
PROSPECTUS
------------------------
DEALER MANAGER
PAINEWEBBER INCORPORATED
------------------------
JUNE 21, 1999
---------------------------------------------------------
---------------------------------------------------------
