<PAGE>
As filed with the Securities and Exchange
Commission on November 30, 1995
File Nos. 33-84960
811-8806
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 2 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 3 X
Alliance Developing Markets Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including
Area Code: (212) 969-1000
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
<PAGE>
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of shares of
common stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-lA Item No. Location in
Prospectus (Caption)
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Expense
Information
Item 3. Condensed Financial
Information....................... Not Applicable
Item 4. General Description of
Registrant........................ Description of the
Fund; General
Information
Item 5. Management of the Fund............ Management of the
Fund; General
Information
Item 6. Capital Stock and Other
Securities........................ Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being
Offered........................... Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase.......... Purchase and Sale of
Shares; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable
PART B Location in Statement
of Additional
Informaion (Caption)
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Cover Page
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Item 12. General Information and
History........................... Management of the
Fund; General
Information
Item 13. Investment Objectives and
Policies.......................... Description of the
Fund
Item 14. Management of the Registrant...... Management of the
Fund
Item 15. Control Persons and Principal
Holders of Securities............. Not Applicable
Item 16. Investment Advisory and
Other Services.................... Management of the
Fund
Item 17. Brokerage Allocation and
Other Practices................... Brokerage and
Portfolio
Transactions
Item 18. Capital Stock and Other
Securities........................ General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase of Shares;
Redemption and
Repurchase of
Shares; Dividends
Distributions and
Taxes
Item 20. Tax Status........................ Investment Policies
and Restrictions;
Dividends,
Distributions and
Taxes
Item 21. Underwriters...................... General Information
Item 22. Calculation of Performance Data... General Information
Item 23. Financial Statements.............. Financial Statement
00250197.AI9
<PAGE>
[LOGO](R)
ALLIANCE DEVELOPING
MARKETS FUND
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Alliance Developing Markets Fund, Inc. (the "Fund"), by investing
primarily in equity securities of issuers in developing markets,
seeks long-term growth of capital. The Fund may also invest in
debt securities, as well as a variety of derivative instruments.
PURCHASE INFORMATION
The Fund's shares may be purchased at a price equal to their net
asset value without any initial or contingent deferred sales
charge or distribution fees. The shares are offered solely to
institutional investors purchasing a minimum of $1,000,000 and to
investment management clients of Alliance Capital Management L.P.
("Alliance") or its affiliates. (There is no minimum for
subsequent purchases of shares.) See "Purchase and Sale of
Shares" and "Management of the Fund."
ADDITIONAL INFORMATION
The Fund is a diversified open-end management investment company.
This Prospectus sets forth concisely the information a
prospective investor should know about the Fund before investing.
A "Statement of Additional Information" dated December 1, 1995,
which provides further information regarding certain matters
discussed in this Prospectus and other matters that may be of
interest to some investors, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference.
For a free copy, call or write Alliance Fund Services, Inc. at
the address or "Literature" telephone number indicated above.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
(R) This registered mark used under license from the owner,
Alliance Capital Management L.P.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
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OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/December 1, 1995
Investors are advised to read this Prospectus carefully
and to retain it for future reference.
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EXPENSE INFORMATION
Shareholder Transaction Expenses
The Fund has no sales load or deferred sales load on purchases or
reinvested dividends. The Fund has no redemption fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees. . . . . . . . . . . . . . . . . . . 1.00%
Rule 12b-1 fees. . . . . . . . . . . . . . . . . . . 0%
Other expenses(a). . . . . . . . . . . . . . . . . . 1.11%
____
Total Fund operating expenses. . . . . . . . . . . . 2.11%
====
__________
(a) For a description of these expenses, see "Management of the
Fund" - page [ ]. These expenses include a transfer agency fee
payable to Alliance Fund Services, Inc., an affiliate of
Alliance.
Example:
Cumulative Expenses Paid
for the Period of
1 Year 3 Years 5 Years 10 Years
An investor would pay the
following expenses on a
$1,000 investment, assuming
(i) a 5% annual return
throughout the periods and
(ii) redemption at the end
of the period . . . . . . . $21 $66 $133 $244
The purpose of the foregoing table is to assist the
investor in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. "Other
Expenses" are based on estimated amounts for the Fund's current
fiscal year. The example set forth above assumes reinvestment of
all dividends and distributions and utilizes a 5% annual rate of
return as mandated by Securities and Exchange Commission
regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE
OF FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
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DESCRIPTION OF THE FUND
The Fund is a diversified management investment company.
The Fund's investment objective is "fundamental" and cannot be
changed without a shareholder vote. Except as otherwise noted,
the Fund's investment policies are not fundamental and thus can
be changed without a shareholder vote. The Fund will not change
these policies without notifying its shareholders. There is no
guarantee that the Fund will achieve its investment objective.
Investment Objective and Policies
The Fund's investment objective is to seek long-term
growth of capital. In seeking to achieve its investment
objective, the Fund will invest primarily in equity securities of
issuers in developing markets that have been selected by Alliance
for their growth potential. The Fund may also invest in U.S.
Dollar and non-U.S. Dollar denominated debt securities.
Normally, the Fund will invest at least 65% of its total assets
in securities of issuers in developing markets. The Fund will
seek to invest in companies that Alliance believes are poised to
benefit from expanding market opportunities.
Developing markets offer the opportunity for higher
returns in exchange for a higher level of risk. Accordingly, the
Fund's ability to invest in developing markets throughout the
world may enable the achievement of results superior to those
produced by funds with investment objectives similar to those of
the Fund that invest solely in securities of issuers in developed
markets. There is no assurance that the Fund will achieve these
results.
Alliance believes that certain recent changes in
political, economic and market factors in some developing markets
create the potential for growth in securities of issuers in those
markets. These factors include political change, including
movements from military or socialist governments towards
democratically elected governments; economic deregulation,
including such free-market policies as tax reform, tariff
reduction, privatization of state-owned business, and elimination
of price controls; and financial liberalization, including the
removal of restrictions on the free movement of capital in and
out of particular markets. These changes may lead to
improvements in a country's infrastructure, thereby increasing
the country's industrial capacity. Infrastructure improvements
may be exhibited, for example, in the areas of
telecommunications, utilities and transportation (including road,
rail, airports and shipping facilities).
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Alliance believes that many developing markets exhibit
characteristics that make investments in those markets
attractive. Alliance also believes that economic growth and
growth in stock market capitalization may create an environment
for improving performance in stock and bond markets. The
economic expansion of developing markets is often led in part by
increased foreign investment from companies seeking lower cost
production facilities. Developing markets with low hourly wages
have attracted companies relocating from the higher production-
cost environments of North America, Western Europe and Japan.
Other characteristics, including high economic growth rates,
falling rates of inflation, falling interest rates and improving
credit ratings, may also contribute to attracting new foreign
investment for capital improvement or manufacturing, and
potentially to improving performance of stock and bond markets.
Historic and current economic data demonstrate the positive
changes experienced by several developing markets over the past
decade. This past performance was achieved during a period of
generally favorable circumstances for developing markets,
however, and there is no guarantee as to future trends or
results. See also "Certain Risk Considerations" below.
The Fund normally will invest substantially all of its
assets in issuers in the developing markets of Africa, Asia,
Europe and Latin America, including Mexico, Brazil, Malaysia, the
Philippines, India, Turkey and South Africa. The proportion of
equity and debt held by the Fund at any one time will depend on
Alliance's views on current market and economic conditions.
Alliance will evaluate economic and political factors in
attempting to identify countries and industries likely to produce
above-average growth rates. The Fund will invest in securities
of issuers which, in Alliance's opinion, are well positioned to
benefit from these factors. In determining the distribution of
investments among various countries and geographic regions for
the Fund, Alliance will consider a number of factors, including
prospects for relative economic growth among the different
countries in which the Fund may invest, political issues,
expected levels of inflation, government policies influencing
business conditions; the outlook for currency relationships, and
the range of investment opportunities available to international
investors. The Fund will not invest 25% or more of its total
assets in securities of issuers from any single country.
As opportunities to invest in securities in developing
markets develop, the Fund expects to expand and further broaden
the group of developing markets in which it invests. In some
cases, investments in debt securities could provide the Fund with
access to developing markets in the early stages of their
economic development, when equity securities are not yet
generally available or, in Alliance's view, do not yet present an
acceptable investment alternative.
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As used in this Prospectus, a developing market is any
country that is considered to be a developing or emerging country
by the International Bank for Reconstruction and Development
(more commonly referred to as the "World Bank"). An issuer in a
"developing" market means: (i) an issuer for which the principal
securities trading market is a developing market; (ii) an issuer
that Alliance determines derives (alone or on a consolidated
basis) at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed in
developing markets or which has (alone or on a consolidated
basis) at least 50% of its assets situated in developing markets;
or (iii) an issuer organized under the laws of a country with a
developing market. If an issuer qualifies as an issuer in more
than one developing market under the definition above, Alliance
will determine the developing market in which the issuer is
located.
Investments in Equity Securities. The Fund will invest
in equity securities, including common stock, preferred stock,
securities convertible into common stock and equity-linked debt
securities.
Investments in Debt Securities. The Fund may invest in
debt securities in order to further its investment objective of
long-term growth of capital. Any income earned on the Fund's
investments will be incidental to its objective of long-term
growth of capital. The debt securities in which the Fund may
invest carry fixed, floating or variable rates of interest. Debt
securities in which the Fund is permitted to invest include debt
securities of corporate issuers and those issued or guaranteed as
to payment of principal and interest by governments, quasi-
governmental entities, governmental agencies or other
governmental entities, political subdivisions and
instrumentalities (collectively, "Government Entities"). The
values of debt securities, particularly those that carry fixed
rates of interest, generally change as the levels of interest
rates fluctuate. When interest rates decline, the values of most
debt securities can be expected to increase, and when interest
rates rise, the values of most debt securities can be expected to
decrease.
The debt securities in which the Fund may invest may or
may not be of investment grade quality. The Fund may maintain up
to 20% of its net assets in securities rated below investment
grade, i.e., Ba or lower by Moody's Investors Service, Inc.
("Moody's") and BB or lower by Standard & Poor's Ratings Services
("S&P"), Duff & Phelps Credit Rating Co. ("Duff & Phelps") and
Fitch Investors Service, Inc. ("Fitch") or of comparable
investment quality as determined by Alliance ("lower-rated
securities"). Such high-risk, high-yield securities (commonly
referred to as "junk bonds") are considered to have speculative
6
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or, in the case of relatively low ratings, predominantly
speculative characteristics. See "Certain Risk Considerations
Investments in Lower-Rated Securities." The Fund will not retain
a security which is downgraded below B, or if unrated, determined
by Alliance to have undergone similar credit quality
deterioration subsequent to purchase.
Other Securities. While the Fund's investment strategy
normally emphasizes securities of companies in developing markets
as described above, the Fund may, where consistent with its
investment objective, invest up to 35% of its total assets in
equity and debt securities of domestic and other foreign issuers,
including (i) securities issued or guaranteed by the United
States Government, its agencies or instrumentalities ("U.S.
Government securities"), as discussed below, (ii) corporate debt
securities of quality comparable to the debt securities described
above of domestic and foreign issuers located in developed
countries, (iii) certificates of deposit, bankers' acceptances
and interest-bearing savings deposits of banks having total
assets of more than $500 million and which are members of the
Federal Deposit Insurance Corporation ("qualifying bank
securities"), and (iv) commercial paper rated Prime 1 or higher
by Moody's or A-1 or higher by S&P, Duff & Phelps, Fitch or other
nationally recognized rating organization, or, if not rated,
issued by companies which have an outstanding debt issue rated Aa
or higher by Moody's or AA or higher by S&P, Duff & Phelps, Fitch
or other nationally recognized rating organization ("prime
quality commercial paper"). Subject to the limitations discussed
therein, the Fund may also engage in the investment practices
discussed below under "Additional Investment Practices."
U.S. Government securities include: (i) U.S. Treasury
obligations, which differ only in their interest rates,
maturities and times of issuance and which are backed by the full
faith and credit of the United States; and (ii) obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-
related securities. Some such obligations are backed by the full
faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association;
some are supported by the right of the issuer to borrow from the
U.S. Government, e.g., obligations of Federal Home Loan Banks;
and some are backed only by the credit of the issuer itself,
e.g., obligations of the Student Loan Marketing Association.
U.S. Government securities do not generally involve the
credit risks associated with other types of interest-bearing
securities, although, as a result, the yields available from U.S.
Government securities are generally lower than the yields
available from other interest-bearing securities. Like most
other debt securities, however, the values of U.S. Government
7
<PAGE>
securities change inversely with the direction of interest rate
movements.
The Fund may: (i) invest up to 25% of its total assets
in the convertible securities of companies whose common stocks
are eligible for purchase by the Fund; (ii) invest up to 20% of
its total assets in rights and warrants; (iii) invest in
depository receipts, securities of supranational entities
denominated in the currency of any country, securities of
multinational companies and "semi-governmental securities" as
defined below; (iv) invest in equity-linked debt securities;
(v) invest in loans and other direct debt securities;
(vi) purchase put and call options and write covered put and call
options, in each case on securities of the types in which it is
permitted to invest and on exchange-traded index options;
(vii) enter into contracts for the purchase or sale for future
delivery of debt securities or foreign currencies, or contracts
based on financial indices, including any index of U.S.
Government securities, securities issued by foreign government
entities, or on common stocks and may purchase and write options
on future contracts; (viii) purchase and write put and call
options on foreign currencies for hedging purposes; (ix) purchase
or sell forward contracts; (x) enter into interest rate swaps and
purchase or sell interest rate caps and floors; (xi) enter in
forward commitments for the purchase or sale of securities;
(xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase
agreements pertaining to the types of securities in which it
invests; with member banks of the Federal Reserve System or
primary dealers in such securities; (xv) make short sales of
securities or maintain short positions, in each case only if
"against the box"; and (xvi) make secured loans of its portfolio
securities to entities with which it can enter into repurchase
agreements. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment
Practices" below. The Fund will not maintain more than 15% of
its net assets in illiquid securities.
Additional Investment Practices
The Fund may engage in the following investment
practices to the extent described above.
Convertible Securities. The Fund may invest up to 25%
of its total assets in convertible securities of companies whose
common stocks are eligible for purchase by the Fund. Convertible
securities are bonds, debentures, corporate notes and preferred
stocks that are convertible at a stated exchange rate into common
stock. Prior to conversion, convertible securities have the same
general characteristics as non-convertible debt securities, which
provide a stable stream of income with generally higher yields
8
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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 stock, although the higher
yield tends to make the convertible security less volatile than
the underlying common stock. As with debt securities, the market
value of convertible securities tends to decline as interest
rates increase and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they enable investors to benefit from increases in the market
price of the underlying common stock.
The Fund may maintain up to 20% of its net assets in
lower-rated convertible securities; provided that the aggregate
of the Fund's investments in lower-rated securities may not
exceed 20% of its net assets. Convertible debt securities that
are rated Baa or lower by Moody's or BBB or lower by S&P, Duff &
Phelps, Fitch or other nationally recognized rating organization
and comparable not rated securities as determined by Alliance may
share some or all of the risks of non-convertible debt securities
with those ratings. For a description of these risks, see the
Statement of Additional Information.
Rights and Warrants. The Fund may invest up to 20% of
its total assets in rights and warrants. The Fund will invest in
rights or warrants only if the 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 generally 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, however, 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 thereof. If the market price of the underlying stock
is below the exercise price set forth in 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.
Depositary Receipts and Securities of Supranational
Entities. Depositary receipts may not necessarily be denominated
in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of
unsponsored depositary receipts are not obligated to disclose
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material information in the United States and, therefore, there
may not be a correlation between such information and the market
value of the depositary receipts. ADRs are depositary receipts
typically issued by a U.S. bank or trust company that evidence
ownership of underlying securities issued by a foreign
corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence
ownership of underlying securities issued by either a foreign or
a U.S. company. Generally, depositary receipts in registered
form are designed for use in the U.S. securities markets and
depositary receipts in bearer form are designed for use in
foreign securities markets. The investments of the Fund in
depositary receipts are deemed to be investments in the
underlying securities.
A supranational entity is an entity designated or
supported by the national government of one or more countries to
promote economic reconstruction or development. Examples of
supranational entities include, among others, the World Bank (the
International Bank for Reconstruction and Development) and the
European Investment Bank. "Semi-governmental securities" are
securities issued by entities owned by either a national,
provincial or equivalent government or are obligations of one of
such government jurisdictions which are not backed by its full
faith and credit and general taxing powers.
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, and many individually negotiated currency swaps and any
assets used to cover currency swaps and most privately negotiated
investments in state enterprises that have not yet conducted an
initial equity offering), (ii) over-the-counter options and
assets used to cover over-the-counter options, and (iii)
repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid
securities, the Fund may not be able to realize their full value
upon sale. Alliance will monitor the illiquidity of such
securities with respect to the Fund under the supervision of the
Directors of the Fund. To the extent permitted by applicable
law, Rule 144A securities 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 will not maintain more than 15% of its net assets in
illiquid securities.
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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. However, there may be contractual
restrictions on resale of securities.
Equity-Linked Debt Securities. Equity-linked debt
securities are securities with respect to which the amount of
interest and/or principal that the issuer thereof is obligated to
pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less
than payment obligations in respect of other types of debt
securities. Adverse changes in equity securities indices and
other adverse changes in the securities markets may reduce
payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt
securities, the values of equity-linked debt securities will
generally vary inversely with changes in interest rates. The
Fund's ability to dispose of equity-linked debt securities will
depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to
be speculative. As with other securities, the Fund could lose
its entire investment in equity-linked debt securities.
Loans and other Direct Debt Instruments. Loans and
other direct debt instruments are interests in amounts owed by a
corporate, governmental or other borrower to another party. They
may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other
creditors. Direct debt instruments involve the risk of loss in
case of default or insolvency of the borrower and may offer less
legal protection to the Fund in the event of fraud or
misrepresentation than debt securities. In addition, loan
participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may
also include standby financing commitments that obligate the Fund
to supply additional cash to the borrower on demand. Loans and
other direct debt instruments are generally illiquid and may be
transferred only through individually negotiated private
transactions.
Purchasers of loans and other forms of direct
indebtedness depend primarily upon the creditworthiness of the
borrower for payment of principal and interest. Direct debt
instruments may not be rated by any nationally recognized rating
organization. If the Fund does not receive scheduled interest or
11
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principal payments on such indebtedness, the Fund's share price
and yield could be adversely affected. Loans that are fully
secured offer the Fund more protection than unsecured loans in
the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Indebtedness of borrowers
whose creditworthiness is poor may involve substantial risks, and
may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of
governments may also involve a risk that the governmental
entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a
financial institution's rights with respect to a loan may involve
additional risks to the Fund. For example, if a loan is
foreclosed, the Fund could become part owner of any collateral,
and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other
intermediary.
A loan is often administered by a bank or other
financial institution that acts as agent for all holders. The
agent administers the terms of the loan, as specified on the loan
agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower,
it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the
benefit of the Fund were determined to be subject to the claims
of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan
participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include
letters of credit, revolving credit facilities, or other standby
financing commitments obligating the Fund to pay additional cash
on demand. These commitments may have the effect of requiring
the Fund to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's
condition makes it unlikely that the amount will ever be repaid.
The Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under
standby financing commitments.
The Fund's investment in lower-rated loans and other
lower-rated direct debt instruments is subject to the Fund's
policy of maintaining not more than 20% of its net assets in
lower-rated securities.
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Options on Securities and Foreign Currencies. 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 a specified amount of a security
or currency 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 or currency or has an absolute and
immediate right to acquire that security or currency without
additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or
exchange of other assets held in its portfolio or it holds a call
on the same asset and in the same amount as the call written
where the exercise price of the call held (i) is equal to or less
than the exercise price of the call written or (ii) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government securities or
other liquid, high-grade debt securities in a segregated account
with its custodian ("segregated account assets"). A put option
written by the Fund is covered if the Fund holds a put on the
same asset and in the same amount as the put written where the
exercise price of the put held is equal to or greater than the
exercise price of the put written. There are no specific
limitations on the Fund's writing and purchasing of options.
A call option is for cross-hedging purposes if the Fund
does not own the underlying asset and is designated to provide a
hedge against a decline in value in another asset which the Fund
owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining segregated account assets in an amount not less than
the market value of the underlying asset, marked to market daily.
The Fund would write a call option for cross-hedging purposes,
instead of writing a covered call option, when the premium to be
received from the cross-hedged transaction would exceed that
which would be received from writing a covered call option, while
at the same time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying asset 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 asset at the exercise
price. The risk involved in writing an option is that, if the
option were exercised, the underlying asset would then be
purchased or sold by the Fund at a disadvantageous price. These
risks could be reduced by entering into a closing transaction
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(i.e., by disposing of the option prior to its exercise). The
Fund retains the premium received from writing a put or call
option whether or not the option is exercised. The writing of
covered 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 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, and Alliance has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Fund in negotiated transactions are
illiquid and it may not be possible for the Fund to effect a
closing transaction at an advantageous time. See "Additional
Investment Practices Illiquid Securities" above.
The writing of an option constitutes only a partial
hedge, up to the amount of the premium received, and the Fund
could be required to purchase or sell securities or currencies at
disadvantageous prices or exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in prices or
exchange rates, although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. See the Statement of
Additional Information for further discussion of the use, risks
and costs of options.
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.
Futures Contracts and Options on Futures Contracts. A
"sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities, foreign
currencies 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, foreign currencies 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")
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and the price at which the contract was originally struck. No
physical delivery of the securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date.
The Fund will not enter into any futures contracts or
options on futures contracts if immediately thereafter the market
values of the outstanding futures contracts of the Fund and the
currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets.
Forward Foreign Currency Exchange Contracts. The Fund
will purchase or sell forward contracts so as to minimize the
risk to it from 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"). For
example, 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. 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 ("position hedge"). In this situation the Fund
may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where
the Fund believes that the U.S. dollar value of the currency to
be sold pursuant to the forward contract will fall whenever there
is a decline in the U.S. dollar value of the currency in which
portfolio securities of the Fund are denominated ("cross-hedge").
To the extent required by applicable law, the Fund will maintain
segregated account assets having a value equal to the aggregate
amount of its commitments under forward contracts entered into
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<PAGE>
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. In addition, the Fund may use such other
methods of "cover" as are permitted by applicable law.
Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into
such forward 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 such securities
decline. Such 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
devaluation level it anticipates.
Forward Commitments. Forward commitments for the
purchase or sale of securities may include purchases on a "when-
issued" basis or purchases or sales on a "delayed delivery"
basis. In some cases, a forward commitment may be conditioned
upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt
restructuring (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 settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are
subject to market fluctuation, and no interest or dividends
accrue to the purchaser prior to the settlement date. At the
time the Fund intends to enter into a forward commitment, it
records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation would be canceled in the
event that the required conditions did not occur and the trade
was canceled.
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The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher cash
yields. However, if Alliance were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values. 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 incur a gain or
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 made by the Fund if, as a result, the Fund's
aggregate commitments under such transactions would be more than
30% of the Fund's total assets. To facilitate these
transactions, the Fund maintains segregated account assets having
a 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, the portfolio
securities themselves. If the Fund, however, chooses to dispose
of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the
transaction, it may incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
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
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<PAGE>
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 at all times maintains
segregated account assets with 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.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and thereafter the value of the security
will be reflected in the calculation of the Fund's net asset
value. The cost basis of the security will be adjusted by the
amount of the commitment fee. In the event the security is not
issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Currency Swaps. 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 other party to the
swap will default on its contractual delivery obligations. The
net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each currency swap will be
accrued on a daily basis and segregated account assets having an
aggregate net asset value at least equal to the accrued excess
will be maintained by the Fund. The Fund will not enter into any
currency swap unless the credit quality of the unsecured senior
debt or the claims-paying ability of the other party thereto is
rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transactions.
Interest Rate Transactions. Interest rate transactions
are entered into primarily to preserve a return or spread on a
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<PAGE>
particular investment or portion of the Fund's portfolio or to
protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund does not intend
to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or
receive interest (e.g., an exchange of floating rate payments for
fixed rate payments). Interest rate swaps are usually entered
into on a net basis (i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only
the net amount of the two payments). With respect to the Fund,
the exchange commitments can involve payments in the same
currency or in different currencies. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
of interest on a contractually-based principal amount from the
party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on an agreed principal amount from
the party selling the interest rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or liabilities.
The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest rate swap is
accrued daily, and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to
the accrued excess is maintained in a segregated account by the
Fund's custodian. The Fund will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt
or the claims-paying ability of the other party thereto is then
rated in the highest rating category of at least one nationally
recognized statistical rating organization. Alliance will
monitor the creditworthiness of counterparties on an ongoing
basis. The swap market has grown substantially in recent years,
with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps. To the extent
the Fund sells (i.e., writes) caps and floors, it will maintain
segregated account assets having an aggregate value at least
equal to the full amount, accrued daily, of its obligations with
respect to any caps or floors.
The use of interest rate transactions is a highly
specialized activity that involves investment techniques and
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<PAGE>
risks different from those associated with ordinary portfolio
securities transactions. If Alliance incorrectly forecasts
market values, interest rates and other applicable factors, the
investment performance of the Fund would be adversely affected by
the use of these investment techniques. Moreover, even if
Alliance is correct in its forecasts, there is a risk that the
transaction position may correlate imperfectly with the price of
the asset or liability being hedged. There is no limit on the
amount of interest rate transactions that may be entered into by
the Fund. These transactions do not involve the delivery of
securities or other underlying assets of principal. Accordingly,
the risk of loss with respect to interest rate transactions is
limited to the net amount of interest payments that the Fund is
contractually obligated to make. If the other party to an
interest rate transaction defaults, the Fund's risk of loss
consists of the net amount of interest payments that the Fund
contractually is entitled to receive.
Repurchase Agreements. A repurchase agreement arises
when a buyer purchases a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally a
day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon interest rate for the
period the buyer's money is invested in the security. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. 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 prevented from, selling the collateral for its
benefit. The Directors of the Fund have established procedures
pursuant to which Alliance monitors the creditworthiness of the
vendors with which the Fund enters into repurchase agreements.
There is no percentage restriction on the Fund's ability to enter
into repurchase agreements.
Short Sales. A short sale "against the box" is effected
by selling a security that the Fund contemporaneously owns or has
the right to obtain without payment. The Fund may make short
sales of securities or maintain short positions only for the
purpose of deferring realization of gain or loss for U.S. federal
income tax purposes. The Fund may not make a short sale if as a
result more than 25% of the Fund's net assets would be held as
collateral for short sales. If the price of the security sold
short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a
capital gain. Certain special federal income tax considerations
may apply to short sales entered into by the Fund. See
"Dividends, Distributions and Taxes United States Federal Income
20
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Taxation of the Fund Tax Straddles" in the Statement of
Additional Information.
Loans of Portfolio Securities. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, Alliance (subject to review by the Fund's
Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Fund will not lend portfolio securities in excess of 30% of its
total assets, nor will the Fund lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or
Alliance.
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 position in futures
contracts, options and forward contracts depends on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
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<PAGE>
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 currencies or portfolio securities covering an option
written by the Fund until the option expires or it delivers the
underlying futures contract or currency upon exercise.
Therefore, no assurance can be given that the Fund will be able
to utilize these instruments effectively for the purposes set
forth above. Furthermore, the Fund's ability to engage in
options and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information.
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices that are currently not contemplated for use by the Fund
or not available but which may be developed, to the extent such
investment practices are both consistent with the Fund's
investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that
exceed those involved in the activities described above.
Portfolio Turnover. Alliance anticipates that the
annual turnover in the Fund will not exceed 200%. An annual
turnover rate of 200% occurs, for example, when all of the
securities in the Fund's portfolio are replaced twice in a period
of one year. A high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes" and "General Information Portfolio
Transactions."
Defensive Position. Under normal circumstances, the
Fund's assets will be invested primarily in equity and debt
securities of issuers in developing markets. For temporary
defensive purposes, however, the Fund may vary from its
investment policy during periods in which Alliance believes that
business or financial conditions warrant and invest without limit
in high-grade fixed-income securities or hold its assets in cash
equivalents, including (i) short-term U.S. Government securities,
(ii) qualifying bank securities, (iii) prime quality commercial
paper and (iv) short-term foreign currency denominated securities
of the types mentioned above, issued by foreign governmental
entities, companies and supranational organizations.
Certain Fundamental Investment Policies. To maintain
portfolio diversification and reduce investment risk, as a matter
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of fundamental policy, the Fund may not: (i) invest more than 5%
of its total assets in the securities of any one issuer except
the U.S. Government, although with respect to 25% of its total
assets it may invest in any number of issuers; (ii) invest 25% or
more of its total assets in the securities of issuers conducting
their principal business activities in any one industry, except
that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the
voting securities of any one issuer; (iv) issue senior securities
or borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which
might require the untimely disposition of securities; borrowing
in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of
the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the
borrowing is made; or (v) purchase a security if, as a result
(unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any
securities of an open-end investment company or more than 3% of
the total outstanding voting stock of any closed-end investment
company or more than 5% of the value of the Fund's net assets
would be invested in securities of any one or more closed-end
investment companies. Additional investment restrictions are set
forth in the Statement of Additional Information. Outstanding
borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent investments are made.
Certain Risk Considerations
Investments in Foreign Securities. Foreign securities
investments are affected by changes in currency rates or exchange
control regulations as well as by changes in governmental
administration, economic or monetary policy (in the United States
or abroad) and changed circumstances in dealings between nations.
Currency exchange rate movements will increase or reduce the U.S.
dollar value of the Fund's net assets and income attributable to
foreign securities. Costs are incurred in connection with
conversion of currencies held by the Fund. There may be less
publicly available information about foreign issuers than about
domestic issuers, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities
of some foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers, and foreign brokerage
commissions generally are higher than in the United States.
Foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by
other factors not present in the United States, including
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<PAGE>
expropriation, confiscatory taxation and potential difficulties
in enforcing contractual obligations.
Currency Considerations. Substantially all of the
assets of the Fund will be invested in securities denominated in
foreign currencies, and a corresponding portion of the Fund's
revenues will be received in such currencies. Therefore, the
dollar equivalent of its net assets and distributions will be
adversely affected by reductions in the value of certain foreign
currencies relative to the U.S. dollar. Such changes will also
affect its income. The Fund will, however, have the ability to
protect itself against adverse changes in the values of foreign
currencies by engaging in certain of the investment practices
listed above. While it has this ability, there is no certainty
as to whether and to what extent it will engage in these
practices. If the value of the foreign currencies in which the
Fund receives its income falls relative to the U.S. dollar
between receipt of the income and the making of Fund
distributions, the Fund may be required to liquidate securities
in order to make the distributions if it has insufficient cash in
U.S. dollars to meet distribution requirements. Similarly, if an
exchange rate declines between the time the Fund incurs expenses
in U.S. dollars and the time cash expenses are paid, the amount
of the currency required to be converted into U.S. dollars in
order to pay expenses in U.S. dollars could be greater than the
equivalent amount of such expenses in the currency at the time
they were incurred.
Securities Ratings. The ratings of securities by S&P,
Moody's, Duff & Phelps and Fitch are a generally accepted
barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Securities rated Aaa by Moody's and AAA by S&P, Duff &
Phelps and Fitch are considered to be of the highest quality;
capacity to pay interest and repay principal is extremely strong.
Securities rated Aa by Moody's and AA by S&P, Duff & Phelps and
Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist
that make risks appear somewhat larger than exist with securities
rated Aaa or AAA. Securities rated A are considered by Moody's
to possess adequate factors giving security to principal and
interest. S&P, Duff & Phelps and Fitch consider such securities
to have a strong capacity to pay interest and repay principal.
Such securities are more susceptible to adverse changes in
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<PAGE>
economic conditions and circumstances than higher-rated
securities.
Securities rated Baa by Moody's and BBB by S&P, Duff &
Phelps and Fitch are considered to have an adequate capacity to
pay interest and repay principal. Such securities are considered
to have speculative characteristics and share some of the same
characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities. Securities rated Ba by Moody's and BB by S&P, Duff &
Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and
repay principal over time; their future cannot be considered as
well-assured. Securities rated B by Moody's, S&P, Duff & Phelps
and Fitch are considered highly speculative characteristics with
respect to capacity to pay interest and repay principal.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small.
See Appendix C to the Statement of Additional
Information for a description of Moody's, S&P's, Duff & Phelps'
and Fitch's bond ratings.
Investment in Lower-Rated Securities. Lower-rated
securities, i.e., those rated Ba and lower by Moody's or BB and
lower by S&P, Duff & Phelps or Fitch are subject to greater risk
of loss of principal and interest than higher-rated securities
and are considered to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal,
which capacity may in any case decline during sustained period of
deteriorating economic conditions or rising interest rates. They
are also generally considered to be subject to greater market
risk than higher-rated securities in times of deteriorating
economic conditions. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic and
competitive industry conditions than investment grade securities.
The market for lower-rated securities may be thinner and
less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be
sold. To the extent that there is no established secondary
market for lower-rated securities, the Fund may experience
difficulty in valuing such securities and, in turn, the Fund's
assets. In addition, adverse publicity and investor perceptions
about low-rated securities, whether or not factual, may tend to
impair their market value and liquidity.
25
<PAGE>
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable
tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the
information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
PURCHASE AND SALE OF SHARES
How To Buy Shares
Shares of the Fund are offered at net asset value,
without any sales or other charge, directly by the Fund and by
Alliance Fund Distributors, Inc. ("AFD"), the Fund's principal
underwriter, acting as agent for the Fund. Shares may also be
sold in foreign countries where permissible. Shares may be
purchased only by institutional investors and investment
management clients of Alliance or its affiliates. The minimum
initial investment for institutional investors is $1,000,000.
There is no minimum for subsequent investments by institutional
investors or for initial or subsequent investments by investment
management clients of Alliance or its affiliates. Share
certificates are issued only upon request. Under certain
conditions, the Fund may suspend purchases of shares. See the
Statement of Additional Information and the Subscription
Application for more information.
How The Fund Values Its Shares
The net asset value of shares of the Fund is calculated
by dividing the value of the Fund's net assets by the outstanding
shares of the Fund. Shares are valued each day the New York
Stock Exchange (the "Exchange") is open as of the close of
regular trading (currently 4:00 p.m. Eastern time). The
securities in the Fund are valued at their current market value
determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the
Directors believe would accurately reflect fair value.
How to Sell Shares
You may "redeem", i.e., sell your shares to the Fund on
any day the Exchange is open. The price you will receive is the
net asset value next calculated after the Fund receives your
request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by
check, the Fund will not send proceeds until it is reasonably
26
<PAGE>
satisfied that the check has been collected (which may take up to
15 days).
Selling Shares Directly To The Fund
Send a signed letter of instruction or stock power form
to Alliance Fund Services, Inc. ("AFS"), the Fund's registrar,
transfer agent and dividend-disbursing agent, along with
certificates, if any, that represent the shares you want to sell.
For your protection, signatures must be guaranteed by a bank, a
member firm of a national stock exchange or other eligible
guarantor institution. Stock power forms are available from AFS
and many commercial banks. Additional documentation is required
for the sale of shares by corporations, intermediaries,
fiduciaries and surviving joint owners. For details contact:
Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for
which no stock certificates have been issued can also be made by
telephone to 800-221-5672. Proceeds of telephone redemptions
will be sent by electronic funds transfer. Telephone redemption
by check is not available for shares purchased within 15 calendar
days prior to the redemption request, shares held in nominee or
"street name" accounts or retirement plan accounts or shares held
by a shareholder who has changed his or her address of record
within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for Federal
tax purposes. Under unusual circumstances, the Fund may suspend
redemptions or postpone payment for up to seven days or longer,
as permitted by Federal securities law. The Fund reserves the
right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days'
written notice to increase the account value before the account
is closed.
During drastic economic or market developments, you
might have difficulty in reaching AFS by telephone, in which
event you should issue written instructions to AFS. AFS is not
responsible for the authenticity of telephonic requests to
purchase or sell shares. AFS will employ reasonable procedures
to verify that telephone requests are genuine, and could be
liable for losses resulting from unauthorized transactions if it
failed to do so. The telephone service may be suspended or
terminated at any time without notice.
27
<PAGE>
AFD may from time to time pay cash or other incentives
to dealers or agents, including Equico Securities, Inc., an
affiliate of AFD, in connection with the sale of shares. Such
amounts may be utilized, in whole or in part, in some cases
together with other revenues of such dealers or agents, to
provide compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives will be conditioned upon the sale of specified minimum
dollar amount of the shares of the Fund and/or other Alliance
Mutual Funds during a specific period of time. Such incentives
may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel by
persons associated with a dealer or agent and their immediate
family members to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash
incentives or equivalent amounts in lieu of such payments.
Shareholder Services
AFS offers a variety of shareholder services. For more
information about these services or your account, call AFS's
toll-free number, 800-221-5672.
MANAGEMENT OF THE FUND
Adviser
Alliance, which is a Delaware limited partnership with
principal offices at 1345 Avenue of the Americas, New York, New
York 10105, has been retained under an advisory agreement (the
"Advisory Agreement") to provide investment advice and, in
general, to conduct the management and investment program of the
Fund subject to the general supervision and control of the Board
of Directors of the Fund. The employee of Alliance principally
responsible for the Fund's investment program is Ms. Kelly H.
Morgan, a Senior Vice President of Alliance Capital Management
Corporation ("ACMC"), with which she has been associated since
prior to 1990.
Alliance is a leading international investment manager
supervising client accounts with assets as of September 30, 1995
totaling more than $140 billion (of which more than $47 billion
represented the assets of investment companies). Alliance's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the Fortune 100 companies. The 50 registered
investment companies managed by Alliance comprising 104 separate
investment portfolios currently have over two million
shareholders.
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<PAGE>
ACMC, the sole general partner of, and the owner of a 1%
general partnership interest in, Alliance, is an indirect wholly-
owned subsidiary of The Equitable Life Assurance Society of the
United States ("Equitable"), one of the largest life insurance
companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding
company controlled by AXA, a French insurance holding company.
Certain information concerning the ownership and control of
Equitable and AXA is set forth in the Statement of Additional
Information under "Management of the Fund."
Under the Advisory Agreement, the Fund pays Alliance a
fee at the annual rate of 1.00% of the Fund's average daily net
assets. This fee is higher than the management fees paid by most
U.S. registered investment companies investing exclusively in
securities of U.S. issuers, although Alliance believes the fee is
generally comparable to the management fees paid by other open-
end registered investment companies that invest in the securities
of foreign issuers and it is justified by the special care that
must be given to the selection and supervision of the particular
types of securities in which the Fund will invest. The fee is
accrued daily and paid monthly. The Fund has entered into a
Distribution Services Agreement with Alliance Fund Distributors,
Inc. The Agreement provides that Alliance may use its own
resources to finance the distribution of the Fund's shares.
Expenses of the Fund
In addition to the payments to Alliance under the
Advisory Agreement described above, the Fund pays certain other
costs, including (i) custody, transfer and dividend disbursing
expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical,
accounting and other office costs, (v) costs of printing the
Fund's prospectuses and shareholder reports, (vi) costs of
maintaining the Fund's existence, (vii) interest charges, taxes,
brokerage fees and commissions, (viii) costs of stationery and
supplies, (ix) expenses and fees related to registration and
filing with the Securities and Exchange Commission (the
"Commission") and with state regulatory authorities, (x) upon the
approval of the Board of Directors, costs of personnel of
Alliance or its affiliates rendering clerical, accounting and
other office services, and (xi) such promotional expenses, if
any, as may be contemplated by the Distribution Services
Agreement, described above.
The Advisory Agreement provides that Alliance will
reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement, if any, and extraordinary expenses, all to
the extent permitted by applicable state securities laws and
29
<PAGE>
regulations) which in any year exceed the limited prescribed by
any state in which the Fund's shares are qualified for sale. The
Fund may not qualify its shares for sale in every state. The
Fund believes that currently the most restrictive state expense
ratio limitation imposed by any state in which the Fund has
qualified its shares for sale is 2.5% of the first $30 million of
the mutual fund's average net assets, 2.0% of the next $70
million of its average net assets and 1.5% of its average net
assets in excess of $100 million. This limitation is not
applicable to expenses of the types specified above in the
parenthetical in this paragraph.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
There is no fixed dividend rate and there can be no
assurance that the Fund will pay any dividends or realize any
gains. The amount of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and
capital gains from investments. It is the intention of the Fund
to distribute to its shareholders substantially all of each
fiscal year's net income and net realized capital gains, if any,
in order to benefit from the favorable tax treatment accorded to
regulated investment companies under the Code. The Fund intends
to pay income dividends and capital gains, if any, on an annual
basis after the end of the Fund's fiscal year.
A shareholder who receives an income dividend or capital
gains distribution in cash may, within 30 days following the date
of payment thereof, reinvest such dividend or distribution in
additional shares of the Fund without any sales charge at the net
asset value next determined following receipt by the Fund of the
returned check representing such dividend or distribution.
Thereafter, unless the shareholder otherwise specifies, he or she
will be deemed to have elected to reinvest all subsequent
dividends and distributions in shares of the Fund.
Taxes
The Fund qualified for the fiscal period ended July 31,
1995 and intends to qualify in the future to be taxed as a
regulated investment company under the Internal Revenue Code of
1986, as amended ("Code"). Qualification as a regulated
investment company relieves the Fund of Federal income and excise
taxes on the part of its net investment income and net realized
capital gains which it pays out to its shareholders.
For Federal income tax purposes, dividends of net
ordinary income and distributions of any net realized short-term
capital gains, whether paid in cash or reinvested in shares of
30
<PAGE>
the Fund or of another Alliance fund, are taxable to shareholders
as ordinary income. In the case of corporate shareholders, such
dividends are eligible for the dividends-received deduction,
except that the amount eligible for the deduction is limited to
the amount of qualifying dividends received by the Fund. A
corporation's dividends-received deduction will be disallowed
unless the corporation holds shares in the Fund at least 46 days.
Furthermore, the dividends-received deduction will be disallowed
to the extent a corporation's investment in shares of the Fund is
financed with indebtedness. Distributions of net realized long-
term capital gains are taxable to shareholders as long-term
capital gains irrespective of the length of time the shareholder
has held his Fund shares. Long-term capital gains distributions
are not eligible for the dividends-received deduction referred to
above.
Under current Federal tax law, the amount of an income
dividend or capital gain distribution declared by the Fund during
October, November or December of a year to shareholders of record
as of a specified date in such a month that is paid during
January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder
on shares of the Fund will have the effect of reducing the net
asset value of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him as described above. If a
shareholder held shares for six months or less and during that
period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital
loss to the extent of such distribution.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an IRA, 403(b)(7) retirement plan or corporate pension or
profit sharing plan, 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.
Shareholders will be advised annually as to the Federal
tax status of dividends and capital gains distributions made by
the Fund for the preceding year. Distributions by the Fund may
be subject to state and local taxes.
31
<PAGE>
GENERAL INFORMATION
Portfolio Transactions
Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to
seeking best price and execution, the Fund may consider sales of
its shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
Organization
The Fund is a Maryland corporation organized on
September 30, 1994. As of the date of this Prospectus, the Fund
has not commenced operations. It is anticipated that annual
shareholder meetings will not be held; shareholder meetings will
be held only when required by Federal or state law. Shareholders
have available certain procedures for the removal of Directors.
A shareholder in the Fund will be entitled to his or her
pro rata share of all dividends and distributions arising from
the Fund's assets and, upon redeeming shares, will receive the
then current net asset value of the Fund represented by the
redeemed shares. The Fund is empowered to establish, without
shareholder approval, additional portfolios which may have
different investment objectives. If an additional portfolio was
established, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series on matters, such as the
election of Directors, that affected both portfolios in
substantially the same manner. Shares are freely transferable,
are entitled to dividends as determined by the Board of Directors
and, in liquidation of the Fund, are entitled to receive the net
assets of the Fund. Certain additional matters relating to the
organization of the Fund are discussed in its Statement of
Additional Information.
Registrar, Transfer Agent and Dividend-Disbursing Agent
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of Alliance, located at 500 Plaza Drive, Secaucus, New
Jersey 07094, acts as the Fund's registrar, transfer agent and
dividend-disbursing agent.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, an indirect wholly-owned
subsidiary of Alliance, is the Principal Underwriter of shares of
the Fund.
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<PAGE>
Performance Information
From time to time, the Fund advertises its "total
return". Such advertisements disclose the Fund's average annual
compounded total return for the periods prescribed by the
Commission. The Fund's total return for each such period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund is assumed to have
been reinvested when paid and the maximum sales charges
applicable to purchases of Fund shares is assumed to have been
paid.
Advertisements by the Fund may quote performance
rankings or ratings of the Fund by financial publications or
independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare the Fund's performance to
various indices.
Additional Information
This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do
not contain all the information set forth in the Registration
Statement filed by the Fund with the Commission under the
Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the Commission or may be
examined, without charge, at the offices of the Commission in
Washington, D.C.
This prospectus does not constitute an offering in any
state in which such offering may not lawfully be made.
33
<PAGE>
This prospectus does not ALLIANCE
constitute an offering in DEVELOPING
any state in which such MARKETS
offering may not lawfully FUND
be made.
Prospectus
December 1, 1995
Table of Contents
Expense Information......
Description of the Fund..
Purchase and Sale of
Shares.................
Management of the Fund...
Dividends, Distributions
and Taxes..............
General Information......
Goal: Long-term growth of
Adviser capital through investment
Alliance Capital Management L.P. in developing markets.
1345 Avenue Of The Americas
New York, New York 10105 LOGO
34
<PAGE>
Alliance Capital [LOGO](R)
ALLIANCE DEVELOPING
MARKETS FUND, INC.
________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1995
________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Fund dated December 1, 1995. Copies of such
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown
above.
TABLE OF CONTENTS
Page
Description of the Fund
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Brokerage and Portfolio Transactions
General Information
Report of Independent Auditors and Financial
Statement
Appendix A: Options A-1
Appendix B: Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies B-1
Appendix C: Bond Ratings C-1
_________________
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Except as otherwise indicated, the investment policies
of Alliance Developing Markets Fund, Inc. (the "Fund") are not
"fundamental policies" and may, therefore, be changed by the
Board of Directors without a shareholder vote. However, the Fund
will not change its investment policies without contemporaneous
written notice to its shareholders. The Fund's investment
objective is fundamental and may not be changed without
shareholder approval. There can be, of course, no assurance that
the Fund will achieve its investment objective.
Investment Objective and Policies
The Fund is a diversified, open-end management
investment company whose investment objective is to seek long-
term growth of capital. In seeking to achieve its investment
objective the Fund will invest primarily (i.e., normally more
than 50% of the Fund's total assets will be invested in) in
equity securities of issuers in developing markets that have been
selected by Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser"), for their growth potential.
The Fund may also invest in U.S. Dollar and non-U.S. Dollar
denominated debt securities. Normally, the Fund will invest at
least 65% of its total assets in securities of issuers in
developing markets. The Fund will seek to invest in companies
that the Adviser believes are poised to benefit from expanding
market opportunities.
Developing markets have offered the opportunity for
higher returns in exchange for a higher level of risk.
Accordingly, the Fund's ability to invest in developing markets
throughout the world may enable the achievement of results
superior to those produced by funds with investment objectives
similar to those of the Fund that invest solely in securities of
issuers in developed markets. There is no assurance that the Fund
will achieve these results.
The Adviser believes that certain recent changes in
political, economic and market factors in some developing markets
create the potential for capital appreciation in securities of
issuers in those markets. These factors include political
change, including movements from military or socialist
governments towards democratically elected governments; economic
deregulation, including such free-market policies as tax reform,
tariff reduction, privatization of state owned business and
elimination of price controls; and financial liberalization,
including the removal of restrictions on the free movement of
2
<PAGE>
capital in and out of particular markets. These changes may lead
to improvements in a country's infrastructure, thereby increasing
the country's industrial capacity. Infrastructure improvements
may be exhibited, for example, in the areas of
telecommunications, utilities and transportation (including road,
rail, airports and shipping facilities).
The Adviser believes that many developing markets
exhibit characteristics that make investments in those countries
attractive. The Adviser also believes that economic growth and
growth in stock market capitalization may create an environment
for improving performance in stock and bond markets. The
economic expansion of developing markets is often led in part by
increased foreign investment from companies seeking lower cost
production facilities. Developing markets with low hourly wages
have attracted companies relocating from the higher production-
cost environments of North America, Western Europe and Japan.
Other characteristics, including high economic growth rates,
falling rates of inflation, falling interest rates and improving
credit ratings, may also contribute to attracting new foreign
investment for capital improvement or manufacturing, and
potentially to improving performance of stock and bond markets.
Historic and current economic data demonstrate the positive
changes experienced by several developing markets over the past
decade. This past performance was achieved during a period of
generally favorable circumstances for developing markets,
however, and there is no guarantee as to future trends or
results. See also "Certain Risk Considerations" below.
The Fund normally will invest substantially all of its
assets in issuers in the developing markets of Africa, Asia,
Europe and Latin America including Mexico, Brazil, Malaysia, the
Philippines, India, Turkey and South Africa. The proportion of
equity and debt held by the Fund at any one time will depend on
the Adviser's views on current market and economic conditions.
The Adviser will evaluate economic and political factors in
attempting to identify countries and industries likely to produce
above-average growth rates. The Fund will invest in securities
of issuers which, in the Adviser's opinion, are well positioned
to benefit from these factors. In determining the distribution
of investments among various countries and geographic regions for
the Fund, the Adviser will consider a number of factors,
including prospects for relative economic growth among the
different countries in which the Fund may invest, political
issues, expected levels of inflation, government policies
influencing business conditions; the outlook for currency
relationships, and the range of investment opportunities
available to international investors. The Fund will not invest
25% or more of its total assets in securities of issuers from any
single country.
3
<PAGE>
As opportunities to invest in securities in developing
markets develop, the Fund expects to expand and further broaden
the group of developing markets in which it invests. In some
cases, investments in debt securities could provide the Fund with
access to developing markets in the early stages of their
economic development, when equity securities are not yet
generally available or, in the Adviser's view, do not yet present
an acceptable investment alternative.
As used in this Statement of Additional Information, a
developing market is a market located in any country that is
considered to be a developing or emerging country by the
International Bank for Reconstruction and Development (more
commonly referred to as the "World Bank"). An issuer in a
"developing" market means: (i) an issuer for which the principal
securities trading market is a developing market; (ii) an issuer
that the Adviser determines derives (alone or on a consolidated
basis) at least 50% of its revenues or profits from goods
produced or sold, investments made or services performed in
developing markets or which has (alone or on a consolidated
basis) at least 50% of its assets situated in developing markets;
or (iii) an issuer organized under the laws of a country with a
developing market. If an issuer qualifies as an issuer in more
than one developing market under the definition above, the
Adviser will determine the developing market in which the issuer
is located.
Investments in Equity Securities. The Fund will invest
in equity securities, including common stock, preferred stock,
securities convertible into common stock and equity-linked debt
securities.
Investments in Debt Securities. The Fund may invest in
debt securities in order to further its investment objective of
long-term growth of capital. Any income earned on the Fund's
investments will be incidental to its objective of long-term
growth of capital. The debt securities in which the Fund may
invest carry fixed, floating or variable rates of interest. Debt
securities in which the Fund is permitted to invest include debt
securities of corporate issuers and those issued or guaranteed as
to payment of principal and interest by governments, quasi-
governmental entities, governmental agencies or other
governmental entities, political subdivisions and
instrumentalities (collectively, "Government Entities"). The
values of most debt securities, particularly those that carry
fixed rates of interest, generally change as the levels of
interest rates fluctuate. When interest rates decline, the
values of most debt securities can be expected to increase, and
when interest rates rise, the values of most debt securities can
be expected to decrease.
4
<PAGE>
The debt securities in which the Fund may invest may or
may not be of investment grade quality. The Fund may maintain up
to 20% of its net assets in debt securities rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's Ratings Services ("S&P"), Duff & Phelps Credit
Rating Co. ("Duff & Phelps") or Fitch Investors Service, Inc.
("Fitch") or, other nationally recognized rating organization or,
of comparable investment quality as determined by the Adviser
("lower-rated securities"). Such high-risk, high-yield
securities (commonly referred to as "junk bonds") are considered
to have speculative or, in the case of relatively low ratings,
predominantly speculative characteristics. See "Certain Risk
Considerations-Investments in Lower-Rated Securities." The Fund
will not retain a security which is downgraded below B, or if
unrated, determined by the Adviser to have undergone similar
credit quality deterioration subsequent to purchase.
Other Securities. While the Fund's investment strategy
normally emphasizes securities of companies in developing markets
as described above, the Fund may, where consistent with its
investment objective, invest up to 35% of its total assets in
equity and debt securities of domestic and other foreign issuers,
including (i) securities issued or guaranteed by the United
States Government, its agencies or instrumentalities ("U.S.
Government securities") and repurchase agreements pertaining
thereto, as discussed below, (ii) corporate debt securities of
quality comparable to the debt securities described above of
domestic and foreign issuers located in developed countries,
(iii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of banks having total assets of more
than $1 billion and which are members of the Federal Deposit
Insurance Corporation ("qualifying bank securities"), and
(iv) commercial paper rated Prime 1 or higher by Moody's or A-1
or higher by S&P, Duff & Phelps, Fitch or other nationally
recognized rating organization or, if not rated, issued by
companies which have an outstanding debt issue rated Aa or higher
by Moody's or AA or higher by S&P, Duff & Phelps, Fitch or other
nationally recognized rating organization ("prime quality
commercial paper"). Subject to the limitations discussed
therein, the Fund may also engage in the investment practices
discussed below under "Additional Investment Practices."
U.S. Government securities include: (i) U.S. Treasury
obligations, which differ only in their interest rates,
maturities and times of issuance and which are backed by the full
faith and credit of the United States; and (ii) obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-
related securities. Some such obligations are backed by the full
faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association;
5
<PAGE>
some are supported by the right of the issuer to borrow from the
U.S. Government, e.g., obligations of Federal Home Loan Banks;
and some are backed only by the credit of the issuer itself,
e.g., obligations of the Student Loan Marketing Association.
U.S. Government securities do not generally involve the
credit risks associated with other types of interest-bearing
securities, although, as a result, the yields available from U.S.
Government securities are generally lower than the yields
available from other interest-bearing securities. Like most
other debt securities, however, the values of U.S. Government
securities change inversely with the direction of interest rate
movements.
The Fund may: (i) Invest up to 25% of its total assets
in the convertible securities of companies whose common stocks
are eligible for purchase by the Fund; (ii) invest up to 20% of
its total assets in rights and warrants; (iii) invest in
depository receipts, securities of supranational entities
denominated in the currency of any country, securities of
multinational companies and "semi-governmental securities" as
defined below; (iv) invest in equity-linked debt securities;
(v) invest in loans and other direct debt securities;
(vi) purchase put and call options and write covered put and call
options, in each case on securities of the types in which it is
permitted to invest and on exchange-traded index options;
(vii) enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S.
Government securities, securities issued by foreign government
entities, or on common stocks and may purchase and write options
on future contracts; (viii) purchase and write put and call
options on foreign currencies for hedging purposes; (ix) purchase
or sell forward contracts; (x) enter into interest rate swaps and
purchase or sell interest rate caps and floors; (xi) enter in
forward commitments for the purchase or sale of securities;
(xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase
agreements pertaining to the types of securities in which it
invests with member banks of the Federal Reserve System or
primary dealers in such securities; (xv) make short sales of
securities or maintain short positions, in each case only if
"against the box"; and (xvi) make secured loans of its portfolio
securities to entities with which it can enter into repurchase
agreements. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment
Practices" below. The Fund will not maintain more than 15% of
its net assets in illiquid securities.
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Additional Investment Practices
The Fund may engage in the following investment
practices to the extent described above.
Convertible Securities. The Fund may invest up to 25%
of its total assets in convertible securities of companies whose
common stocks are eligible for purchase by the Fund. Convertible
securities are bonds, debentures, corporate notes and preferred
stocks that are convertible at a stated exchange rate into common
stock. Prior to conversion, convertible securities have the same
general characteristics as non-convertible debt securities, which
provide a stable stream of income with generally higher yields
than those of equity securities of the same or similar issuers.
The price of a convertible security will normally vary with
changes in the price of the underlying stock, although the higher
yield tends to make the convertible security less valuable than
the underlying common stock. As with debt securities, the market
value of convertible securities tends to decline as interest
rates increase and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they enable investors to benefit from increases in the market
price of the underlying common stock.
The Fund may maintain up to 20% of its net assets in
lower-rated convertible securities; provided that the aggregate
of the Fund's investments in lower-rated securities may not
exceed 20% of its net assets. Convertible debt securities that
are rated Baa or lower by Moody's or BBB or lower by S&P, Duff &
Phelps or Fitch or other nationally recognized rating
organization and of comparable not rated securities as determined
by the Adviser may share some or all of the risks of debt
securities with those ratings.
Rights and Warrants. The Fund may invest up to 20% of
its total assets in rights and warrants. The Fund will invest in
rights or warrants only if the equity securities themselves are
deemed appropriate by the Adviser 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 generally 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, however, 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
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<PAGE>
perception as to the potential of the underlying stock, or any
combination thereof. If the market price of the underlying stock
is below the exercise price set forth in 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.
Depositary Receipts and Securities of Supranational
Entities. The Fund may invest in depositary receipts, securities
of supranational entities denominated in the currency of any
country, securities of multinational companies and "semi-
governmental securities". Depositary receipts may not
necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not
obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such
information and the market value of the depositary receipts.
ADRs are depositary receipts typically issued by a U.S. bank or
trust company that evidence ownership of underlying securities
issued by a foreign corporation. GDRs and other types of
depositary receipts are typically issued by foreign banks or
trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally,
depositary receipts in registered form are designed for use in
the U.S. securities markets and depositary receipts in bearer
form are designed for use in foreign securities markets. The
investments of the Fund in depositary receipts are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or
supported by the national government of one or more countries to
promote economic reconstruction or development. Examples of
supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development) and the
European Investment Bank. "Semi-governmental securities," are
securities issued by entities owned by either a national, state
or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith
and credit and general taxing powers.
Illiquid Securities. The Fund will not maintain more
than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers).
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<PAGE>
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended ("Securities Act") and securities which are
otherwise not readily marketable. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid-securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including foreign securities.
Institutional investors depend on an efficient institutional
market in which the unregistered security can be readily resold
or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be
indicative of the liquidity of such investments.
The Fund may invest in restricted securities issued
under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer, to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
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<PAGE>
and the consequent inception of the PORTAL System sponsored by
the National Association of Securities Dealers, Inc., an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers.
The Fund's Adviser, acting under the supervision of the
Board of Directors will monitor the liquidity of restricted
securities in the Fund's portfolio that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Fund's Adviser will consider, inter alia, the following factors:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Commission interpretation or position with
respect to such type of securities.
Equity-Linked Debt Securities. Equity-linked debt
securities are securities with respect to which the amount of
interest and/or principal that the issuer thereof is obligated to
pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less
than payment obligations in respect of other types of debt
securities. Adverse changes in equity securities indices and
other adverse changes in the securities markets may reduce
payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt
securities, the values of equity-linked debt securities will
generally vary inversely with changes in interest rates. The
Fund's ability to dispose of equity-linked debt securities will
depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to
be speculative. As with other securities, the Fund could lose
its entire investment in equity-linked debt securities.
Loans and other Direct Debt Instruments. Loans and
other direct debt instruments are interests in amounts owed by a
corporate, governmental or other borrower to another party. They
may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other
creditors. Direct debt instruments involve the risk of loss in
case of default or insolvency of the borrower and may offer less
legal protection to the Fund in the event of fraud or
misrepresentation than debt securities. In addition, loan
participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also
10
<PAGE>
include standby financing commitments that obligate the Fund to
supply additional cash to the borrower on demand. Loans and
other direct debt instruments are generally illiquid and may be
transferred only through individually negotiated private
transactions.
Purchasers of loans and other forms of direct
indebtedness depend primarily upon the creditworthiness of the
borrower for payment of principal and interest. Direct debt
instruments may not be rated by any nationally recognized rating
service. If the Fund does not receive scheduled interest or
principal payments on such indebtedness, the Fund's share price
and yield could be adversely affected. Loans that are fully
secured offer the Fund more protection than unsecured loans in
the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Indebtedness of borrowers
whose creditworthiness is poor may involve substantial risks, and
may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed.
Investments in loans through direct assignment of a
financial institution's interests with respect to a loan may
involve additional risks to the Fund. For example, if a loan is
foreclosed, the Fund could become part owner of any collateral,
and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other
intermediary.
A loan is often administered by a bank or other
financial institution that acts as agent for all holders. The
agent administers the terms of the loan, as specified on the loan
agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower,
it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the
benefit of the Fund were determined to be subject to the claims
of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan
participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include
letters of credit, revolving credit facilities, or other standby
financing commitments obligating the Fund to pay additional cash
on demand. These commitments may have the effect of requiring
the Fund to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's
condition makes it unlikely that the amount will ever be repaid.
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<PAGE>
The Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under
standby financing commitments.
Interest Rate Transactions. The Fund may enter into
interest rate swaps and may purchase or sell interest rate caps
and floors. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment
techniques were not used. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or
liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets of principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interests
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described in the Prospectus under "Description of the Fund -
Additional Investment Practices - Interest Rate Transactions."
Options. The Fund may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges and over-the-counter, including
options on market indices. The Fund will only write "covered"
put and call options, unless such options are written for cross-
hedging purposes. There are no specific limitations on the
Fund's writing and purchasing of options.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by
the Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
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<PAGE>
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash and
liquid high-grade debt securities in a segregated account with
its custodian. A put option written by the Fund is "covered" if
the Fund maintains cash or liquid high-grade debt securities with
a value equal to the exercise price in a segregated account with
its custodian, or else holds a put on the same security and in
the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates. It would realize a loss if the price
of the underlying security increased or remained the same or did
not decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security but seeks to provide a hedge
against a decline in value in another security which the Fund
owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Fund's custodian
cash or liquid high-grade debt securities in an amount not less
than the market value of the underlying security, marked to
market daily. The Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when
the premium to be received from the cross-hedge transaction would
exceed that which would be received from writing a covered call
option, while at the same time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
13
<PAGE>
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the
Fund would be obligated to purchase the underlying security at
the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
call option is that there could be an increase in the market
value of the underlying security caused by declining interest
rates or other factors. If this occurred, the option could be
exercised and the underlying security would then be sold by the
Fund at a lower price than its current market value. The risk
involved in writing a call option is that there could be an
increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold by the Fund at a lower price than its current market
value. These risks could be reduced by entering into a closing
transaction prior to the option expiration dates if a liquid
market is available. The Fund retains the premium received from
writing a put or call option whether or not the option is
exercised. For additional information on the use, risk and costs
of options, see Appendix A.
The Fund may purchase or write options on securities of
the types in which it is permitted to invest in privately
negotiated (i.e., over-the-counter) transactions. The Fund will
effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and
loan institutions) deemed creditworthy by the Adviser, and the
Adviser has adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to do so.
See "Illiquid Securities."
Options on Market Indices. An option on a securities
index is similar to an option on a security except that, rather
than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder
the right to receive, upon 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. There are no specific limitations
on the Fund's purchasing and selling of options on market
indices.
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<PAGE>
Futures Contracts and Options on Futures Contracts. The
Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S.
Government Securities, securities issued by foreign government
entities, or common stocks ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to
acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser
of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date.
The Fund will not enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of the market value of the outstanding futures
contracts of the Fund and the market value of the currencies and
futures contracts subject to outstanding options written by the
Fund would exceed 50% of the market value of the total assets of
the Fund.
The successful use of such instrument draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses. The Fund's Custodian will
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<PAGE>
place cash not available for investment or liquid high-grade debt
securities in a segregate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
futures contracts.
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Foreign Currencies. The Fund may purchase
and write put and call options on foreign currencies for the
purpose of protecting against declines in the U.S. Dollar value
of foreign currency-denominated portfolio securities and against
increases in the U.S. Dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written
or purchased by the Fund are traded on U.S. and foreign exchanges
or over-the-counter. There is no specific percentage limitation
on the Fund's investments in options on foreign currencies. For
additional information on the use, risks and costs of options on
foreign currencies, see Appendix B.
Forward Foreign Currency Exchange Contracts. The Fund
may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S Dollar
and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date, and is individually negotiated and privately traded
by currency for an agreed price at a future date, and is
individually negotiated and privately traded by currency traders
and their customers. The Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or
sale of a security denominated in a foreign currency in order to
"lock in" the U.S Dollar price of the security ("transaction
hedge"). The Fund may not engage in transaction hedges with
respect to the currency of a particular country to an extent
greater than the aggregate amount of the Fund's transactions in
that currency. Additionally, for example, when the Fund believes
that a foreign currency may suffer a substantial decline against
the U.S. Dollar, it may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value
of some or all of the Fund's portfolio securities denominated in
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<PAGE>
such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position
hedge"). In this situation the Fund may, in the alternative,
enter into a forward contract to sell a different foreign
currency for a fixed U.S. Dollar amount where the Fund believes
that the U.S. dollar value of the currency to be sold pursuant to
the forward contract will fall whenever there is a decline in the
U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated ("cross-hedge"). To the extent
required by applicable law, the Fund's Custodian will place cash
not available for investment, U.S. Government Securities or other
liquid high-grade debt securities 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. In
addition, the Fund may use such other methods of "cover" as are
permitted by applicable law. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than
if it had not entered into such contracts.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Fund's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not
entered into such contracts. The use of foreign currency forward
contracts will not eliminate fluctuations in the underlying U.S.
Dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency-denominated portfolio securities and
the use of such techniques will subject the Fund to certain
risks.
The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
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the foreign-currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Fund may
not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's
ability to use such contracts to hedge or cross-hedge its assets.
Also, with regard to the Fund's use of cross-hedges, there can be
no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. Dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.
For additional information on the use, risks and costs of forward
foreign currency exchange contracts, see Appendix B.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be canceled in the event that the required
conditions did not occur and the trade was canceled.
The use of forward commitments enables the Fund to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher cash
18
<PAGE>
yields. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values. No forward
commitments will be made by the Fund if, as a result, the Fund's
aggregate commitments under such transactions would be more than
30% of the then current value of the Fund's total assets.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a segregated account of the Fund,
cash and/or liquid high-grade debt securities having value equal
to, or greater than, any commitments to purchase securities on a
forward commitment basis and, with respect to forward commitments
to sell portfolio securities of the Fund, the portfolio
securities themselves. If the Fund, however, chooses to dispose
of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the
transaction, it may incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
Standby Commitment Agreements. The Fund may from time
to time enter into standby commitment agreements. Such
agreements commit the Fund, for a stated period of time, to
purchase a stated amount of a security which may be issued and
sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment.
At the time of entering into the agreement the Fund is paid a
commitment fee, regardless of whether or not the security
ultimately is issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has
committed to purchase. The Fund will enter into such agreements
only for the purpose of investing in the security underlying the
commitment at a yield and price which are considered advantageous
to the Fund and which are unavailable on a firm commitment basis.
The Fund will not enter into a standby commitment with a
remaining term in excess of 45 days and will limit its investment
in such commitments so that the aggregate purchase price of the
securities subject to the commitments will not exceed 50% of its
assets taken at the time of acquisition of such commitment. The
Fund will at all times maintain a segregated account with its
custodian of cash and/or liquid high-grade debt securities in an
aggregate amount equal to the purchase price of the securities
underlying the commitment.
19
<PAGE>
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Currency Swaps. The Fund may enter into currency swaps
for hedging purposes. Currency swaps involve the exchange by the
Fund with another party of a series of payments in specified
currencies. Since currency swaps are individually negotiated,
the Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its currency swaps
positions. A currency swap may involve the delivery at the end
of the exchange period of a substantial amount of one designated
currency in exchange for the other designated currency.
Therefore the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default
on its contractual delivery obligations. The net amount of the
excess, if any, of the Fund's obligations over its entitlements
with respect to each currency swap will be accrued on a daily
basis and an amount of cash or high-grade liquid debt securities
having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated accounting by the
Fund's custodian. The Fund will not enter into any currency swap
unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the
highest rating category of at least one nationally recognized
rating organization at the time of entering into the transaction.
If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the
agreements related to the transactions.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
20
<PAGE>
Fund's ability to enter into repurchase agreements. Currently,
the Fund intends to enter into repurchase agreements only with
its custodian and such primary dealers. A repurchase agreement
arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon
interest rate which is effective for the period of time the
buyer's money is invested in the security and which is related to
the current market rate rather than the coupon rate on the
purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
by its Custodian for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, the Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. In the event of a vendor's
bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for its benefit. The Fund's Board of
Directors has established procedures, which are periodically
reviewed by the Board, pursuant to which Alliance monitors the
creditworthiness of the vendors with which the Fund enters into
repurchase agreement transactions.
Short Sales. A short sale "against the box" is effected
by selling a security that the Fund "against the box"
contemporaneously owns or has the right to obtain without
payment. The Fund may make short sales of securities or maintain
short positions only for the purpose of deferring realization of
gain or loss for U.S. federal income tax purposes. The Fund may
not make a short sale if as a result more than 25% of the Fund's
net assets would be held as collateral for short sales. If the
price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. See "Investment
Restrictions." Certain special federal income tax considerations
may apply to short sales entered into by the Fund. See
"Dividends, Distributions and Taxes - United States Federal
Income Taxation of the Fund - Tax Straddles".
Loans of Portfolio Securities. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Fund's
Directors) will consider all relevant facts and circumstances,
21
<PAGE>
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in
order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Fund will not lend portfolio securities in excess of 30% of its
total assets, nor will the Fund lend its portfolio securities to
any officer, director, employee or affiliate of the Fund or the
Adviser.
General. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast price movements or currency
exchange rate movements correctly. Should 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 position in futures
contracts, options and forward contracts depends on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund, it might
not be possible to effect a closing transaction in the option
(i.e., dispose of the option) with the result that (i) an option
purchased by the Fund would have to be exercised in order for the
Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option
written by the Fund until the option expires or it delivers the
underlying futures contract or currency upon exercise. Therefore,
no assurance can be given that the Fund will be able to utilize
22
<PAGE>
these instruments effectively for the purposes set forth above.
Furthermore, the Fund's ability to engage in options and futures
transactions may be limited by tax considerations. See
"Dividends, Distributions and Taxes."
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices that are currently not contemplated for use by the Fund
or not available but which may be developed, to the extent such
investment practices are both consistent with the Fund's
investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that
exceed those involved in the activities described above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to purchase securities with a
view to holding them for periods of time sufficient to assure
that the Fund will realize less than 30% of its gross income from
the sale or other dispositions of securities held for less than
three months (see "Dividends, Distributions and Taxes - United
States Federal Income Taxation of Dividends and Distributions --
General") and to hold its securities for six months or longer.
However, it is also the Fund's policy to sell any security
whenever, in the judgment of the Adviser, its appreciation
possibilities have been substantially realized or the business or
market prospects for such security have deteriorated,
irrespective of the length of time that such security has been
held. The Adviser anticipates that the annual turnover in the
Fund will not exceed 200%. An annual turnover rate of 200%
occurs, for example, when all of the securities in the Fund's
portfolio are replaced twice in a period of one year. A high
rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital
gains. See "Dividends, Distributions and Taxes" and "General
Information-Portfolio Transactions." The portfolio turnover rate
for the fiscal period ended July 31, 1995 was -0-%.
Defensive Position. It is the Fund's policy that under
normal circumstances, the total assets of the Fund will be
invested primarily in equity and fixed-income securities of
companies in developing markets as described above. For
temporary defensive purposes, however, the Fund may vary from its
investment policy during periods in which the Adviser believes
that business or financial conditions warrant and invest without
limit in high-grade debt securities or hold its assets in cash
equivalents, including (i) short-term U.S. Government securities,
(ii) qualifying bank securities, (iii) Prime quality commercial
paper and (iv) short-term, foreign currency denominated
securities of the types mentioned above, issued by foreign
23
<PAGE>
governmental entities, companies and supranational organizations.
For this purpose, the Fund will limit its investments in foreign
currency denominated debt securities to securities that are
denominated in currencies in which the Fund anticipates its
subsequent investments will be denominated.
Certain Risk Considerations
Investment in the Fund involves the special risk
considerations described below.
Investments in Foreign Securities. Foreign securities
investments are affected by changes in currency rates or exchange
control regulations as well as by changes in governmental
administration, economic or monetary policy (in the United States
or abroad) and changed circumstances in dealings between nations.
Currency exchange rate movements will increase or reduce the U.S.
dollar value of the Fund's net assets and income attributable to
foreign securities. Costs are incurred in connection with
conversion of currencies held by the Fund. There may be less
publicly available information about foreign issuers than about
domestic issuers, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities
of some foreign issuers are less liquid and more volatile than
securities of comparable domestic issuers, and foreign brokerage
commissions are generally higher than in the United States.
Foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by
other factors not present in the United States, including
expropriation, confiscatory taxation and potential difficulties
in enforcing contractual obligations.
Currency Considerations. Because substantially all of
the Fund's assets will be invested in securities denominated in
foreign currencies, and a corresponding portion of the Fund's
revenues will be received in such currencies, the dollar
equivalent of the Fund's net assets and distributions will be
adversely affected by reductions in the value of certain foreign
currencies relative to the U.S. dollar. Such changes will also
affect the Fund's income. The Fund will, however, have the
ability to protect itself against adverse changes in the values
of foreign currencies by engaging in certain of the investment
practices listed above. While the Fund has this ability, there
is no certainty as to whether and to what extent the Fund will
engage in these practices. If the value of the foreign
currencies in which the Fund receives its income falls relative
to the U.S. dollar between receipt of the income and the making
of Fund distributions, the Fund may be required to liquidate
securities in order to make distributions if the Fund has
24
<PAGE>
insufficient cash in U.S. dollars to meet distribution
requirements. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. dollars and the time
cash expenses are paid, the amount of the currency required to be
converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable
tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the
information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
Investments in Lower-Rated Debt Securities. Securities
rated below investment grade, i.e., Ba and lower by Moody's or BB
and lower by S&P, Duff & Phelps or Fitch ("lower-rated
securities") are subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which capacity may in any
case decline during sustained periods of deteriorating economic
conditions or rising interest rates. They are also generally
considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions
than investment grade securities. Fixed-income securities rated
B by Moody's or BB by S&P, Duff & Phelps and Fitch are judged to
have speculative characteristics or to be predominantly
speculative with respect to the issuer's ability to pay interest
and repay principal. Debt securities rated B by Moody's, S&P,
Duff & Phelps and Fitch are judged to have highly speculative
characteristics or to be predominantly speculative. Such
securities may have small assurance of interest and principal
payments.
The market for lower-rated securities may be thinner and
less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be
sold. To the extent that there is no established secondary market
for lower-rated securities, the Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets. In
addition, adverse publicity and investor perceptions about lower-
rated securities, whether or not factual, may tend to impair
their market value and liquidity. See Appendix C for a
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<PAGE>
description of Moody's, S&P's, Duff & Phelps and Fitch's bond and
commercial paper ratings.
Securities Ratings. The ratings of debt securities by
S&P and Moody's are a generally accepted barometer of credit
risk. They are, however, subject to certain limitations from an
investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in credit
risk of securities within each rating category. Securities rated
BBB by S&P or Baa by Moody's are considered to be investment
grade. Securities rated BBB by S&P or Baa by Moody's are
considered to have speculative characteristics. Sustained
periods of deteriorating economic conditions or rising interest
rates are more likely to lead to a weakening in the issuer's
capacity to pay interest and repay principal than in the case of
higher-rated securities. See Appendix C for a description of
Moody's and S&P's bond ratings.
Certain Fundamental Investment Restrictions. The
following restrictions, which supplement those set forth in the
Fund's Prospectus, may not be changed without approval by the
vote of a majority of the Fund's outstanding voting securities,
which means the affirmative vote of the holders of (i) 67% or
more or the shares represented at a meeting at which more than
50% of the outstanding shares are represented, or (ii) more than
50% of the outstanding shares, whichever is less.
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Fund may
not:
(i) invest 25% or more of its total assets in
securities of issuers conducting their principal
business activities in the same industry;
(ii) borrow money except from banks for temporary
or emergency purposes, including the meeting of
redemption requests which might require the untimely
disposition of securities; borrowing in the aggregate
may not exceed 15%, and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value
of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made;
(iii) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
26
<PAGE>
(iv) make loans except through (i) the purchase of
debt obligations in accordance with its investment
objectives and policies; (ii) the lending of portfolio
securities; or (iii) the use of repurchase agreements;
(v) participate on a joint or joint and several
basis in any securities trading account;
(vi) invest in companies for the purposes of
exercising control;
(vii) issue any senior security within the meaning
of the Act;
(viii) make short sales of securities or maintain a
short position, unless at all times when a short
position is open it on an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as, and
equal in amount to the securities sold short ("short
sales against the box"), and unless not more than 25% of
the Fund's net assets (taken at market value) is held as
collateral for such sales at any one time (it is the
Fund's present intention to make such sales only for the
purpose of deferring realization of gain or loss for
Federal income tax purposes); or
(ix) (a) purchase or sell real estate, except that
it may purchase and sell securities of companies which
deal in real estate or interests therein; (b) purchase
or sell commodities or commodity contracts including
futures contracts (except foreign currencies, foreign
currency options and futures, options and futures on
securities and securities indices and forward contracts
or contracts for the future acquisition or delivery of
securities and foreign currencies and related options on
futures contracts and similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase Securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (e) act as an
underwriter of securities, except that the Fund may
acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the
Securities Act.
Outstanding borrowings in excess of 5% of the value of the Fund's
total assets will be repaid before any investments are made.
27
<PAGE>
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
Directors and Officers
The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
director, trustee or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.
28
<PAGE>
Directors
JOHN D. CARIFA,* 50, Chairman and President, is the
President and Chief Operating Officer, the Chief Financial
Officer and a Director of ACMC,** with which he has been
associated since prior to 1990.
DAVID H. DIEVLER, 65, is an independent consultant. He
was formerly Senior Vice President of ACMC, with which he had
been associated since prior to 1990 through 1994. His address is
P.O. Box 167, Spring Lake, New Jersey 07762.
W.H. HENDERSON, 68, has been an oil and gas consultant
since prior to 1990. He is also a Director of Nippon Peroxide
Co. Limited, Fidelity Japan OTC and Regional Markets Fund and a
consultant to Laporte Industries PLC and Reckitt and Colman PLC.
His address is Quarrey House, Charlton Horethorne, Sherborne
Dorset, DT9 4NY, England.
STIG HOST, 69, is the Chairman and Chief Executive
Officer of International Energy Corp. (oil and gas exploration),
with which he has been associated since prior to 1990. He is
also Chairman and Director of Kriti Exploration, Inc. (oil and
gas exploration and production), Managing Director of Kriti Oil
and Minerals, N.V., Chairman of Kriti Properties and Development
Corporation (real estate), Chairman of International Marine
Sales, Inc. (marine fuels), a Director of Florida Fuels, Inc.
(marine fuels) and President of Alexander Host Foundation. He is
also a Trustee of the Winthrop Focus Funds. His address is 36
Keofferam Road, Old Greenwich, Connecticut 06870.
RICHARD M. LILLY, 65, was formerly President and Chief
Executive Officer of Esso Italiana, S.p.A., Esso Europe-Africa
Services and Esso North Europe A/S since prior to 1990. His
address is 70 Palace Gardens Terrance, London W8 4RR England.
____________________
* An interested person of the Fund as defined in the 1940.
** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation, the
sole general partner of the Adviser, and to the predecessor
general partner of the Adviser of the same name
29
<PAGE>
ALAN STOGA, 44, has been a Managing Director and a
member of the Board of Directors of Kissinger Associates, Inc.
since prior to 1990. His address is Kissinger Associates, Inc.,
350 Park Avenue, New York, New York 10022.
HON. JOHN C. WEST, 73, has been an attorney in private
practice since prior to 1990. Prior thereto he was Governor of
South Carolina, United States Ambassador to Saudi Arabia and a
Distinguished Professor of Middle East Studies, University of
South Carolina. He is also a Director of Whittaker Corp.
(chemical and aero space) and BioWhittaker Corp. (technology).
His address is P.O. Drawer 13, Hilton Head, South Carolina 29938.
ROBERT C. WHITE, 75, was formerly Vice President and
Chief Financial Officer of the Howard Hughes Medical Institute.
Retired Director of the MEDSTAT Group (healthcare information
systems) and the Ambassador Funds and a retired trustee of the
St. Clair Fund (registered investment companies). He was
formerly Assistant Treasurer of Ford Motor Company. His address
is 30835 River Crossing, Bingham Farms, Michigan 48025.
Officers
JOHN D. CARIFA, Chairman and President, (see biography
above).
KELLY A. MORGAN, 32, Senior Vice President, is a Senior
Vice President of ACMC, with which she has been associated since
prior to 1990.
THOMAS J. BARDONG, 50, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1990.
NICHOLAS E. CROSSLAND, 24, Vice President, is an
Assistant Vice President with Alliance Capital Limited, with
which he has been associated since 1991. Prior thereto, he was a
trading assistant at Brewin, Dolphin since prior to 1990.
MARK D. GERSTEN, 44, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS"), with which he has been associated since prior to
1990.
EDMUND P. BERGAN, JR., 45, Secretary, is Senior Vice
President and the General Counsel of AFD and AFS and Vice
President and Assistant General Counsel of ACMC, with which he
has been associated since prior to 1990.
DOMENICK PUGLIESE, 34, Assistant Secretary, is Vice
President and Associate General Counsel of AFD, with which he has
30
<PAGE>
been associated since May 1995. Previously, he was Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, Vice President and Associate General Counsel of
Prudential Securities since 1991 and an associate with Battle
Fowler since prior to 1990.
PATRICK J. FARRELL, 36, Controller, is a Vice President
of AFS, with which he has been associated since prior to 1990.
STEPHEN M. ATKINS, 30, Assistant Controller, has been a
Manager of International Mutual Fund Accounting of AFS since July
1992. Prior thereto, he was Supervisor in International Mutual
Fund Accounting since prior to 1990.
The aggregate compensation paid by the Fund to each of
the Directors during the fiscal period ended July 31,1995, the
aggregate compensation paid to each of the Directors during
calendar year 1994 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees.
Total Number
of Funds in
the Alliance
Total Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund From the Fund Fund Trustee
________________ _____________ _____________ ______________
John D. Carifa $0 $0 42
David H. Dievler $0 $0 49
W.H. Henderson $0 $ 22,250 4
Stig Host $0 $ 22,250 4
Richard M. Lilly $0 $ 22,250 4
Alan Stoga $0 $ 21,500 4
Hon. John C. West $0 $ 22,250 4
Robert C. White $0 $133,500 36
As of November 16, 1995, the Trustees and officers of the Fund as
a group owned less than 1% of the shares of the Fund.
31
<PAGE>
Adviser
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1995 of more than $140 billion (of which more than
$47 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 50
registered investment companies comprising 104 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, 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"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
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<PAGE>
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge, with
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. For the fiscal period ended
July 31, 1995, the Adviser received from the Fund advisory fees
of $-0-.
As to the obtaining of services other than those
specifically provided to the Fund by the Adviser, the Fund may
employ its own personnel. For such services, it also may utilize
personnel employed by the Adviser or by other subsidiaries of
Equitable. In such event, the services will be provided to the
33
<PAGE>
Fund at cost and the payments specifically approved by the Fund's
Board of Directors.
Under the Advisory Agreement, the Fund pays the Adviser
a fee at the annual rate of 1.00% of the value of the average
daily net assets of the Fund. This fee is higher than the
management fees paid by most U.S. registered investment companies
investing exclusively in securities of U.S. issuers, although the
Adviser believes the fee is generally comparable to the
management fees paid by other investment companies having growth
and income as their investment objectives. The fee is accrued
daily and paid monthly.
In addition to the payments to the Adviser under the
Advisory Agreement described above, the Fund pays certain other
costs, including (i) custody, transfer and dividend disbursing
expenses, (ii) fees of the Directors who are not affiliated with
the Adviser, (iii) legal and auditing expenses, (iv) clerical,
accounting and other office costs, (v) costs of printing the
Fund's prospectuses and shareholder reports, (vi) costs of
maintaining the Fund's existence, (vii) interest charges, taxes,
brokerage fees and commissions, (viii) costs of stationary and
supplies, (ix) expenses and fees related to registration and
filing with the Securities and Exchange Commission (the
"Commission") and with state regulatory authorities, (x) upon the
approval of the Board of Directors, costs of personnel of the
Adviser or its affiliates rendering clerical, accounting and
other office services, and (xi) any promotional expenses as may
be contemplated by the Distribution Services Agreement, described
below.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for its net expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement described below, and extraordinary expenses,
all to the extent permitted by applicable state securities laws
and regulations) which in any year exceed the limits prescribed
by any state in which the Fund's shares are qualified for sale.
The Fund may not qualify its shares for sale in every state. The
Fund believes that at present the most restrictive state expense
ratio limitation imposed by any state in which the Fund has
qualified its shares for sale is 2.5% of the first $30 million of
the mutual fund's average net assets, 2.0% of the next $70
million of its average net assets and 1.5% of its average net
assets in excess of $100 million. This limitation is not
applicable to expenses of the types specified above in the
parenthetical in this paragraph. Expense reimbursements, if any,
are accrued daily and paid monthly.
The Advisory Agreement became effective on December 8,
1994 having been approved by the unanimous vote, cast in person,
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<PAGE>
of the Fund's Directors, including the Directors who are not
parties to the Advisory Agreement or interested persons as
defined in Investment Company Act of 1940 (the "Act") of any such
party, at a meeting called for that purpose and held on December
8, 1994, and by the Fund's initial shareholder on December 7,
1994.
The Advisory Agreement will remain in effect until
December 31, 1996, and thereafter for successive twelve-month
periods (computed from each January 1), provided that such
continuance is approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's
Board of Directors, including in either case, approval by a
majority of the Directors who are not parties to the Advisory
Agreement or interested persons of any such party as defined by
the Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including registered investment
companies, and is investment adviser to ACM Institutional
Reserves, Inc., AFD Exchange Reserves, The Alliance Fund, Inc.,
Alliance All-Asia Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund, Inc.,
Alliance Capital Reserves, Alliance Counterpoint Fund, Alliance
Global Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc.,Alliance Government Reserves, Alliance Growth and
Income Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Mortgage Strategy Trust,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
Alliance Municipal Trust, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc., Alliance
Premier Growth Fund, Inc., Alliance Quasar Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all open-end investment companies; and to ACM Government
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<PAGE>
Income Fund, Inc., ACM Government Securities Fund, Inc., ACM
Government Spectrum Fund, Inc., ACM Government Opportunity Fund,
Inc., ACM Managed Dollar Income Fund, Inc., ACM Managed Income
Fund, Inc., ACM Municipal Securities Income Fund, Inc., Alliance
Global Environment Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Austria Fund, Inc., The Korean Investment Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all closed-
end investment companies.
EXPENSES OF THE FUND
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"). Under the Agreement, the Adviser may from time to
time and from its own funds or such other resources as may be
permitted by rules of the Commission make payments for
distribution services to the Principal Underwriter; the latter
may in turn pay part or all of such compensation to brokers or
other persons for their distribution assistance.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the shares, plus reimbursement for out-
of-pocket expenses. For the fiscal period ended July 31, 1995,
the Fund paid Alliance Fund Services, Inc. $-0- pursuant to the
Transfer Agency Agreement.
PURCHASE OF SHARES
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How To Buy Shares."
General
Shares of the Fund will be offered on a continuous basis
at a price equal to their net asset value. Shares of the Fund
are offered on a continuous basis through (i) investment dealers
that are members of the National Association of Securities
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Dealers, Inc. and have entered into selected dealer agreements
with the Principal Underwriter ("selected dealers"),
(ii) depository institutions and other financial intermediaries
or their affiliates, that have entered into selected agent
agreements with the Principal Underwriter ("selected agents"), or
(iii) the Principal Underwriter. The minimum for initial
investments by institutional investors is $1,000,000; there is no
minimum for subsequent investments by institutional investors or
for initial or subsequent investments by investment management
clients of the Adviser or its affiliates. As described under
"Shareholder Services," the Fund offers an automatic investment
program and a 403(b)(7) retirement plan which permit investments
of $25 or more. The subscriber may use the Subscription
Application found in the Prospectus for his or her initial
investment.
Investors may purchase shares of the Fund in the United
States directly from the Fund or from Alliance Fund Distributors,
Inc., the Fund's principal underwriter, acting as agent for the
Fund. Shares may also be sold in foreign countries where
permissible. The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value. On each Fund business day on which a purchase
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. New
York time) by dividing the value of the Fund's total assets, less
its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday, exclusive of
national holidays on which the Exchange is closed and Good
Friday. For purposes of this computation, Exchange-listed
securities and over-the-counter securities admitted to trading on
the NASDAQ National List are valued at the last quoted sale or,
if no sale, at the mean of closing bid and asked prices and
portfolio bonds are presently valued by a recognized pricing
service. If accurate quotations are not available, securities
will be valued at fair value determined in good faith by the
Board of Directors.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined, as described below. Orders received
by the Principal Underwriter prior to the close of regular
trading on the Exchange on each day the Exchange is open for
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<PAGE>
trading are priced at the net asset value computed as of the
close of regular trading on the Exchange on that day. In the
case of orders for purchase of shares placed through selected
dealers or agents, the applicable public offering price will be
the net asset value as so determined, but only if the selected
dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal
Underwriter prior to its close of business that same day
(normally 5:00 p.m. New York time). The selected dealer or agent
is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to
that day's closing price must be settled between the investor and
the selected dealer or agent. If the selected dealer or agent
receives the order after the close of regular trading on the
Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "Literature" telephone number
shown on the cover of this Statement of Additional Information.
Payment for shares purchased by telephone can be made only by
Electronic Funds Transfer from a bank account maintained by the
shareholder at a bank that is a member of the National Automated
Clearing House Association ("NACHA"). If a shareholder's
telephone purchase request is received before 3:00 p.m. New York
time on a Fund business day, the order to purchase shares is
automatically placed the following Fund business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day. Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission paid to
dealers for selling shares of Alliance Mutual Funds, the
Principal Underwriter will from time to time pay to dealers,
including Equico Securities, Inc., an affiliate of the Principal
Underwriter, additional cash or other incentives that are
conditioned upon the sale of a specified minimum dollar amount of
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shares of one or more Alliance Mutual Funds. Such incentives
will take the form of payment for attendance at seminars,
lunches, dinners, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer and
their immediate family members to urban or resort locations
within or outside the United States. Such a dealer may elect to
receive cash incentives of equivalent amount in lieu of such
payments.
Purchase and Sale of Shares
Institutional investors and investment management
clients of Alliance or its affiliates may purchase shares without
any initial sales charge or contingent deferred sales charge
directly from the Fund. Shares do not incur any distribution
fees.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares."
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation requires that the Fund redeem
the shares tendered to it, as described below, at a redemption
price equal to their net asset value as next computed following
the receipt of shares tendered for redemption in proper form.
There is no redemption charge. Payment of the redemption price
will be made within seven days after the Fund's receipt of such
tender for redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the New York Stock Exchange ("the Exchange") is
closed (other than customary weekend and holiday closings) or
during which the Commission determines that trading thereon is
restricted, or for any period during which an emergency (as
determined by the Commission) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the Commission may by order
permits for the protection of security holders of the Fund.
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Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Payment (either in cash or in portfolio securities)
received by a shareholder upon redemption or repurchase of his or
her shares, assuming the shares constitute capital assets in his,
will result in long-term or short-term capital gains (or loss)
depending upon the shareholder's holding period and basis in
respect of the shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Telephone Redemption By Electronic Funds Transfer.
Requests for redemption of shares for which no stock certificates
have been issued can also be made by telephone at (800) 221-5672
by a shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request must be for
at least $500 and may not exceed $100,000, and must be made
between 9:00 a.m. and 4:00 p.m. New York time on a Fund business
day as defined above. Proceeds of telephone redemptions will be
sent by Electronic Funds Transfer to a shareholder's designated
bank account at a bank selected by the shareholder that is a
member of the NACHA.
Telephone Redemption By Check. Except as noted below,
each Fund shareholder is eligible to request redemption, once in
any 30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) purchased within 15
calendar days prior to the redemption request, (iv) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (v) held in any retirement plan
account. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
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<PAGE>
General. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request, except that requests placed
through selected dealers or agents before the close of regular
trading on the Exchange on any day will be executed at the net
asset value determined as of such close of regular trading on
that day if received by the Principal Underwriter prior to its
close of business on that day (normally 5:00 p.m. New York time).
The selected dealer or agent is responsible for transmitting the
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request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly
or through a selected dealer or agent. Neither the Fund nor the
Principal Underwriter charges a fee or commission in connection
with the repurchase of shares. Normally, if shares of the Fund
are offered through a selected dealer or agent, the repurchase is
settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and
the Fund may suspend or terminate this practice at any time.
General
The sale of shares is a taxable transaction for Federal
tax purposes. Under unusual circumstances, the Fund may suspend
redemptions or postpone payment for up to seven days or longer,
as permitted by Federal securities law. The Fund reserves the
right to close out an account that through redemption has
remained below $200 for 90 days. Shareholders will receive 60
days' written notice to increase the account value before the
account is closed. In the case of a redemption or repurchase of
shares of the Fund recently purchased by check, redemption
proceeds will not be made available until the Fund is reasonably
assured that the check has cleared, normally up to 15 calendar
days following the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services."
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
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<PAGE>
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plan P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
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<PAGE>
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirements plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance
Fund Services, Inc. as compensation for its services to the
retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who in the future maintains, in addition
to his or her Fund account, an account for the same class of
shares of one or more other Alliance Mutual Funds may direct that
income dividends and/or capital gains paid on his or her Fund
shares be automatically reinvested, in any amount in shares of
the same class of such other Alliance Mutual Fund(s). Further
information can be obtained by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the cover of this Statement of Additional Information. Investors
wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section
of the Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
Shareholders may establish a systematic withdrawal plan
under which the shareholder will periodically receive a payment
in a stated amount of not less than $50 on a selected date.
withdrawal plan participants must elect to have their dividends
and distributions from the Fund automatically reinvested in
additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions. Shares acquired with
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<PAGE>
reinvested dividends and distributions will be liquidated first
to provide such withdrawal payments and thereafter other shares
will be liquidated to the extent necessary, and depending upon
the amount withdrawn, the investor's principal may be depleted.
A systematic withdrawal plan may be terminated at any time by the
shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares-General."
For all shareholders, payments under a systematic
withdrawal plan may be made by check or electronically via the
Automated Clearing House ("ACH") network. Investors wishing to
establish a systematic withdrawal plan in conjunction with their
initial investment in shares of the Fund should complete the
appropriate portion of the Subscription Application found in the
Prospectus, while current Fund shareholders desiring to do so can
obtain an application form by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the cover of this Statement of Additional Information.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
Shares of the Fund will be priced at the net asset value
per share next determined after receipt of a purchase or
redemption order. The net asset value per share is computed in
accordance with the Fund's Articles of Incorporation and By-Laws
as of the next close of regular trading on the Exchange following
receipt of a purchase order or tender of a redemption order on
each Fund business day on which such an order is received and
trading in the types of securities in which the Fund invests
might materially affect the value of the Fund's shares and on
such other days as the Directors of the Fund deems necessary in
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order to comply with Rule 22c-1 under the 1940 Act. The net
asset value per share is calculated by adding the market value of
all securities in the Fund's portfolio and other assets,
subtracting liabilities incurred or accrued and dividing by the
total number of the Fund's shares then outstanding.
For purposes of this computation, readily marketable
portfolio securities listed on the Exchange are valued, except as
indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange 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
by such method as the Directors of the Fund shall determine in
good faith to reflect its fair market value. Readily marketable
securities, including options, not listed on the Exchange but
listed on other national securities exchanges or admitted to
trading on the National Association of Securities Dealers
Automatic Quotations, Inc. ("NASDAQ") National List ("List") are
valued in like manner. Portfolio securities traded on more than
one national securities exchange are valued at the last sale
price on the business day as of which such value is being
determined as reflected on the tape at the close of the exchange
representing the principal market for such securities. Stock
index futures contracts will be valued in a like manner, except
that open futures contracts sales will be valued using the
closing settlement price or, in the absence of such a price, the
most recent quoted asked price.
Readily marketable securities including options, traded
only in the over-the-counter market, including listed securities
whose primary market is believed by the Adviser to be over-the-
counter but excluding those admitted to trading on the List, 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 such other comparable
sources as the Directors of the Fund deem appropriate to reflect
their fair market value. United States Government obligations
and other debt instruments having sixty days or less remaining
until maturity are stated at amortized cost which approximates
market value. All other assets of the Fund, including restricted
and not readily marketable securities, are valued in such manner
as the Directors of the Fund in good faith deem appropriate to
reflect their fair market value.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
United States Federal Income Taxation Of Dividends
and Distributions
General. The Fund intends to qualify and elect to be
treated as a "regulated investment company" under sections 851
through 855 of the Internal Revenue Code (the "Code"). To so
qualify, the Fund must, among other things, (i) derive at least
90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in stock, securities or
currency; (ii) derive less than 30% of its gross income in each
taxable year from the sale or other disposition within three
months of their acquisition by the Fund of stocks, securities,
options, futures or forward contracts and foreign currencies (or
options, futures or forward contracts on foreign currencies) that
are not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with
respect to stocks or securities); and (iii) diversify its
holdings so that, at the end of each quarter of its taxable year,
the following two conditions are met: (a) at least 50% of the
value of the Fund's assets is represented by cash, U.S.
Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment
companies). These requirements, among other things, may limit
the Fund's ability to write and purchase options, futures and
forward foreign currency contracts.
If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net short-
term capital loss), it will not be subject to Federal income and
excise taxes on the portion of its taxable income for the year
(including any net capital gain) that it distributes to
shareholders.
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The Fund intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to at least the sum of (i) 98% of its ordinary
income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. The Fund intends to make
timely distributions of the Fund's taxable income (including any
net capital gain) so that the Fund will not be subject to federal
income and excise taxes. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his Fund shares. Any dividend or distribution
received by a shareholder on shares of the Fund will have the
effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of such shares by
a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
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<PAGE>
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. However, if a shareholder has held shares
in the Fund for six months or less and during that period has
received a distribution taxable to the shareholder as a long-term
capital gain, any loss recognized by the shareholder on the sale
of those shares during the six-month period will be treated as a
long-term capital loss to the extent of the dividend. In
determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by
means of options, short sales or similar transactions is not
counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Foreign Taxes. Income received by the Fund may also be
subject to foreign income taxes, including withholding taxes.
The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of such taxes
or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
49
<PAGE>
assurance that the Fund will be able to do so. Pursuant to this
election a United States shareholder will be required to
(i) include in gross income (in addition to taxable dividends
actually received) his pro rata share of foreign taxes paid by
the Fund, (ii) treat his pro rata share of such foreign taxes as
having been paid by him, and (iii) either deduct such pro rata
share of foreign taxes in computing his taxable income or treat
such foreign taxes as a credit against United States federal
income taxes. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of
the Code, will not be affected by any such pass through of taxes
by the Fund. No deduction for foreign taxes may be claimed by an
individual United States shareholder who does not itemize
deductions. In addition, certain individual United States
shareholders may be subject to rules which limit or reduce their
availability to fully deduct their pro rata share of the foreign
taxes paid by the Fund. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will pass through for that year
and, if so, such notification will designate (i) the
shareholder's portion of the foreign taxes paid to each such
country and (ii) the portion of dividends that represents income
derived from sources within each such country.
Backup Withholding. The Fund may be required to
withhold United States Federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a United States
Shareholder's United States Federal income tax liability or
refunded.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States Federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
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the Code, the Fund may be subject to United States Federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its shareholders. The Fund may also be subject to
additional interest charges in respect of deferred taxes arising
from such distributions or gains. Any tax paid by the Fund as a
result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A
PFIC means any foreign corporation if, for the taxable year
involved, either (i) it derives at least 75% of its gross income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average,
at least 50% of the value (or adjusted tax basis, if elected) of
the assets held by the corporation produce "passive income." The
Treasury has issued proposed regulations which would provide a
"marked to market" election solely with respect to gain inherent
in PFIC stock held by a regulated investment company, such as the
Fund, which does not elect to treat the PFIC as a "qualified
electing fund." If the proposed regulations are adopted in final
form and the election provided therein were to be made by the
Fund, the Fund would recognize a gain as of the last business day
of its taxable year equal to the excess of the fair market value
of each share of stock in the PFIC over the Fund's adjusted tax
basis in that share. This gain, which would be treated as
derived from securities held by the Fund for at least three
months, generally would not be subject to the deferred tax and
interest charge amounts to which it might otherwise be subject,
as discussed above, in the event of an "excess distribution" or
gain with regard to shares of a PFIC. If the Fund purchases
shares in a PFIC and the Fund does elect to treat the foreign
corporation as a "qualified electing fund" under the Code, the
Fund may be required to include in its income each year a portion
of the ordinary income and net capital gains of the foreign
corporation, even if this income is not distributed to the Fund.
Any such income would be subject to the 90% and calendar year
distribution requirements described above.
Currency Fluctuations-"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
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<PAGE>
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 shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each distribution will be treated as a gain from the sale of
shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each taxable year will be "marked to market"
and treated for federal income tax purposes as though sold for
fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts will
be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available
to be distributed to shareholders as ordinary income, as
described above. The Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described
below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
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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 shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swaps, 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
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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.
Taxation of Foreign Stockholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
Other Taxation
As noted above, the Fund may be subject to other state
and local taxes.
________________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
________________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of broker-
dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
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dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are affected may be useful to the
Adviser in connection with advisory clients other than the Fund.
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 Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
and subject to seeking best execution, the Fund may consider
sales of shares of the Fund or other investment companies managed
by the Adviser as a factor in the selection of brokers to execute
portfolio transactions for the Fund. During the fiscal year
ended July 31, 1995 transactions in portfolio securities of the
Fund amounting to $-0-, with associated brokerage commissions of
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<PAGE>
approximately $-0-, were allocated to persons or firms supplying
investment information to the Adviser.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
Many of the Fund's portfolio transactions in equity
securities will occur on foreign stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions.
On many foreign stock exchanges these commissions are fixed.
Securities traded in foreign over-the-counter markets (including
most fixed-income securities) are purchased from and sold to
dealers acting as principal. Over-the-counter transactions
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include
a stated underwriter's discount. The Adviser expects to effect
the bulk of its transactions in securities of companies based in
foreign countries through brokers, dealers or underwriters
located in such countries. U.S. Government or other U.S.
securities constituting permissible investments will be purchased
and sold through U.S. brokers, dealers or underwriters.
During the fiscal period from September 30, 1994 through
July 31, 1995, the Fund incurred brokerage commissions amounting
in the aggregate to $-0-. During the fiscal period ended
July 31, 1995, brokerage commissions amounting in the aggregate
to $-0- 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 July 31, 1995,
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 July 31, 1995, 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.
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________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The authorized capital stock of the Fund currently
consists of 3,000,000,000 shares of Class A Common Stock,
3,000,000,000 shares of Class B Common Stock, 3,000,000,000
shares of Class C Common Stock and 3,000,000,000 shares of
Class Y Common Stock, each having a par value of $.001 per share.
The shares offered by the current Prospectus are shares of
Class Y Common Stock. All shares of the Fund, when issued, are
fully paid and non-assessable. The Directors are authorized to
issue any unissued shares to any number of additional series
without shareholder approval. Accordingly, the Directors in the
future, for reasons such as the desire to establish one or more
additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a second portfolio, each share of either
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of both portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Investment Advisory Contract and changes in investment
policy, shares of each portfolio would vote as a separate series.
Procedures for calling a shareholders' meeting for the removal of
Directors of the Fund, similar to those set forth in Section
16(c) of the 1940 Act will be available to shareholders of the
Fund. The rights of the holders of shares of a series may not be
modified except by the vote of a majority of the outstanding
shares of such series.
An order has been received from the Securities and
Exchange Commission permitting the issuance and sale of the
shares representing interests in the Fund. The issuance and sale
of any other additional classes will require an additional order
from the Securities and Exchange Commission. There is no
assurance that such exemptive relief would be granted.
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Water Street, Boston, Massachusetts 02109, will act as the Fund's
custodian. The Fund's securities and cash are held under a
custodian agreement by Brown Brothers. Rules adopted under the
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1940 Act permit the Fund to maintain its securities and cash in
the custody of certain eligible banks and securities
depositories. Pursuant to those rules, 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 Securities and Exchange
Commission. Selection of the subcustodians will be made by the
Board of Directors of the Fund following a consideration of a
number of factors, including, but not limited to, the reliability
and financial stability of the institution, the ability of the
institution to capably perform custodial services of the Fund,
the reputation of the institution in its national market, the
political and economic stability of the countries in which the
subcustodians will be located, and risks of potential
nationalization or exportation of Fund assets. In addition, the
1940 Act requires that foreign bank subcustodians, among other
things, have shareholder equity in excess of $200,000,000, have
no lien on the Fund's asset and maintain adequate and accessible
records.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and the
Principal Underwriter, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act of 1933, as
amended.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, One
Battery Park Plaza, New York, New York 10004. Seward & Kissel
has relied upon the opinion of Venable, Baetjer and Howard, LLP,
Baltimore Maryland, for matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, has been appointed as independent
auditors for the Fund.
58
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Total Return Quotations
From time to time the Fund advertises its "total
return." The Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year
periods (or the period since the Fund's inception). The Fund's
total return for such a period is computed by finding, through
the use of a formula prescribed by the Securities and Exchange
Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to
the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to
have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been
paid.
The Fund's total return is not fixed and will fluctuate
in response to prevailing market conditions or as a function of
the type and quality of the securities in the Fund's portfolio
and its expenses. Total return information is useful in
reviewing the Fund's performance but such information may not
provide a basis for comparison with bank deposits or other
investments which pay a fixed yield for a stated period of time.
An investor's principal invested in the Fund is not fixed and
will fluctuate in response to prevailing market conditions.
Advertisements quoting performance ratings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
and advertisements presenting the historical record of payments
of income dividends by the Fund may also from time to time be
sent to investors or placed in newspapers, magazines such as
Barrons, Business Week, Changing Times, Forbes, Investor's Daily,
Money Magazine, The New York Times and The Wall Street Journal or
other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act of
1933. Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
59
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ALLIANCE DEVELOPING MARKETS FUND, INC.
Statement of Assets and Liabilities
July 31, 1995
ASSETS
Cash......................................... $100,000
Deferred organization expenses (Note A)...... 103,300
Total assets................................. 203,300
--------
LIABILITIES
Deferred organization expenses payable
(Note A)................................... 103,300
---------
NET ASSETS
(Applicable to 10,000 shares of Class Y common
stock issued and outstanding, with $.001 par
value and 3,000,000,000 shares authorized.
Class A, Class B, Class C are also authorized
each with $.001 par value and 3,000,000,000
shares authorized)........................... $ 100,000
---------
CALCULATION OF MAXIMUM OFFERING PRICE
Class Y Shares
Net asset value and redemption price per
share ($100,000/10,000 shares issued and
outstanding)................................. $ 10.00
----------
See notes to Statement of Assets and Liabilities
60
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Alliance Developing Markets Fund, Inc.
Notes to Financial Statement
July 31, 1995
Note A-Organization
Alliance Developing Markets Fund, Inc. (the "Fund"), organized as
a Maryland corporation on September 30, 1994, is registered under
the Investment Company Act of 1940 as an open-end, diversified
management investment company. The Fund has had no operations
other than the sale to Alliance Capital Management L.P. (the
"Adviser") of 10,000 shares of Class Y common stock for the
amount of $100,000 on December 6, 1994. The Fund currently
offers one class of shares. Class Y shares are sold without an
initial or contingent deferred sales charge. Costs incurred and
to be incurred in connection with the organization and initial
registration of the Fund will be paid initially by the Adviser.
The Fund will reimburse the Adviser for such costs, which will be
deferred and amortized by the Fund over the period of benefit,
not to exceed 60 months from the date the Fund commences
investment operations. If any of the initial shares of the Fund
are redeemed by a holder thereof during such amortization period,
the proceeds will be reduced by the unamortized organization
expenses in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the
time of redemption.
Note B - Investment Advisory, Transfer Agency
and Distribution Services Agreements
Under the terms of an Investment Advisory Agreement, the Fund
will pay its Adviser an advisory fee at an annual rate of 1% of
the Fund's average daily net assets. Such fee will be accrued
daily and paid monthly.
The Adviser has agreed to reimburse the Fund to the extent that
the aggregate expenses (exclusive of interest, taxes, brokerage,
distribution services fees and extraordinary expenses, all to the
extent permitted by applicable state law and regulation) exceed
the limits prescribed by any state in which the Fund's shares are
qualified for sale. The Fund believes that the most restrictive
expense ratio limitation imposed by any state is 2.5% of the
first $30 million of its average net assets, 2% of the next $70
million of its average net assets and 1.5% of its average net
assets in excess of $100 million. Expense reimbursements, if
any, will be accrued daily and paid monthly.
The Fund has entered into a Distribution Services Agreement (the
"Agreement") with Alliance Fund Distributors, Inc. (the
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"Principal Underwriter"). The Agreement provides that the
Principal Underwriter will use amounts payable under the
Agreement in their entirety for distribution assistance and
promotional activities. The Agreement also provides that the
Adviser will use its own resources to finance the distribution of
the Fund's shares. The Principal Underwriter is a wholly-owned
subsidiary of Alliance Capital Management L.P.
The Fund will compensate Alliance Fund Services, Inc. (a wholly-
owned subsidiary of the Adviser) for performing transfer agency-
related services for the Fund.
62
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Report of Independent Auditors
Shareholder and Board of Directors
Alliance Developing Markets Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Developing Markets Fund, Inc. as of
July 31, 1995. This statement of assets and liabilities is the
responsibility of the Fund's management. Our responsibility is
to express an opinion on this statement of assets and liabilities
based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether this statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects, the
financial position of Alliance Developing Markets Fund, Inc. at
July 31, l995, in conformity with generally accepted accounting
principles.
\s\Ernst & Young LLP
Ernst & Young LLP
New York, New York
November 27, 1995
63
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________________________________________________________________
APPENDIX A: OPTIONS
________________________________________________________________
Options
The Fund will only write "covered" put and call options,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the heading "Investment
Objective and Policies - Investment Practices -- Options."
The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a "closing sale transaction".
This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be
effected in any particular situation.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
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investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-
write transactions; that is, the Fund may purchase a security and
then write a call option against that security. The exercise
price of the call the Fund determines to write will depend upon
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the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option
is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during
the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
option minus the amount by which the market price of the security
is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-
and-write transactions.
The Fund may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Fund will reduce any profit it might otherwise have
realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs. The Fund may
purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future.
The premium paid for the call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to
the Fund.
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________________________________________________________________
APPENDIX B: FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES
________________________________________________________________
Futures Contracts
The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, securities issued by foreign
government entities or common stocks. U.S. futures contracts
have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different price or
interest rate from that specified in the contract. In some (but
not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
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<PAGE>
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
Stock Index Futures
The Fund may purchase and sell stock index futures as a
hedge against movements in the equity markets. There are several
risks in connection with the use of stock index futures by the
Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the stock
index futures and movements in the price of the securities which
are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the Fund
will experience either a loss or gain on the future which will
not be completely offset by movements in the price of the
securities which are subject to the hedge. To compensate for the
imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Fund may buy or sell stock index futures contracts
in a greater dollar amount than the dollar amount of securities
being hedged if the volatility over a particular time period of
the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by Alliance. Conversely, the Fund may
buy or sell fewer stock index futures contracts if the volatility
over a particular time period of the prices of the securities
being hedged is less than the volatility over such time period of
the stock index, or it is otherwise deemed to be appropriate by
Alliance. It is also possible that, when the Fund has sold
futures to hedge its portfolio against a decline in the market,
the market may advance and the value of securities held in the
Fund may decline. If this occurred, the Fund would lose money on
the futures and also experience a decline in value in its
portfolio securities. However, over time the value of a
diversified portfolio should tend to move in the same direction
as the market indices upon which the futures are based, although
there may be deviations arising from differences between the
composition of the Fund and the stocks comprising the index.
Where futures are purchased to hedge against a possible
increase in the price of stock before the Fund is able to invest
its cash (or cash equivalents) in stocks (or options) in an
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<PAGE>
orderly fashion, it is possible that the market may decline
instead. If the Fund then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss
on the futures contract that is not offset by a reduction in the
price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.
Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Fund intends to purchase
or sell futures only on exchanges or boards of trade where there
appear to be active secondary markets, there is no assurance that
a liquid secondary market on any exchange or board of trade will
exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an
offset on a futures contract.
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Options on Futures Contracts
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The Fund is not a
commodity pool and all transactions in futures contracts and
options on futures contracts engaged in by the Fund must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the
CFTC. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against
adverse market conditions.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract or securities comprising an index. If
the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline
that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the
futures contract or securities comprising an index. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
B-4
<PAGE>
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options on Foreign Currencies
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities,
even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the
Fund's position, it may forfeit the entire amount amount of the
premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund are traded on
U.S. and foreign exchanges or over-the-counter.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rate do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
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<PAGE>
the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction.
If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversation or
exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and
other high-grade liquid debt securities in a segregated account
with its Custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or other high-grade liquid debt securities in an
amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.
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Additional Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC.
To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on securities may be traded over-the-counter. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
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option exercise, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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________________________________________________________________
APPENDIX C: BOND RATINGS
________________________________________________________________
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-
grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impair some time in the future.
Baa: Bonds which are rated Baa are considered as medium-
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well-
assured. Often the protection of interest and principal payments
may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
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interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Unrated: When no rating has been assigned or when a
rating has been suspended or withdrawn, it may be for reasons
unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of
the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the
issue or issuer.
4. The issue was privately placed, in which case the
rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory
analysis; if there is no longer available reasonable up-to-date
data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups
which Moody's believe possess the strongest investment attributes
are designated by the symbols Aa 1, A-1, Baa 1, Ba 1 and B 1.
Standard & Poor's Ratings Services
AAA: Bonds rated AAA have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
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AA: Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated
issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds
in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are
regarded as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest.
While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may
be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
NR: Indicates that no rating has been requested, that
there is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a
matter of policy.
Duff & Phelps Long-Term Rating Scale
AAA: Highest credit quality. The risk factors are
negligible.
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AA+, AA, AA-: High credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A+, A, A-: Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB-: Below average protection factors but
still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely
to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B-: Below investment grade and possessing risk
that obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC: Well below investment grade securities.
Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends. Protection factors
are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company
developments.
DD: Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service Bond Ratings
AAA: Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other that through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
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as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA: Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior though
strong lien-- in many cases directly following an AAA security--
or the margin of safety is less strikingly broad. The issue may
be the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A: A securities are strong investments and in many
cases of highly active market, but are not so heavily protected
as the two upper classes or possibly are of similar security but
less quickly salable. As a class they are more sensitive in
standing and market to material changes in current earnings of
the company. With favoring conditions such securities are likely
to work into a high rating, but in occasional instances changes
cause the rating to be lowered.
BBB: BBB rated bonds are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with
higher ratings.
BB: Bonds are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over
time by adverse economic changes. However, business and
financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While
bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics
which, if not remedied, may lead to default.
The ability to meet obligations requires an advantageous
business and economic environment.
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CC: Bonds are minimally protected. Default in payment
of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest
or principal.
DDD, DD, D: Bonds are in default on interest and/or
principal payments. Such bonds are extremely speculative and
should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with
a rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA, DDD, DD or D categories.
NR: Indicates that Fitch does not rate the specific
issue.
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PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in the Registrant's Statement of Additional
Information
Statement of Assets and Liabilities - July 31, 1995
Notes to Financial Statements - July 31, 1995
Report of Independent Auditors
All other financial statements or schedules are not
required or the required information is shown in the
Statement of Assets and Liabilities or the notes thereto
(b) Exhibits
(1) Copy of Articles of Incorporation - Incorporated by
reference by from Pre-effective Amendment No. 1
Form N-1A (File Nos. 33-84960 and 811-8806) filed
with the Securities and Exchange Commission on
October 11, 1994.
(2) Copy of By-Laws of the Registrant - Incorporated by
reference by from Pre-effective Amendment No. 1
Form N-1A (File Nos. 33-84960 and 811-8806) filed
with the Securities and Exchange Commission on
October 11, 1994.
(3) Not applicable.
(4) Form of Share Certificate for Class Y Shares -
Incorporated by reference from Registrants
Registration Statement on Form N-1A (File
Nos. 33-84960 and 811-8806) filed with the
Securities and Exchange Commission on December 8,
1994.
(5) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference from Registrants Registration Statement
on Form N-1A (File Nos. 33-84960 and 811-8806)
filed with the Securities and Exchange Commission
on December 8, 1994.
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(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference from
Registrants Registration Statement on Form
N-1A (File Nos. 33-84960 and 811-8806) filed
with the Securities and Exchange Commission on
December 8, 1994.
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected
dealers offering shares of Registrant -
Incorporated by reference from Registrants
Registration Statement on Form N-1A (File
Nos. 33-84960 and 811-8806) filed with the
Securities and Exchange Commission on
December 8, 1994.
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected
agents making available shares of Registrant -
Incorporated by reference from Registrants
Registration Statement on Form N-1A (File
Nos. 33-84960 and 811-8806) filed with the
Securities and Exchange Commission on
December 8, 1994.
(7) Not applicable.
(8) Custodian Contract between the Registrant and Brown
Brothers Harriman & Co. - Incorporated by reference
from Registrants Registration Statement on Form
N-1A (File Nos. 33-84960 and 811-8806) filed with
the Securities and Exchange Commission on
December 8, 1994.
(9) (a) Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc. -
Incorporated by reference from Registrants
Registration Statement on Form N-1A (File
Nos. 33-84960 and 811-8806) filed with the
Securities and Exchange Commission on
December 8, 1994.
(10) (a) Opinion and Consent of Seward & Kissel -
Incorporated by reference from Registrants
Registration Statement on Form N-1A (File
Nos. 33-84960 and 811-8806) filed with the
Securities and Exchange Commission on
December 8, 1994.
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(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP - Incorporated by reference from
Registrants Registration Statement on Form
N-1A (File Nos. 33-84960 and 811-8806) filed
with the Securities and Exchange Commission on
December 8, 1994.
(11) Consent of Independent Auditors - Filed herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. - Incorporated by reference
from Registrants Registration Statement on Form
N-1A (File Nos. 33-84960 and 811-8806) filed with
the Securities and Exchange Commission on
December 8, 1994.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Schedule for computation of performance
quotations - Filed herewith.
(27) Financial Data Schedule - Filed herewith.
Other Exhibit: Not applicable.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
The Registrant is a recently organized corporation and
Alliance Capital Management owns 100% of its issued and
outstanding common stock.
ITEM 26. Number of Holders of Securities.
One. The Registrant is a recently organized corporation
and Alliance Capital Management owns 100% of its issued
and outstanding common stock.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland and as set
forth in Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 in response to
Item 24, Article VII and Article VIII of Registrant's
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By- Laws, filed as Exhibit 2 in response to Item 24, and
Section 10 of the proposed Distribution Services
Agreement, filed as Exhibit 6(a) in response to Item 24,
all as set forth below. The liability of the
Registrant's directors and officers is dealt with in
Article EIGHTH of Registrant's Articles of
Incorporation, as set forth below. The Adviser's
liability for any loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the proposed
Advisory Agreement, filed as Exhibit 5 in response to
Item 24, as set forth below. The Administrator's
liability for any loss suffered by the Registrant or its
shareholders is set forth in Section 6 of Administration
Agreement, filed as Exhibit 9(b) in response to Item 24,
as set forth below.
Section 2-418 of the Maryland General Corporation Law
reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meanings indicated.
(1) "Director" means any person who is or was
a director of a corporation and any person who,
while a director of a corporation, is or was
serving at the request of the corporation as a
director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation,
partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation in a
merger, consolidation, or other transaction in
which the predecessor's existence ceased upon
consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a
director, the office of director in the
corporation; and
(ii) When used with respect to a person
other than a director as contemplated in subsection
(j), the elective or appointive office in the
corporation held by the officer, or the employment
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or agency relationship undertaken by the employee
or agent in behalf of the corporation.
(iii) "Official capacity" does not
include service for any other foreign or domestic
corporation or any partnership, joint
venture,trust, other enterprise, or employee
benefit plan.
(5) "Party" includes a person who was, is, or
is threatened to be made a named defendant or
respondent in a proceeding.
(6) "Proceeding" means any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative.
(b)(1) A corporation may indemnify any
director made a party to any proceeding by reason
of service in that capacity unless it is
established that:
(i) The act or omission of the director
was material to the matter giving rise to the
proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an
improper personal benefit in money, property, or
services; or
(iii) In the case of any criminal
proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.
(2) (i) Indemnification may be against
judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by the
director in connection with the proceeding.
(ii) However, if the proceeding was one
by or in the right of the corporation,
indemnification may not be made in respect of any
proceeding in which the director shall have been
adjudged to be liable to the corporation.
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(3) (i) The termination of any proceeding
by judgment, order or settlement does not create a
presumption that the director did not meet the
requisite standard of conduct set forth in this
subsection.
(ii) The termination of any proceeding
by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation
prior to judgment, creates a rebuttable presumption
that the director did not meet that standard of
conduct.
(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to
the director, whether or not involving action in
the director's official capacity, in which the
director was adjudged to be liable on the basis
that personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on
the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this
section shall be indemnified against reasonable
expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction upon
application of a director and such notice as the
court shall require, may order indemnification in
the following circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph (1) of
this subsection, the court shall order
indemnification, in which case the director shall
be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the director
is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not the director has met
the standards of conduct set forth in subsection
(b) of this section or has been adjudged liable
under the circumstances described in subsection (c)
of this section, the court may order such
indemnification as the court shall deem proper.
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However, indemnification with respect to any
proceeding by or in the right of the corporation or
in which liability shall have been adjudged in the
circumstances described in subsection (c) shall be
limited to expenses.
(3) A court of appropriate jurisdiction may
be the same court in which the proceeding involving
the director's liability took place.
(e)(1) Indemnification under subsection (b)
of this section may not be made by the corporation
unless authorized for a specific proceeding after a
determination has been made that indemnification of
the director is permissible in the circumstances
because the director has met the standard of
conduct set forth in subsection (b) of this
section.
(2) Such determination shall be made:
(i) By the board of directors by a
majority vote of a quorum consisting of directors
not, at the time, parties to the proceeding, or, if
such a quorum cannot be obtained, then by a
majority vote of a committee of the board
consisting solely of two or more directors not, at
the time, parties to such proceeding and who were
duly designated to act in the matter by a majority
vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel selected
by the board of directors or a committee of the
board by vote as set forth in subparagraph (i) of
this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the
committee cannot be established, by a majority vote
of the full board in which directors who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses
shall be made in the same manner as the
determination that indemnification is permissible.
However, if the determination that indemnification
is permissible is made by special legal counsel,
authorization of indemnification and determination
as to reasonableness of expenses shall be made in
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the manner specified in subparagraph (ii) of
paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are parties
to the proceeding may not be voted on the subject
matter under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may be paid
or reimbursed by the corporation in advance of the
final disposition of the proceeding, upon receipt
by the corporation of:
(i) A written affirmation by the
director of the director's good faith belief that
the standard of conduct necessary for
indemnification by the corporation as authorized in
this section has been met; and
(ii) A written undertaking by or on
behalf of the director to repay the amount if it
shall
ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph
(ii) of paragraph (1) of this subsection shall be
an unlimited general obligation of the director but
need not be secured and may be accepted without
reference to financial ability to make the
repayment.
(3) Payments under this subsection shall be
made as provided by the charter, bylaws, or
contract or as specified in subsection (e) of this
section.
(g) The indemnification and advancement of
expenses provided or authorized by this section may
not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director
may be entitled under the charter, the bylaws, a
resolution of stockholders or directors, an
agreement or otherwise, both as to action in an
official capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the
corporation's power to pay or reimburse expenses
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incurred by a director in connection with an
appearance as a witness in a proceeding at a time
when the director has not been made a named
defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit
plan where the performance of the director's duties
to the corporation also imposes duties on, or
otherwise involves services by, the director to the
plan or participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the
performance of the director's duties for a purpose
reasonably believed by the director to be in the
interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which
is not opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be
indemnified as and to the extent provided in
subsection (d) of this section for a director and
shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or agent of the
corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may indemnify
and advance expenses to an officer, employee, or
agent who is not a director to such further extent,
consistent with law, as may be provided by its
charter, bylaws, general or specific action of its
board of directors or contract.
(k)(1) A corporation may purchase and
maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of
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the corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was
serving at the request, of the corporation as a
director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation,
partnership, joint venture, trust, other
enterprise, or employee benefit plan against any
liability asserted against and incurred by such
person in any such capacity or arising out of such
person's position, whether or not the corporation
would have the power to indemnify against liability
under the provisions of this section.
(2) A corporation may provide similar
protection, including a trust fund, letter of
credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection may
be provided by a subsidiary or an affiliate of the
corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with this
section, if arising out of a proceeding by or in
the right of the corporation, shall be reported in
writing to the stockholders with the notice of the
next stockholders' meeting or prior to the
meeting."
Article EIGHTH of the Registrant's Articles of
Incorporation reads as follows:
"(1) To the full extent that limitations on
the liability of directors and officers are
permitted by the Maryland General Corporation Law,
no director or officer of the Corporation shall
have any liability to the Corporation or its
stockholders for damages. This limitation on
liability applies to events occurring at the time a
person serves as a director or officer of the
Corporation whether or not such person is a
director or officer at the time of any proceeding
in which liability is asserted.
"(2) The Corporation shall indemnify and
advance expenses to its currently acting and its
former directors to the full extent that
indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its
C-10
<PAGE>
officers to the same extent as its directors and
may do so to such further extent as is consistent
with law. The Board of Directors may by By-Law,
resolution or agreement make further provision for
indemnification of directors, officers, employees
and agents to the full extent permitted by the
Maryland General Corporation Law.
"(3) No provision of this Article shall be
effective to protect or purport to protect any
director or officer of the Corporation against any
liability to the Corporation or its stockholders to
which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office.
"(4) References to the Maryland General
Corporation Law in this Article are to that law as
from time to time amended. No amendment to the
charter of the Corporation shall affect any right
of any person under this Article based on any
event, omission or proceeding prior to the
amendment."
Article VII, Section 7 of the Registrant's By-Laws reads
as follows:
Section 7. Insurance Against Certain
Liabilities. The Corporation shall not bear the
cost of insurance that protects or purports to
protect directors and officers of the Corporation
against any liabilities to the Corporation or its
security holders to which any such director or
officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office.
ARTICLE VIII of the Registrant's By-Laws reads as
follows:
Section 1. Indemnification of Directors and
Officers. The Corporation shall indemnify its
directors to the full extent that indemnification
of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify
its officers to the same extent as its directors
and to such further extent as is consistent with
law. The Corporation shall indemnify its directors
and officers who while serving as directors or
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<PAGE>
officers also serve at the request of the
Corporation as a director, officer, partner,
trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the
full extent consistent with law. The
indemnification and other rights provided by this
Article shall continue as to a person who has
ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and
administrators of such a person. This Article
shall not protect any such person against any
liability to the Corporation or any stockholder
thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office
("disabling conduct").
Section 2. Advances. Any current or former
director or officer of the Corporation seeking
indemnification within the scope of this Article
shall be entitled to advances from the Corporation
for payment of the reasonable expenses incurred by
him in connection with the matter as to which he is
seeking indemnification in the manner and to the
full extent permissible under the Maryland General
Corporation Law. The person seeking
indemnification shall provide to the Corporation a
written affirmation of his good faith belief that
the standard of conduct necessary for
indemnification by the Corporation has been met and
a written undertaking to repay any such advance if
it should ultimately be determined that the
standard of conduct has not been met. In addition,
at least one of the following additional conditions
shall be met: (a) the person seeking
indemnification shall provide a security in form
and amount acceptable to the Corporation for his
undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the
Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested non-party directors"),
or independent legal counsel, in a written opinion,
shall have determined, based on a review of facts
readily available to the Corporation at the time
the advance is proposed to be made, that there is
reason to believe that the person seeking
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<PAGE>
indemnification will ultimately be found to be
entitled to indemnification.
Section 3. Procedure. At the request of any
person claiming indemnification under this Article,
the Board of Directors shall determine, or cause to
be determined, in a manner consistent with the
Maryland General Corporation Law, whether the
standards required by this Article have been met.
Indemnification shall be made only following:
(a) a final decision on the merits by a court or
other body before whom the proceeding was brought
that the person to be indemnified was not liable by
reason of disabling conduct or (b) in the absence
of such a decision, a reasonable determination,
based upon a review of the facts, that the person
to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of
a quorum of disinterested non-party directors or
(ii) an independent legal counsel in a written
opinion.
Section 4. Indemnification of Employees and
Agents. Employees and agents who are not officers
or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such
employees or agents, as may be provided by action
of the Board of Directors or by contract, subject
to any limitations imposed by the Investment
Company Act of 1940.
Section 5. Other Rights. The Board of Directors
may make further provision consistent with law for
indemnification and advance of expenses to
directors, officers, employees and agents by
resolution, agreement or otherwise. The
indemnification provided by this Article shall not
be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which
those seeking indemnification may be entitled under
any insurance or other agreement or resolution of
stockholders or disinterested directors or
otherwise. The rights provided to any person by
this Article shall be enforceable against the
Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to
serve as a director, officer, employee, or agent as
provided above.
Section 6. Amendments. References in this Article
are to the Maryland General Corporation Law and to
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<PAGE>
the Investment Company Act of 1940 as from time to
time amended. No amendment of these By-laws shall
affect any right of any person under this Article
based on any event, omission or proceeding prior to
the amendment.
The Advisory Agreement to be between the Registrant
and Alliance Capital Management L.P. provides that
Alliance Capital Management L.P. will not be liable
under such agreements for any mistake of judgment
or in any event whatsoever except for lack of good
faith and that nothing therein shall be deemed to
protect Alliance Capital Management L.P. against
any liability to the Registrant or its security
holders to which it would otherwise be subject by
reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties
thereunder, or by reason of reckless disregard of
its duties and obligations thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
provides that the Registrant will indemnify, defend
and hold Alliance Fund Distributors, Inc., and any
person who controls it within the meaning of
Section 15 of the Securities Act of 1933 (the
"Securities Act"), free and harmless from and
against any and all claims, demands, liabilities
and expenses which Alliance Fund Distributors, Inc.
or any controlling person may incur arising out of
or based upon any alleged untrue statement of a
material fact contained in the Registrant's
Registration Statement, Prospectus or Statement of
Additional Information or arising out of, or based
upon any alleged omission to state a material fact
required to be stated in any one of the foregoing
or necessary to make the statements in any one of
the foregoing not misleading.
The foregoing summaries are qualified by the entire
text of Registrant's Articles of Incorporation and
By- Laws, the Advisory Agreement between Registrant
and Alliance Capital Management L.P., the
Distribution Services Agreement between Registrant
and Alliance Fund Distributors, Inc. and the
Administration Agreement between the Registrant and
Alliance Capital Management L.P. which are filed
herewith as Exhibits 1, 2, 5 and 6(a),
respectively, in response to Item 24 and each of
which are incorporated by reference herein.
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<PAGE>
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange
Commission, such indemnification is against public
policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a director, officer or
controlling person of the Registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against
public policy as expressed in the Securities Act
and will be governed by the final adjudication of
such issue.
In accordance with Release No. IC-11330
(September 2, 1980), the Registrant will indemnify
its directors, officers, investment manager and
principal underwriters only if (1) a final decision
on the merits was issued by the court or other body
before whom the proceeding was brought that the
person to be indemnified (the "indemnitee") was not
liable by reason or willful misfeasance, bad faith,
gross negligence or reckless disregard of the
duties involved in the conduct of his office
("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the
facts, that the indemnitee was not liable by reason
of disabling conduct, by (a) the vote of a majority
of a quorum of the directors who are neither
"interested persons" of the Registrant as defined
in section 2(a)(19) of the Investment Company Act
of 1940 nor parties to the proceeding
("disinterested, non-party trustees"), or (b) an
independent legal counsel in a written opinion.
The Registrant will advance attorneys fees or other
expenses incurred by its directors, officers,
investment adviser or principal underwriters in
defending a proceeding, upon the undertaking by or
on behalf of the indemnitee to repay the advance
unless it is ultimately determined that he is
C-15
<PAGE>
entitled to indemnification and, as a condition to
the advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant
shall be insured against losses arising by reason
of any lawful advances, or (3) a majority of a
quorum of disinterested, non-party directors of the
Registrant, or an independent legal counsel in a
written opinion, shall determine, based on a review
of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be
found entitled to indemnification.
The Registrant participates in a joint trustees/
directors and officers liability insurance policy
issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management
L.P. Under this policy, outside trustees and
directors are covered up to the limits specified
for any claim against them for acts committed in
their capacities as trustee or director. A pro
rata share of the premium for this coverage is
charged to each investment company and to the
Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management
L.P. under the captions "Management of the Fund" in
the Prospectus and in the Statement of Additional
Information constituting Parts A and B,
respectively, of this Registration Statement are
incorporated by reference herein.
The information as to the directors and executive
officers of Alliance Capital Management
Corporation, the general partner of Alliance
Capital Management L.P., set forth in Alliance
Capital Management L.P.'s Form ADV filed with the
Securities and Exchange Commission on April 21,
1988 (File No. 801-32361) and amended through the
date hereof, is incorporated by reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc. is the
Registrant's Principal Underwriter in
connection with the sale of shares of the
Registrant. Alliance Fund Distributors, Inc.
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<PAGE>
also acts as Principal Underwriter or
Distributor for the following investment
companies:
ACM Institutional Reserves Inc.
AFD Exchange Reserves Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income
Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers
of Alliance Fund Distributors, Inc., the
principal place of business of which is 1345
Avenue of the Americas, New York, New York,
10105.
C-17
<PAGE>
Position and Positions and
Offices With Offices With
Name Underwriter Registrant
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel &
Secretary
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
James P. Syrett Senior Vice President
Peter J. Szabo Senior Vice President
Richard A. Winge Senior Vice President
Benji A. Baer Vice President
Warren W. Babcock III Vice President
Kenneth F. Barkoff Vice President
William P. Beanblosson Vice President
Jack C. Bixler Vice President
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
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<PAGE>
Leo H. Cook Vice President
Richard W. Dabney Vice President
Mark J. Dunbar Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President &
Associate General
Counsel
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Robert H. Joseph, Jr. Vice President &
Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Thomas Leavitt, III Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
Christopher J. MacDonald Vice President
C-19
<PAGE>
Daniel D. McGinley Vice President
Maura A. McGrath Vice President
Mark R. Manley Vice President, Counsel
& Assistant Secretary
Matthew P. Mintzer Vice President
Nicole Nolan-Koester Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President & Assistant
Associate General Secretary
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Raymond S. Scalfani Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Nicholas K. Willett Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President &
Special Counsel
Maria L. Carreras Assistant Vice President
Sarah A. Chodera Assistant Vice President
John W. Cronin Assistant Vice President
Sohaila S. Farsheed Assistant Vice President
Leon M. Fern Assistant Vice President
William B. Hanigan Assistant Vice President
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<PAGE>
Vicky M. Hayes Assistant Vice President
Daniel M. Hazard Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
Kalen H. Holliday Assistant Vice President
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Patrick Look Assistant Vice President
& Assistant Treasurer
Michael F. Mahoney Assistant Vice President
Shawn P. McClain Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Joanna D. Murray Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Camilo R. Pedraza Assistant Vice President
Carol H. Rappa Assistant Vice President
Karen C. Satterberg Assistant Vice President
Robert M. Smith Assistant Vice President
Joseph T. Tocyloski Assistant Vice President
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094 and at the offices of Brown Brothers Harriman Co.,
the Registrant's custodian, 40 Water Street, Boston
Massachusetts 02109. All other records so required to
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be maintained are maintained at the offices of Alliance
Capital Management L.P., 1345 Avenue of the Americas,
New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
The Registrant undertakes to furnish each person whom
the prospectus is delivered with a copy of the
Registrant's latest report to Shareholders, upon request
and without charge.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in The City of New York
and the State of New York, on the 16th day of November, 1995.
ALLIANCE DEVELOPING
MARKETS FUND, INC.
\s\ John D. Carifa
By:__________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to its Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
(1) Principal Executive Officer:
\s\ John D. Carifa
_______________________ Chairman and November 16, 1995
John D. Carifa President
(2) Principal Financial
and Accounting Officer:
\s\ Mark D. Gersten
_______________________ Treasurer and November 16, 1995
Mark D. Gersten Chief Financial
Officer
(3) Majority of Directors:
John D. Carifa
David H. Dievler
John H. Dobkin
W.H. Henderson
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<PAGE>
Stig Host
Richard M. Lilly
Alan Stoga
Hon. John C. West
Robert C. White
\s\ Edmund P. Bergan, Jr.
By:____________________
Edmund P. Bergan, Jr. November 16, 1995
Attorney-in-Fact
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<PAGE>
Index To Exhibits
Exhibits
(11) Consent of Independent Auditors.
(16) Schedule for computation of performance quotations.
(27) Financial Data Schedule.
C-25
00250197.AI9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Shareholder Services - Statements and Reports" and "General
Information - Independent Auditors" and to the use of our
report dated November 27, 1995, in this Registration
Statement (Form N-1A No. 811-08806) of Alliance Developing
Markets Fund, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
November 27, 1995
00250197.AJ1
<PAGE>
EXHIBIT 16
ALLIANCE DEVELOPING MARKETS FUND, INC
COMPUTATION OF AVERAGE ANNUAL COMPOUNDED TOTAL RETURN
n
ERV = P(1+T)
Definitions:
P=Initial investment by shareholder
T=Average annual total return
ERV=Ending redeemable value of shareholder investment
n=Number of periods
Formula to solve for "T"
ERV
For year one T= --- -1
P
ERV
*For subsequent years T= square root of ( --- -1)
P
To solve for ERV:
1. Take an initial shareholder investment of $1,000 on 6/30/90
at maximum offering price of $10.00. The result is 100
shares.
2. Assume that all dividends and distributions by the Fund are
reinvested on reinvest date for the creation of additional
shares. (1.917 shares created).
3. Add initial share balance to additional shares created due
to reinvestment and multiply by ending net asset value
(7/31/90) to obtain ending redeemable value (ERV).
(100+2.766=102.766 x $9.64=$991)
(ERV)
991
T= --- -1
1,000
T=.991 -1
<PAGE>
T=(.009)
T=(0.9%)
T=Average annual total return
* For subsequent years repeat steps 1 through 3 for the required
periods and apply to formula shown above.
00250197.AJ3
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
ARTICLE 6
CIK 0000931311
NAME ALLIANCE DEVELOPING MARKETS FUND INC
TABLE
S
PERIOD TYPE YEAR
FISCAL YEAR END 31-Ju1-95
PERIOD START 06-Dec-94
INVESTMENT AT COST 0
INVESTMENT AT VALUE 0
RECEIVABLES 0
ASSETS-OTHER 203,300
TOTAL ASSETS 203,300
PAYABLE FOR SECURITIES 0
OTHER-ITEMS LIABILITIES 103,300
TOTAL LIABILITIES 103,300
CAPITAL STOCK AT PAR 0
PAID IN CAPITAL 100,000
SHARES-COMMON STOCK 10,000
SHARES-COMMON PRIOR 0
ACCUMULATED-NII-CURRENT 0
ACCUMULATED-NET-GAINS 0
ACCUMULATED-APPREC-OR-DEPREC 0
NET ASSETS 100,000
DIVIDEND INCOME 0
INTEREST INCOME 0
EXPENSES 0
NET INVESTMENT LOSS 0
REALIZED-GAINS-CURRENT 0
APPREC-INCREASE-CURRENT 0
NET-CHANGE-R-FROM-OPS 0
DISTRIBUTION OF INCOME 0
DISTRIBUTION OF GAINS 0
DISTRIBUTION OTHERS 0
NET-CHANGES-IN-ASSETS 0
ACCUMULATED-NII-PRIOR 0
ACCUMULATED-LOSS-PRIOR 0
OVERDISTRIBUTED-NII-PRIOR 0
MANAGEMENT FEE 0
SUB-ADVISORY FEE 0
GROSS EXPENSE 0
EXPENSE RATIO
00250197.AJ5
</TABLE>
