<DOCUMENT>
<TYPE>485BPOS
<SEQUENCE>1
<FILENAME>d335964_485.txt
<DESCRIPTION>ALLIANCE HIGH YIELD FUND, INC.
<TEXT>
As filed with the Securities and Exchange
Commission on October 29, 2002
File Nos. 333-18505
811-09160
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. 12 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 X
---------------------------------
ALLIANCE HIGH YIELD 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:
Patricia A. Poglinco
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on November 1, 2002 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.
<PAGE>
The Alliance Bond Funds
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income.
Prospectus and Application
November 1, 2002
Investment Grade Funds
> Alliance U.S. Government Portfolio
> Alliance Quality Bond Portfolio
Corporate Bond Funds
> Alliance Corporate Bond Portfolio
> Alliance High Yield Fund
Multi-Sector Fund
> Alliance Global Strategic Income Trust
Global Bond Funds
> Alliance Americas Government Income Trust
> Alliance Emerging Market Debt Fund
> Alliance Multi-Market Strategy Trust
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
AllianceCapital [LOGO]
<PAGE>
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
RISK/RETURN SUMMARY ....................................................... 3
Investment Grade Funds .................................................... 4
Corporate Bond Funds ...................................................... 6
Multi-Sector Fund ......................................................... 8
Global Bond Funds ......................................................... 9
Summary of Principal Risks ................................................ 12
Principal Risks by Fund ................................................... 14
FEES AND EXPENSES OF THE FUNDS ............................................ 15
GLOSSARY .................................................................. 17
DESCRIPTION OF THE FUNDS .................................................. 18
Investment Objectives and Principal Policies .............................. 18
Description of Additional Investment Practices ............................ 24
Additional Risk Considerations ............................................ 35
MANAGEMENT OF THE FUNDS ................................................... 38
PURCHASE AND SALE OF SHARES ............................................... 41
How The Funds Value Their Shares .......................................... 41
How To Buy Shares ......................................................... 41
How To Exchange Shares .................................................... 41
How To Sell Shares ........................................................ 41
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 42
DISTRIBUTION ARRANGEMENTS ................................................. 43
GENERAL INFORMATION ....................................................... 44
FINANCIAL HIGHLIGHTS ...................................................... 45
APPENDIX A: BOND RATINGS .................................................. 52
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA ........ 54
The Funds' investment adviser is Alliance Capital Management L.P., a global
investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance Bond
Funds. You will find additional information about each Fund, including a
detailed description of the risks of an investment in each Fund, after this
Summary.
The Risk/Return Summary describes the Funds' objectives, principal investment
strategies, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks is on pages 12-14.
More detailed descriptions of the Funds, including the risks associated with
investing in the Funds, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. Each of the Funds
may at times use certain types of investment derivatives such as options,
futures, forwards, and swaps. The use of these techniques involves special risks
that are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing its average
annual returns before and after taxes and a bar chart showing its annual
returns. The table and the bar chart provide an indication of the historical
risk of an investment in each Fund by showing:
o how the Fund's average annual returns, before and after taxes, for one,
five, and 10 years (or over the life of the Fund if the Fund is less than
10 years old) compare to those of a broad based securities market index;
and
o changes in the Fund's performance from year to year over 10 years (or over
the life of the Fund if the Fund is less than 10 years old).
A Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future. As with all investments,
you may lose money by investing in the Funds.
3
<PAGE>
INVESTMENT GRADE FUNDS
The Investment Grade Funds offer a selection of alternatives to investors
seeking high current income consistent with the preservation of capital through
investments primarily in investment grade (rated Baa or BBB or above)
securities.
Alliance U.S. Government Portfolio
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is a high level of current income that is
consistent with Alliance's determination of prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests, under normal circumstances, at least 80% of its net assets in
U.S. Government securities, repurchase agreements and forward contracts
relating to U.S. Government securities. The Fund also may invest in non-U.S.
Government mortgage-related and asset-backed securities and in high grade debt
securities secured by mortgages on commercial real estate or residential rental
properties. The average weighted maturity of the Fund's investments varies
between one year or less and 30 years.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
and asset-backed securities, it is subject to the risk that mortgage loans or
other obligations will be prepaid when interest rates decline, forcing the Fund
to reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 10
Year Years Years**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes 1.25% 5.38% 5.38%
---------------------------------------------------------------------
Return After Taxes
on Distributions -1.29% 2.50% 2.40%
---------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares 0.73% 2.82% 2.76%
--------------------------------------------------------------------------------
Class B Return Before Taxes 1.89% 5.51% 5.39%
--------------------------------------------------------------------------------
Class C Return Before Taxes 4.00% 5.54% 5.09%
--------------------------------------------------------------------------------
Lehman (reflects no
Brothers deduction for
Government fees, expenses,
Bond Index or taxes) 7.23% 7.40% 7.14%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Dates for Class B shares: 9/30/91, and Class C shares: 5/3/93.
Performance information for periods prior to the inception of Class B and
Class C shares is the performance of the Fund's Class A shares adjusted to
reflect the higher expense ratio of Class B and Class C shares.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was 8.95%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
6.03 9.72 -4.38 16.55 0.34 8.55 8.60 -3.21 12.42 5.72
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.73%, 2nd quarter, 1995; and Worst quarter was down -3.40%,
1st quarter, 1994.
4
<PAGE>
Alliance Quality Bond Portfolio
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests, under normal circumstances, at least 80% of its net assets in
bonds and other debt securities. The Fund invests in readily marketable
securities that do not involve undue risk of capital. The Fund normally invests
all of its assets in securities that are rated at least BBB- by S&P or, if
unrated, are of comparable quality. The Fund has the flexibility to invest in
long- and short-term fixed-income securities depending on Alliance's assessment
of prospective cyclical interest rate changes.
The Fund also may:
o use derivatives strategies;
o invest in convertible debt securities and preferred stock;
o invest in U.S. Government obligations; and
o invest in foreign fixed-income securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, derivatives risk and market risk. To the extent the Fund invests in
foreign fixed-income securities, it has foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 Since
Year Inception**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes 2.84% 5.81%
---------------------------------------------------------------------
Return After Taxes
on Distributions 0.50% 3.36%
---------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares 1.70% 3.40%
--------------------------------------------------------------------------------
Class B Return Before Taxes 3.66% 6.51%
--------------------------------------------------------------------------------
Class C Return Before Taxes 5.56% 6.80%
--------------------------------------------------------------------------------
Lehman (reflects no
Brothers deduction for
Aggregate fees, expenses,
Bond Index or taxes) 8.44% 8.67%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Date for all Classes: 7/1/99.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual return in the bar chart is for the Fund's Class A shares and does not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was 5.81%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a n/a n/a n/a n/a n/a n/a n/a 11.25 7.38
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 4.56%, 3rd quarter, 2001; and Worst quarter was up 0.03%,
2nd quarter, 2001.
5
<PAGE>
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance Corporate Bond Portfolio
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily to maximize income over the long
term to the extent consistent with providing reasonable safety in the value of
each shareholder's investment, and secondarily to increase its capital through
appreciation of its investments in order to preserve and, if possible, increase
the purchasing power of each shareholder's investment.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests, under normal circumstances, at least 80% of its net assets in
corporate bonds or other corporate debt securities. The Fund may invest up to
50% of its total assets in foreign fixed-income securities, primarily corporate
debt securities and sovereign debt obligations. All of the Fund's investments,
whether foreign or domestic, will be U.S. Dollar denominated. The Fund also may
invest in income-producing equity securities. While the Fund invests primarily
(currently 65%) in investment grade debt securities, it also may invest a
significant amount of its total assets in lower-rated debt securities. The
average weighted maturity of the Fund's investments varies between one year or
less and 30 years.
The Fund pursues a more aggressive investment strategy than other corporate bond
funds. The Fund's investments tend to have a relatively long average weighted
maturity and duration. The Fund emphasizes both foreign corporate and sovereign
debt obligations, as well as corporate bonds that are expected to benefit from
improvements in their issuers' credit fundamentals.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund emphasizes investments with a
relatively long average weighted maturity and duration, its returns may be more
volatile than other corporate bond funds. To the extent the Fund invests in
lower-rated securities, your investment is subject to more credit risk than an
investment in a fund that invests solely in higher-rated securities. The Fund's
investments in foreign debt obligations have foreign risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 10
Year Years Years**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes 3.76% 5.03% 8.83%
---------------------------------------------------------------------
Return After Taxes
on Distributions 0.64% 1.62% 5.21%
---------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares 2.23% 2.26% 5.30%
--------------------------------------------------------------------------------
Class B Return Before Taxes 4.53% 5.20% 8.78%
--------------------------------------------------------------------------------
Class C Return Before Taxes 6.53% 5.20% 8.63%
--------------------------------------------------------------------------------
Lehman (reflects no
Brothers deduction for
Long Baa fees, expenses,
U.S. Credit or taxes)
Index 12.51% 7.14% 8.28%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Dates for Class B shares: 1/8/93, and Class C shares: 5/3/93.
Performance information for periods prior to the inception of Class B and
Class C shares is the performance of the Fund's Class A shares adjusted to
reflect the higher expense ratio of Class B and Class C shares.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was -8.25%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
13.28 31.09 -12.75 27.98 10.02 11.81 -0.02 1.93 8.12 8.33
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 15.61%, 2nd quarter, 1995; and Worst quarter was down
-8.42%, 1st quarter, 1994.
6
<PAGE>
Alliance High Yield Fund
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is to achieve a high total return by maximizing
current income and, to the extent consistent with that objective, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests, under normal circumstances, at least 80% of its net assets in
high yield debt securities. The Fund invests in high yield, below investment
grade debt securities, commonly known as "junk bonds." The Fund seeks to
maximize current income by taking advantage of market developments, yield
disparities, and variations in the credit worthiness of issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund invests in lower-rated
securities, it has significantly more risk than other types of bond funds and
its returns will be more volatile. The Fund's investments in foreign securities
have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 Since
Year Inception**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes -4.82% 0.14%
---------------------------------------------------------------------
Return After Taxes
on Distributions -8.50% -4.09%
---------------------------------------------------------------------
Return After Taxes
on Distributions
and Sale of
Fund Shares -2.92% -1.72%
--------------------------------------------------------------------------------
Class B Return Before Taxes -4.70% 0.39%
--------------------------------------------------------------------------------
Class C Return Before Taxes -2.19% 0.39%
--------------------------------------------------------------------------------
First (reflects no
Boston deduction for
High Yield fees, expenses,
Index or taxes) 5.80% 2.97%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Date for all Classes: 4/22/97.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was -8.90%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a n/a n/a n/a n/a n/a -1.67 -1.79 -11.90 -0.59
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 7.73%, 4th quarter, 2001; and Worst quarter was down -9.63%,
3rd quarter, 1998.
7
<PAGE>
MULTI-SECTOR FUND
The Multi-Sector Fund offers investors seeking high current income the
alternative of investing in a variety of traditional and non-traditional
fixed-income sectors based on Alliance's evaluation of changes in major economic
and credit cycles around the world.
Alliance Global Strategic Income Trust
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund primarily invests in debt securities of U.S. and non-U.S. companies,
U.S. Government and foreign governments, and supranational entities. The Fund's
foreign investments are generally denominated in foreign currencies. The Fund,
however, generally seeks to hedge currency risk. The Fund normally invests at
least 65% of its total assets in debt securities of companies located in at
least three countries, one of which may be the United States. The Fund limits
its investments in any one foreign country to 25% of its total assets.
The Fund invests at least 65% of its total assets in investment grade
securities, but also may in vest up to 35% of its total assets in lower-rated
securities. The average weighted maturity of the Fund's investments varies
between five and 30 years.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may:
o use derivatives strategies;
o invest in structured securities;
o invest in Eurodollar instruments and foreign currencies;
o invest in asset-backed and mortgage-related securities;
o enter into repurchase agreements; and
o invest in floating, variable, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in foreign
issuers have foreign risk and currency risk. To the extent the Fund invests in
lower-rated securities, your investment is subject to more credit risk than an
investment in a fund that invests primarily in higher-rated securities. The
Fund's use of derivatives strategies has derivatives risk. In addition, the Fund
is "non-diversified," meaning that it invests more of its assets in a smaller
number of issuers than many other funds. Changes in the value of a single
security may have a more significant effect, either negative or positive, on the
Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 Since
Year Years Inception**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes -6.92% 4.25% 6.96%
---------------------------------------------------------------------
Return After Taxes
on Distributions -9.58% 0.27% 2.83%
---------------------------------------------------------------------
Return After Taxes
on Distributions
and Sale of
Fund Shares -4.20% 1.44% 3.55%
--------------------------------------------------------------------------------
Class B Return Before Taxes -7.06% 4.44% 7.15%
--------------------------------------------------------------------------------
Class C Return Before Taxes -4.41% 4.48% 7.15%
--------------------------------------------------------------------------------
Lehman (reflects no
Brothers deduction for
Aggregate fees, expenses,
Bond Index or taxes) 8.44% 7.43% 6.76%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Dates for Class A shares: 1/9/96, and Class B and Class C
shares: 3/21/96. Performance information for periods prior to the
inception of Class B and Class C shares is the performance of the Fund's
Class A shares adjusted to reflect the higher expense ratio of Class B and
Class C shares.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was -2.16%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a n/a n/a n/a n/a 15.31 1.99 7.63 4.57 -2.81
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.86%, 2nd quarter, 1997; and Worst quarter was down -5.68%,
3rd quarter, 1998.
8
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds offer a selection of alternatives to investors seeking a
high level of current income through investments primarily in foreign government
securities.
Alliance Americas Government Income Trust
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of debt securities issued or guaranteed by the
governments of the United States, Canada, or Mexico, their political
subdivisions (including Canadian Provinces but excluding states of the United
States), agencies, instrumentalities or authorities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund normally invests at least 80% of its net assets in debt securities of
issuers located in countries in North, Central, or South America and at least
80% of its net assets in government securities. The Fund primarily invests in
debt securities issued or guaranteed by: (i) the federal governments of the
United States, Canada, and Mexico; (ii) government-related entities in the
United States, Canada, and Mexico; and (iii) the provincial governments of
Canada and Mexico. The Fund's investments also may include debt securities
issued by governmental entities of other countries located in Central and South
America, including the Caribbean. The Fund may invest up to 25% of its assets in
debt securities issued by governmental entities of Argentina. The Fund invests
at least 80% of its net assets in investment grade debt securities, but may
invest up to 20% of its net assets in lower-rated debt securities or, in either
case, if unrated, determined by Alliance to be of equivalent quality. The Fund's
investments may be denominated in local currency or U.S. Dollar-denominated, but
the Fund expects to maintain at least 25% of its assets in U.S.
Dollar-denominated securities.
The Fund may use significant borrowings for leverage. The Fund also may:
o use derivative strategies; and
o invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. The Fund's investments in foreign
debt securities have foreign risk and currency risk. Your investment also has
the risk that market changes or other events affecting foreign countries,
including potential instability and unpredictable economic conditions, may have
a more significant effect on the Fund's net asset value. To the extent the Fund
invests in lower-rated debt securities, your investment is subject to more
credit risk than an investment in a fund that limits its investments to
higher-rated debt securities. In addition, the Fund is "non-diversified,"
meaning that it invests more of its assets in a smaller number of issuers than
many other funds. Changes in the value of a single security may have a more
significant effect, either negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 Since
Year Years Inception**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes -3.94% 8.50% 8.12%
---------------------------------------------------------------------
Return After Taxes
on Distributions -7.56% 4.20% 4.21%
---------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares -2.35% 4.61% 4.48%
--------------------------------------------------------------------------------
Class B Return Before Taxes -3.50% 8.57% 8.04%
--------------------------------------------------------------------------------
Class C Return Before Taxes -1.41% 8.63% 7.70%
--------------------------------------------------------------------------------
Lehman (reflects no
Brothers deduction for
Aggregate fees, expenses,
Bond Index or taxes) 8.44% 7.43% 7.57%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Dates for Class A and Class B shares: 3/27/92, and Class C
shares: 5/3/93. Performance information for periods prior to the inception
of Class C shares is the performance of the Fund's Class A shares adjusted
to reflect the higher expense ratio of Class C shares.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was 5.13%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a 18.64 -30.24 30.96 24.20 14.97 6.54 7.86 18.47 0.31
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 17.23%, 2nd quarter, 1995; and Worst quarter was down
-23.19%, 4th quarter, 1994.
9
<PAGE>
Alliance Emerging Market Debt Fund
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests, under normal circumstances, at least 80% of its net assets in
emerging markets debt securities. The Fund invests at least 65% of its total
assets in sovereign debt obligations. The Fund also may invest up to 35% of its
total assets in U.S. and non-U.S. corporate fixed-income securities. The Fund
invests substantially all of its assets in lower-rated securities or unrated
securities of equivalent quality. The Fund's investments in sovereign debt
obligations and corporate debt securities are U.S. Dollar-denominated.
The Fund's non-U.S. investments emphasize emerging markets and developing
countries. The Fund limits its investments in the sovereign debt obligations of
any one country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that it
will not invest more than 10% of its total assets in any other single foreign
country.
The average weighted maturity of the Fund's investments ranges from nine years
to longer than 25 years, depending upon the type of securities.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may use derivatives strategies; invest
in structured securities; invest in fixed and floating rate loans to sovereign
debt issuers; enter into repurchase agreements; and invest in variable,
floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, derivatives risk and leveraging risk. Because the Fund
invests in lower-rated securities, it has significantly more risk than other
types of bond funds and its returns will be more volatile. The Fund's
investments in foreign securities have foreign risk and country or geographic
risk. Because the Fund invests in emerging markets and in developing countries,
the Fund's returns will be significantly more volatile and may differ
substantially from returns in the U.S. bond markets generally. Your investment
also has the risk that market changes or other factors affecting emerging
markets and developing countries, including political instability and
unpredictable economic conditions, may have a significant effect on the Fund's
net asset value. In addition, the Fund is "non-diversified," meaning that it
invests more of its assets in a smaller number of issuers than many other funds.
Changes in the value of a single security may have a more significant effect,
either negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 Since
Year Years Inception**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes 1.54% 4.61% 8.49%
-------------------------------------------------------------------
Return After Taxes
on Distributions -3.68% -1.20% 2.48%
-------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares 0.81% 0.64% 3.61%
--------------------------------------------------------------------------------
Class B Return Before Taxes 2.47% 4.69% 8.44%
--------------------------------------------------------------------------------
Class C Return Before Taxes 4.32% 4.73% 8.25%
--------------------------------------------------------------------------------
J.P. Morgan (reflects no
Emerging deduction for
Markets fees, expenses,
Bond Index or taxes)
Plus -0.79% 6.95% 10.64%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Date for all Classes: 2/25/94.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was 0.30%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a n/a n/a 25.42 39.45 9.01 -22.06 26.71 14.47 6.10
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 26.16%, 2nd quarter, 1995; and Worst quarter was down
-28.68%, 3rd quarter, 1998.
10
<PAGE>
Alliance Multi-Market Strategy Trust
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is the highest level of current income that is
available, consistent with what Alliance considers to be prudent investment
risk, from a portfolio of high-quality debt securities having remaining
maturities of not more than five years.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests in high-quality debt securities having remaining maturities of
not more than five years, with a high proportion of investments in money market
instruments. The Fund seeks investment opportunities in foreign, as well as
domestic, securities markets. Normally, at least 70% of the Fund's debt
securities will be denominated in foreign currencies. The Fund limits its
investments in a single currency other than the U.S. Dollar to 25% of its net
assets, except for the Euro in which the Fund may invest up to 50% of its net
assets.
The Fund concentrates at least 25% of its total assets in debt instruments
issued by domestic and foreign banking companies. The Fund may use significant
borrowings for leverage. The Fund also may:
o use derivatives strategies;
o invest in prime commercial paper or unrated paper of equivalent quality;
o enter into repurchase agreements; and
o invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in debt
securities denominated in foreign currencies have foreign risk and currency
risk. In addition, the Fund is "non-diversified" meaning that it invests more of
its assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
Average Annual Total Returns*
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
1 5 10
Year Years Years**
--------------------------------------------------------------------------------
Class A*** Return Before Taxes 0.58% 4.21% 3.62%
---------------------------------------------------------------------
Return After Taxes
on Distributions -0.35% 0.92% 1.21%
---------------------------------------------------------------------
Return After Taxes on
Distributions and
Sale of Fund Shares 0.34% 1.66% 1.65%
--------------------------------------------------------------------------------
Class B Return Before Taxes 1.09% 4.30% 3.58%
--------------------------------------------------------------------------------
Class C Return Before Taxes 3.05% 4.28% 3.26%
--------------------------------------------------------------------------------
Merrill (reflects no
Lynch deduction for
1-5 Year fees, expenses,
Government or taxes)
Bond Index 8.98% 6.95% 6.53%
--------------------------------------------------------------------------------
* Average annual total returns reflect imposition of the maximum front-end
or contingent deferred sales charges as well as conversion of Class B
shares to Class A shares after the applicable period.
** Inception Dates for Class A and Class B shares: 5/29/91, and Class C
shares: 5/3/93. Performance information for periods prior to the inception
of Class C shares is the performance of the Fund's Class A shares adjusted
to reflect the higher expense ratio of Class C shares.
*** After-tax Returns:
- Are shown for Class A shares only and will vary for Class B and C
shares because these Classes have higher expense ratios;
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown. Through September 30, 2002, the year-to-date unannualized return
for Class A shares was 4.48%.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
-2.49 10.91 -12.76 5.98 16.20 6.68 6.18 2.58 5.15 4.96
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.46%, 2nd quarter, 1995; and Worst quarter was down -8.18%,
4th quarter, 1994.
11
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with changes in the values of
that Fund's investments. Many factors can affect those values. In this Summary,
we describe the principal risks that may affect a Fund's portfolio as a whole.
These risks and the Funds particularly subject to these risks appear in a chart
at the end of this section. All Funds could be subject to additional principal
risks because the types of investments made by each Fund can change over time.
This Prospectus has additional descriptions of the types of investments that
appear in bold type in the discussions under "Description of Additional
Investment Practices" or "Additional Risk Considerations." These sections also
include more information about the Funds, their investments, and related risks.
INTEREST RATE RISK
This is the risk that changes in interest rates will affect the value of a
Fund's investments in debt securities, such as bonds, notes and asset-backed
securities, or other income-producing securities. Debt securities are
obligations of the issuer to make payments of principal and/or interest on
future dates. All of the Funds have interest rate risk. Increases in interest
rates may cause the value of a Fund's investments to decline.
Even Funds such as the Alliance U.S. Government and Alliance Quality Bond that
invest a substantial portion of their assets in the highest quality debt
securities, including U.S. Government securities, are subject to interest rate
risk. Interest rate risk generally is greater for those Funds that invest a
significant portion of their assets in lower-rated securities or comparable
unrated securities such as Alliance Corporate Bond, Alliance High Yield,
Alliance Global Strategic Income and Alliance Emerging Market Debt.
Interest rate risk is generally greater for Funds that invest in debt securities
with longer maturities, such as Alliance Corporate Bond, Alliance Global
Strategic Income, Alliance Americas Government Income and Alliance Emerging
Market Debt. This risk is compounded for the Funds that invest a substantial
portion of their assets in mortgage-related or other asset-backed securities,
such as Alliance U.S. Government and Alliance Quality Bond. The value of these
securities is affected more by changes in interest rates because when interest
rates rise, the maturities of these types of securities tend to lengthen and the
value of the securities decreases more significantly. In addition, these types
of securities are subject to prepayment when interest rates fall, which
generally results in lower returns because the Funds must reinvest their assets
in debt securities with lower interest rates. Increased interest rate risk also
is likely for Alliance Quality Bond, Alliance Corporate Bond, Alliance Global
Strategic Income and Alliance Emerging Market Debt, which invest in debt
securities paying no current interest, such as zero coupon, principal-only, and
interest-only securities, or paying non-cash interest in the form of other debt
securities (payment-in-kind securities).
CREDIT RISK
This is the risk that the issuer or the guarantor of a debt security, or the
counterparty to a derivatives contract, will be unable or unwilling to make
timely payments of interest or principal or to otherwise honor its obligations.
The degree of risk for a particular security may be reflected in its credit
rating. Credit risk is greater for Funds such as Alliance Corporate Bond,
Alliance High Yield, Alliance Global Strategic Income and Alliance Emerging
Market Debt that invest in lower-rated securities. These debt securities and
similar unrated securities (commonly known as "junk bonds") have speculative
elements or are predominantly speculative credit risks.
Funds such as Alliance High Yield and Alliance Emerging Market Debt may be
subject to greater credit risk because they invest in debt securities issued in
connection with corporate restructurings by highly leveraged issuers and in debt
securities that are not current in the payment of interest or principal or are
in default. Funds such as Alliance Quality Bond, Alliance Corporate Bond,
Alliance High Yield, Alliance Global Strategic Income, Alliance Americas
Government Income, Alliance Emerging Market Debt and Alliance Multi-Market
Strategy that invest in foreign securities also are subject to increased credit
risk because of the difficulties of requiring foreign entities, including
issuers of sovereign debt obligations, to honor their contractual commitments,
and because a number of foreign governments and other issuers are already in
default.
MARKET RISK
This is the risk that the value of a Fund's investments will fluctuate as the
bond markets fluctuate and that prices overall will decline over shorter or
longer-term periods. All of the Funds are subject to this risk.
FOREIGN RISK
This is the risk of investments in issuers located in foreign countries. All
Alliance Bond Funds that invest in foreign securities are subject to this risk,
including Alliance Quality Bond, Alliance Corporate Bond, Alliance High Yield,
Alliance Global Strategic Income, Alliance Americas Government Income, Alliance
Emerging Market Debt and Alliance Multi-Market Strategy. These Funds'
investments in foreign securities may experience more rapid and extreme changes
in value than investments in securities of U.S. companies. The securities
markets of many foreign countries are relatively small, with a limited number of
companies representing a small number of securities. In addition, foreign
companies usually are not subject to the same degree of regulation as U.S.
companies. Reporting, accounting, and auditing standards of foreign countries
12
<PAGE>
differ, in some cases significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect a Fund's investments in a foreign
country. In the event of a nationalization, expropriation, or other
confiscation, a Fund could lose its entire investment.
Political, social, and economic changes in a particular country could result in
increased risks for Alliance Global Strategic Income and Alliance Emerging
Market Debt, which invest a substantial portion of their assets in sovereign
debt obligations, including Brady Bonds. The investments in emerging market
countries of Alliance Americas Government Income and Alliance Emerging Market
Debt are likely to involve significant risks. These countries, such as Mexico,
Argentina, Brazil, Morocco, the Philippines, Russia, and Venezuela, have a
history of political and economic instability.
CURRENCY RISK
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of a Fund's investments.
Funds such as Alliance Quality Bond, Alliance Corporate Bond, Alliance High
Yield, Alliance Global Strategic Income, Alliance Americas Government Income and
Alliance Multi-Market Strategy that invest in securities denominated in, and/or
companies receiving revenues in, foreign currencies are subject to currency
risk.
COUNTRY OR GEOGRAPHIC RISK
This is the risk of investments in issuers located in a particular country or
geographic region. Market changes or other factors affecting that country or
region, including political instability and unpredictable economic conditions,
may have a particularly significant effect on a Fund's net asset value. The
Funds particularly subject to this risk are Alliance Americas Government Income
and Alliance Multi-Market Strategy.
DIVERSIFICATION RISK
Most analysts believe that overall risk can be reduced through diversification,
while concentration of investments in a small number of securities increases
risk. Alliance Global Strategic Income, Alliance Americas Government Income,
Alliance Emerging Market Debt and Alliance Multi-Market Strategy are not
"diversified." This means that they can invest more of their assets in a
relatively small number of issuers with greater concentration of risk. Factors
affecting these issuers can have a more significant effect on the Fund's net
asset value. Similarly, a Fund that concentrates its investments in a particular
industry, such as Alliance Multi-Market Strategy, which invests at least 25% of
its assets in the banking industry, could have increased risks because factors
affecting that industry could have a more significant effect on the value of the
Fund's investments.
LEVERAGING RISK
When a Fund borrows money or otherwise leverages its portfolio, the value of an
investment in that Fund will be more volatile and all other risks will tend to
be compounded. Each Fund may create leverage by using reverse repurchase
agreements, inverse floating rate instruments or derivatives, or by borrowing
money.
DERIVATIVES RISK
All Funds may use derivatives, which are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate, or
index. Alliance will sometimes use derivatives as part of a strategy designed to
reduce other risks. Generally, however, the Funds use derivatives as direct
investments to earn income, enhance yield and broaden Fund diversification,
which entail greater risk than if used solely for hedging purposes. In addition
to other risks such as the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and the risk that changes in
the value of the derivative may not correlate perfectly with relevant underlying
assets, rates, or indices. Funds that invest in structured securities, such as
Alliance Corporate Bond, Alliance Global Strategic Income and Alliance Emerging
Market Debt, could have increased derivatives risk.
LIQUIDITY RISK
Liquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing a Fund from selling out of these illiquid securities
at an advantageous price. All of the Funds are subject to liquidity risk because
derivatives and securities involving substantial interest rate and credit risk
tend to involve greater liquidity risk. In addition, liquidity risk tends to
increase to the extent a Fund invests in debt securities whose sale may be
restricted by law or by contract.
MANAGEMENT RISK
Each Fund is subject to management risk because it is an actively managed
investment fund. Alliance will apply its investment techniques and risk analyses
in making investment decisions for the Funds, but there can be no guarantee that
its decisions will produce the desired results. In some cases, derivative and
other investment techniques may be unavailable or Alliance may determine not to
use them, possibly even under market conditions where their use could benefit a
Fund.
13
<PAGE>
PRINCIPAL RISKS BY FUND
The following chart summarizes the Principal Risks of each Fund. Risks not
marked for a particular Fund may, however, still apply to some extent to that
Fund at various times.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Country or
Interest Credit Market Foreign Currency Geographic Diversifica- Leveraging
Fund Rate Risk Risk Risk Risk Risk Risk tion Risk Risk
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance U.S. Government o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Quality Bond o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Corporate Bond o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance High Yield o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Global
Strategic Income o o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Americas
Government Income o o o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Emerging
Market Debt o o o o o o o o
-----------------------------------------------------------------------------------------------------------------
Alliance Multi-Market
Strategy o o o o o o o o
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------
Derivatives Liquidity Manage-
Fund Risk Risk ment Risk
----------------------------------------------------------------
<S> <C> <C> <C>
Alliance U.S. Government o o o
----------------------------------------------------------------
Alliance Quality Bond o o o
----------------------------------------------------------------
Alliance Corporate Bond o o o
----------------------------------------------------------------
Alliance High Yield o o o
----------------------------------------------------------------
Alliance Global
Strategic Income o o o
----------------------------------------------------------------
Alliance Americas
Government Income o o o
----------------------------------------------------------------
Alliance Emerging
Market Debt o o o
----------------------------------------------------------------
Alliance Multi-Market
Strategy o o o
----------------------------------------------------------------
</TABLE>
14
<PAGE>
--------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
--------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Shares Class B Shares(a) Class B Shares(b) Class C Shares
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is lower) None 3.0%* 4.0%** 1.0%***
Exchange Fee None None None None
</TABLE>
--------------------------------------------------------------------------------
(a) For all Funds except Alliance High Yield Fund and Alliance Global
Strategic Income Trust.
(b) For Alliance High Yield Fund and Alliance Global Strategic Income Trust.
* Class B shares automatically convert to Class A shares after 6 years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the 3rd year.
** Class B shares automatically convert to Class A shares after 8 years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the 4th year.
*** For Class C shares, the CDSC is 0% after the first year.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in a Fund with the
cost of investing in other funds. They assume that you invest $10,000 in a Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. They also assume that your investment has a 5% return each year,
that the Fund's operating expenses stay the same, and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
-------------------------------------------------------------- --------------------------------------------------------------------
Alliance U.S. Government
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .54% .54% .54% After 1 Year $ 545 $ 496 $ 196 $ 296 $ 196
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 799 $ 706 $ 606 $ 606 $ 606
Interest Expense .14% .13% .14% After 5 Years $1,072 $1,042 $1,042 $1,042 $1,042
Other Expenses .25% .26% .25% After 10 Years $1,850 $1,906 $1,906 $2,254 $2,254
----- ----- -----
Total Fund Operating Expenses 1.23% 1.93% 1.93%
===== ===== =====
<CAPTION>
Alliance Quality Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .55% .55% .55% After 1 Year $ 521 $ 471 $ 171 $ 271 $ 171
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years@ $ 826 $ 736 $ 636 $ 636 $ 636
Other Expenses .63% .64% .64% After 5 Years@ $1,153 $1,128 $1,128 $1,128 $1,128
----- ----- ----- After 10 Years@ $2,077 $2,138 $2,138 $2,484 $2,484
Total Fund Operating Expenses 1.48% 2.19% 2.19%
===== ===== =====
Waiver and/or Expense
Reimbursement +++ (.50)% (.51)% (.51)%
----- ----- -----
Net Expenses .98% 1.68% 1.68%
===== ===== =====
<CAPTION>
Alliance Corporate Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .55% .55% .55% After 1 Year $ 534 $ 486 $ 186 $ 285 $ 185
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 766 $ 676 $ 576 $ 573 $ 573
Interest Expense .03% .03% .03% After 5 Years $1,016 $ 990 $ 990 $ 985 $ 985
Other Expenses .24% .25% .24% After 10 Years $1,730 $1,791 $1,791 $2,137 $2,137
----- ----- -----
Total Fund Operating Expenses 1.12% 1.83% 1.82%
===== ===== =====
<CAPTION>
Alliance High Yield Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 564 $ 618 $ 218 $ 317 $ 217
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 858 $ 873 $ 673 $ 670 $ 670
Other Expenses .38% .40% .39% After 5 Years $1,173 $1,154 $1,154 $1,149 $1,149
----- ----- ----- After 10 Years $2,065 $2,300 $2,300 $2,472 $2,472
Total Fund Operating Expenses 1.43% 2.15% 2.14%
===== ===== =====
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
-------------------------------------------------------------- --------------------------------------------------------------------
Alliance Global Strategic
Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 566 $ 619 $ 219 $ 318 $ 218
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 864 $ 876 $ 676 $ 673 $ 673
Other Expenses .40% .41% .40% After 5 Years $1,183 $1,159 $1,159 $1,154 $1,154
----- ----- ----- After 10 Years $2,087 $2,313 $2,313 $2,483 $2,483
Total Fund Operating Expenses 1.45% 2.16% 2.15%
===== ===== =====
<CAPTION>
Alliance Americas
Government Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees+@@ .72% .72% .72% After 1 Year $ 616 $ 569 $ 269 $ 368 $ 268
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $1,014 $ 926 $ 826 $ 823 $ 823
Interest Expense .73% .72% .72% After 5 Years $1,437 $1,410 $1,410 $1,405 $1,405
Other Expenses .21% .22% .21% After 10 Years $2,613 $2,669 $2,669 $2,983 $2,983
----- ----- -----
Total Fund Operating Expenses 1.96% 2.66% 2.65%
===== ===== =====
<CAPTION>
Alliance Emerging
Market Debt Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 608 $ 561 $ 261 $ 359 $ 259
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 991 $ 902 $ 802 $ 796 $ 796
Interest Expense .38% .38% .37% After 5 Years $1,398 $1,370 $1,370 $1,360 $1,360
Other Expenses .45% .45% .44% After 10 Years $2,532 $2,588 $2,588 $2,895 $2,895
----- ----- -----
Total Fund Operating Expenses 1.88% 2.58% 2.56%
===== ===== =====
<CAPTION>
Alliance Multi-Market
Strategy Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 569 $ 527 $ 227 $ 322 $ 222
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 873 $ 800 $ 700 $ 685 $ 685
Other Expenses .58% .64% .59% After 5 Years $1,199 $1,200 $1,200 $1,175 $1,175
----- ----- ----- After 10 Years $2,118 $2,208 $2,208 $2,524 $2,524
Total Fund Operating Expenses 1.48% 2.24% 2.19%
===== ===== =====
</TABLE>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period and, with respect to shares held 10
years, conversion of Class B shares to Class A shares after 6 years, and
for Alliance High Yield Fund and Alliance Global Strategic Income Trust, 8
years.
+++ Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This
waiver extends through the end of the Fund's current fiscal year and may
be extended by Alliance for additional one year terms.
@ These examples assume that Alliance's agreement to waive management fees
and/or bear Fund expenses is not extended beyond its initial term.
@@ Represents .65 of 1% of the Fund's average daily adjusted total net
assets.
16
<PAGE>
--------------------------------------------------------------------------------
GLOSSARY
--------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are bonds, debentures, corporate notes, and preferred
stocks that are convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Equity securities are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Fixed-income securities are debt securities, convertible securities, and
preferred stocks, including floating rate and variable rate instruments.
Fixed-income securities may be rated (or, if unrated, for purposes of the Funds'
investment policies as may be determined by Alliance to be of equivalent
quality) triple-A (Aaa or AAA), high quality (Aa or AA or above), high grade (A
or above) or investment grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P or Fitch, or may be lower-rated securities, as defined below. In
the case of "split-rated" fixed-income securities (i.e., securities assigned
non-equivalent credit quality ratings, such as Baa by Moody's but BB by S&P or
Ba by Moody's and BB by S&P but B by Fitch), a Fund will use the rating deemed
by Alliance to be the most appropriate under the circumstances.
Foreign fixed-income securities consist of foreign government securities and
securities issued by non-U.S. companies.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.
Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
principal-only or PO class, that receives only the principal payments on the
underlying debt obligation. POs are similar to, and are sometimes referred to
as, zero coupon securities, which are debt securities issued without interest
coupons.
Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related, and private organizations. These securities include:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home
Loan Mortgage Corporation or FHLMC.
Non-U.S. company is an entity that (i) is organized under the laws of a foreign
country, (ii) has its principal place of business in a foreign country, and
(iii) issues equity or debt securities that are traded principally in a foreign
country.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A under the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury, and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA. U.S. Government securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES AND RATED SECURITIES
Fitch is Fitch Ratings, the international rating agency formed through the
merger of Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co.
Higher quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, or F2 by Fitch.
Lower-rated securities are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred to
as "junk bonds."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
Prime commercial paper is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, or F1 by Fitch.
S&P is Standard & Poor's Ratings Services.
17
<PAGE>
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to changes
in interest rates. The duration of a debt security is the weighted average term
to maturity, expressed in years, of the present value of all future cash flows,
including coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
--------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
--------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Additional Investment Practices following this section.
o The description of the principal risks for a Fund may include risks
described in the Summary of Principal Risks above. Additional information
about the risks of investing in a Fund can be found in the discussion
under Additional Risk Considerations.
o Additional descriptions of each Fund's strategies, investments, and risks
can be found in the Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Funds' investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Funds'
investment policies are not fundamental and thus can be changed without a
shareholder vote. When an investment policy or restriction has a
percentage limitation, such limitation is applied at the time of
investment. Changes in the market value of securities in a Fund's
portfolio after they are purchased by the Fund will not cause the Fund to
be in violation of such limitations.
INVESTMENT OBJECTIVES AND PRINCIPAL POLICIES
INVESTMENT GRADE FUNDS
The Investment Grade Funds offer investors high current income consistent with
preservation of capital by investing primarily in investment grade (rated Baa or
BBB or above) securities.
Alliance U.S. Government Portfolio
Alliance U.S. Government Portfolio seeks a high level of current income that is
consistent with Alliance's determination of prudent investment risk. The Fund
invests, under normal circumstances, at least 80% of its net assets in U.S.
Government securities, repurchase agreements and forward contracts relating to
U.S. Government securities. For purposes of this policy, net assets include any
borrowings for investment purposes. This policy may not be changed without 60
days' prior written notice to shareholders. The Fund may invest the remaining
20% of its net assets in non-U.S. Government mortgage-related and asset-backed
securities, including high-grade debt securities secured by mortgages on
commercial real estate or residential rental properties.
As a matter of fundamental policy, the Fund pursues its objective by investing
at least 65% of its total assets in U.S. Government securities, repurchase
agreements and forward contracts relating to U.S. Government securities. The
Fund will not invest in any security rated below BBB or Baa. The Fund may invest
in unrated securities of equivalent quality to the rated securities in which it
may invest, as determined by Alliance. The Fund expects, but is not required, to
dispose of securities that are downgraded below BBB and Baa or, if unrated, that
are determined by Alliance to have undergone similar credit quality
deterioration.
The Fund expects to engage in active and frequent trading of portfolio
securities to achieve its principal investment strategies. A higher rate of
portfolio turnover increases transaction expenses, which may negatively affect
the Fund's performance. High portfolio turnover also may result in the
realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
The Fund also may:
o enter into reverse repurchase agreements and dollar rolls;
o enter into various hedging transactions, such as swap transactions;
o enter into forward contracts;
o purchase and sell futures contracts for hedging purposes;
o purchase call and put options on futures contracts or on securities for
hedging purposes;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
18
<PAGE>
Alliance Quality Bond Portfolio
Alliance Quality Bond Portfolio seeks high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities. The Fund invests, under normal circumstances, at least 80% of its
net assets in bonds and other debt securities. For purposes of this policy, net
assets include any borrowings for investment purposes. This policy may not be
changed without 60 days' prior written notice to shareholders. The Fund invests
in readily marketable securities with relatively attractive yields that do not
involve undue risk of loss of capital. The Fund normally invests all of its
assets in securities that are rated at least BBB- by S&P or Baa3 by Moody's or
that are of comparable quality. The Fund normally maintains an average aggregate
quality rating of its portfolio securities of at least A (S&P and Moody's). The
Fund has the flexibility to invest in long- and short-term fixed-income
securities (including debt securities, convertible debt securities and U.S.
Government obligations) and preferred stocks based on Alliance's assessment of
prospective cyclical interest rate changes.
In the event that the credit rating of a security held by the Fund falls below
investment grade (or, if in the case of unrated securities, Alliance determines
that the quality of a security has deteriorated below investment grade), the
Fund will not be obligated to dispose of that security and may continue to hold
the security if, in the opinion of Alliance, such investment is appropriate in
the circumstances.
The Fund expects to engage in active and frequent trading of portfolio
securities to achieve its principal investment strategies. A higher rate of
portfolio turnover increases transaction expenses, which may negatively affect
the Fund's performance. High portfolio turnover also may result in the
realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
The Fund also may:
o invest in foreign fixed-income securities, but only up to 20% of its total
assets;
o enter into dollar rolls;
o purchase and sell interest rate futures contracts and options;
o enter into swap transactions;
o purchase put and call options and write covered put and call options on
securities it may purchase;
o write covered call options for cross-hedging purposes;
o enter into foreign currency futures contracts and related options;
o enter into forward foreign currency exchange contracts and options on
foreign currencies for hedging purposes;
o invest in CMOs;
o invest in zero coupon securities and "pay-in-kind" debentures; and
o make secured loans of portfolio securities.
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance Corporate Bond Portfolio
Alliance Corporate Bond Portfolio seeks primarily to maximize income over the
long term to the extent consistent with providing reasonable safety in the value
of each shareholder's investment and secondarily to increase its capital through
appreciation of its investments in order to preserve and, if possible, increase
the purchasing power of each shareholder's investment. In pursuing these
objectives, the Fund's policy is to invest in readily marketable securities that
give promise of relatively attractive yields but do not involve substantial risk
of loss of capital. The Fund invests, under normal circumstances, at least 80%
of its net assets in corporate bonds and other corporate debt securities. For
purposes of this policy, net assets include any borrowings for investment
purposes. This policy may not be changed without 60 days' prior written notice
to shareholders. Although the Fund invests at least 80% of its net assets in
corporate bonds and other corporate debt securities, it also may invest in
securities of non-corporate issuers. The Fund expects that the average weighted
maturity of its portfolio of fixed-income securities will vary between one year
or less and 30 years.
The Fund follows an investment strategy that in certain respects can be regarded
as more aggressive than the strategies of many other funds investing primarily
in corporate bonds. The Fund's investments normally tend to have a relatively
long average weighted maturity and duration. The Fund places significant
emphasis on both foreign corporate and sovereign debt obligations and corporate
bonds that are expected to benefit from improvement in their issuers' credit
fundamentals. In recent years the Fund frequently has had greater net asset
value volatility than most other corporate bond funds. Prospective investors in
the Fund should therefore be prepared to accept the degree of volatility
associated with its investment strategy.
The Fund's investments in fixed-income securities have no minimum rating
requirement, except the Fund expects that it will not retain a security that is
downgraded below B, or if unrated, determined to have undergone similar credit
quality deterioration after purchase. Currently, the Fund believes its
objectives and policies may best be implemented by investing at least 65% of its
total assets in fixed-income securities considered investment grade or higher.
The Fund may invest the remainder of its assets in lower-rated fixed-income
securities. As of June 30, 2002, the Fund's investments were rated (or
equivalent quality):
19
<PAGE>
o A or above 23.50%
o Baa or BBB 53.79%
o Ba or BB 8.28%
o B 5.40%
o NR 9.03%
The Fund may invest up to 50% of its total assets in foreign fixed-income
securities. The Fund invests no more than 15% of its total assets in sovereign
debt obligations in the form of foreign government loan participations and
assignments, which may be lower rated and considered to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. All of the Fund's investments, whether foreign or domestic, are U.S.
Dollar-denominated.
Within these limitations, the Fund has complete flexibility as to the types and
relative proportions of securities in which it will invest. The Fund plans to
vary the proportions of its holdings of long- and short-term fixed-income
securities and of equity securities in order to reflect its assessment of
prospective cyclical changes even if such action may adversely affect current
income. Substantially all of the Fund's investments, however, will be income
producing.
The Fund expects to engage in active and frequent trading of portfolio
securities to achieve its principal investment strategies. A higher rate of
portfolio turnover increases transaction expenses, which may negatively affect
the Fund's performance. High portfolio turnover also may result in the
realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
The Fund also may:
o invest in structured securities;
o invest in fixed and floating rate loans that are arranged through private
negotiations between an issuer of sovereign debt obligations and one or
more financial institutions and in participations in and assignments of
these type of loans;
o for hedging purposes, purchase put and call options written by others and
write covered put and call options;
o for hedging purposes, enter into various hedging transactions, such as
swap transactions;
o invest in variable, floating, and inverse floating rate instruments;
o invest in zero coupon and pay-in-kind securities; and
o invest in CMOs and multi-class pass-through mortgage-related securities.
Alliance High Yield Fund
Alliance High Yield Fund seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund invests, under normal circumstances, at least 80%
of its net assets in high yield debt securities. For purposes of this policy,
net assets include any borrowings for investment purposes. This policy may not
be changed without 60 days' prior written notice to shareholders. The Fund
invests in a diversified mix of high yield, below investment grade debt
securities, known as "junk bonds." These securities involve greater volatility
of price and risk of principal and income than higher quality debt securities.
The Fund is managed to maximize current income by taking advantage of market
developments, yield disparities, and variations in the creditworthiness of
issuers. The Fund uses various strategies in attempting to achieve its
objective.
The Fund normally invests in high yield debt securities rated below investment
grade by two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than
BBB by S&P) or, if unrated, of equivalent quality. The Fund may not invest more
than 10% of its total assets in (i) fixed-income securities which are rated
lower than B3 or B- or their equivalents by two or more NRSROs or, if unrated,
of equivalent quality, and (ii) money market instruments of any entity which has
an outstanding issue of unsecured debt that is rated lower than B3 or B- or
their equivalents by two or more NRSROs or, if unrated, of equivalent quality.
As of August 31, 2002, the Fund's investments were rated (or equivalent
quality):
o A and above 7.28%
o BBB 4.69%
o Ba or BB 22.69%
o B 59.98%
o CCC 4.04%
o CC .03%
o D .16%
o Unrated 1.13%
The Fund may invest a portion of its assets in foreign fixed-income securities.
The Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities.
The Fund also may invest in:
o U.S. Government securities;
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by certain
domestic and foreign banks;
o commercial paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if
unrated, issued by domestic or foreign companies having high quality
outstanding debt securities) and participation interests in loans extended
by banks to these companies;
o corporate debt obligations with remaining maturities of less than one year
rated at least high quality as well as corporate debt obligations rated at
least high grade provided the corporation also has outstanding an issue
20
<PAGE>
of commercial paper rated at least A-1 by S&P or Prime-1 by Moody's; and
o floating rate or master demand notes.
The Fund also may:
o invest in mortgage-related and asset-backed securities;
o invest in loan participations and assignments of loans to corporate,
governmental, or other borrowers originally made by institutional lenders
or lending syndicates;
o enter into forward commitments;
o write covered put and call options on debt securities, securities indices
and foreign currencies and purchase put or call options on debt
securities, securities indices and foreign currencies;
o purchase and sell futures contracts and related options on debt securities
and on indices of debt securities;
o enter into contracts for the purchase or sale of a specific currency for
hedging purposes only;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
MULTI-SECTOR FUND
The Multi-Sector Fund offers investors seeking high current income the
alternative of investing in a variety of traditional and non-traditional
fixed-income sectors based on Alliance's evaluation of changes in major economic
and credit cycles around the world.
Alliance Global Strategic Income Trust
Alliance Global Strategic Income Trust seeks primarily a high level of current
income and secondarily capital appreciation. The Fund invests primarily in a
portfolio of fixed-income securities of U.S. and non-U.S. companies and U.S.
Government and foreign government securities and supranational entities,
including lower-rated securities. The Fund also may use derivative instruments
to attempt to enhance income. The Fund expects that the average weighted
maturity of its portfolio of fixed-income securities will vary between five
years and 30 years in accordance with Alliance's changing perceptions of the
relative attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in fixed-income
securities of issuers located in at least three countries, one of which may be
the United States. The Fund limits its investments in the securities of any one
foreign government to 25% of its total assets. The Fund's investments in U.S.
Government securities may include mortgage-related securities and zero coupon
securities. The Fund's investments in fixed-income securities may include
preferred stock, mortgage-related and other asset-backed securities, and zero
coupon securities.
The Fund will maintain at least 65% of its total assets in investment grade
securities and may maintain not more than 35% of its total assets in lower-rated
securities. Unrated securities will be considered for investment by the Fund
when Alliance believes that the financial condition of the issuers of such
obligations and the protection afforded by the terms of the obligations limit
the risk to the Fund to a degree comparable to that of rated securities that are
consistent with the Fund's investment objectives and policies. Lower-rated
securities in which the Fund may invest include Brady Bonds and fixed-income
securities of issuers located in emerging markets.
The Fund expects to engage in active and frequent trading of portfolio
securities to achieve its principal investment strategies. A higher rate of
portfolio turnover increases transaction expenses, which may negatively affect
the Fund's performance. High portfolio turnover also may result in the
realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
The Fund also may:
o invest in rights and warrants;
o invest in loan participations and assignments;
o invest in foreign currencies;
o purchase and write put and call options on securities and foreign
currencies;
o purchase or sell forward foreign exchange contracts;
o invest in variable, floating, and inverse floating rate instruments;
o invest in indexed commercial paper;
o invest in structured securities;
o purchase and sell securities on a forward commitment basis;
o enter into standby commitments;
o enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including any index of U.S. Government securities,
foreign government securities or common stock, and purchase and write
options on futures contracts;
o invest in Eurodollar instruments;
o enter into swap transactions;
o make short sales of securities or maintain a short position;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
The Fund may borrow in order to purchase securities or make other investments,
although it currently limits its borrowings to 25% of its total assets.
21
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that offer
investors a high level of current income through investments primarily in
foreign government securities.
Alliance Americas Government Income Trust
Alliance Americas Government Income Trust seeks the highest level of current
income, consistent with what Alliance considers to be prudent investment risk,
that is available from a portfolio of debt securities issued or guaranteed by
the federal government of the United States, Canada, and Mexico, their political
subdivisions (including Canadian provinces but excluding states of the United
States), agencies, instrumentalities or authorities.
The Fund invests at least 65% of its net assets in debt securities issued or
guaranteed by: (i) the federal governments of the United States, Canada, and
Mexico; (ii) government-related entities in the United States, Canada, and
Mexico; and (iii) the provincial governments of Canada and Mexico. However, the
Fund normally invests at least 80% of its net assets in debt securities of
countries in North, Central, and South America. The Fund also invests, under
normal circumstances, at least 80%, and normally substantially more, of its net
assets in government securities. For purposes of both of these 80% policies, net
assets include any borrowings for investment purposes and the policies may not
be changed without 60 days' prior written notice to shareholders. The Fund's
investments may be denominated in local currency or U.S. Dollar-denominated, but
the Fund expects to maintain at least 25% of its assets in U.S.
Dollar-denominated securities.
The Fund also may invest in debt securities issued by, and denominated in either
the U.S. Dollar or the respective local currencies of, governments of countries
located in Central and South America, including the Caribbean, or any of their
political subdivisions, agencies, instrumentalities or authorities. The Fund may
invest up to 25% of its total assets in debt securities issued by governmental
entities of Argentina ("Argentine Government securities"). The Fund limits its
investments in debt securities issued by the governmental entities of any one
such country, except for Argentine Government securities, to 10% of its total
assets.
The average weighted maturity of the Fund's portfolio of debt securities is
expected to vary between one year or less and 30 years. The Fund currently
maintains borrowings of approximately one-third of its net assets.
As a matter of fundamental policy, the Fund invests at least 80% of its net
assets in debt securities rated investment grade at the time of investment and
may invest up to 20% of its net assets in non-investment grade debt securities
rated, at the time of investment, at least B- by S&P or Fitch or B3 by Moody's,
or, if unrated, determined by Alliance to be of equivalent quality. The Fund
expects that it will not retain a debt security that is downgraded below these
credit rating standards or, if unrated, determined by Alliance to have undergone
similar credit quality deterioration. The Fund may conclude, under certain
circumstances, that it is in the best interests of the shareholders to retain
its holdings in securities of that issuer.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations and
the growing coordination of their fiscal and monetary policies, will, over the
long term, benefit the economic performance of all three countries and promote
greater correlation of currency fluctuation among the U.S. and Canadian Dollars
and the Mexican Peso. Alliance anticipates that, over time, Central and South
America will tend to benefit as well from such broadening economic convergence.
Alliance will actively manage the Fund's assets in relation to market conditions
and general economic conditions and adjust the Fund's investments in an effort
to best enable the Fund to achieve its investment objective. Thus, the
percentage of the Fund's assets invested in a particular country or denominated
in a particular currency will vary in accordance with Alliance's assessment of
the relative yield and appreciation potential of such securities and the
relationship of the country's currency to the U.S. Dollar.
The Fund also may:
o enter into futures contracts and purchase and write options on futures
contracts for hedging purposes;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o write covered put and call options and purchase put and call options on
U.S. Government and foreign government securities traded on U.S. and
foreign securities exchanges, and write put and call options for
cross-hedging purposes;
o enter into swap transactions;
o enter into forward commitments;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
Alliance Emerging Market Debt Fund
Alliance Emerging Market Debt Fund seeks primarily a high level of current
income and secondarily capital appreciation. The Fund invests, under normal
circumstances, at least 80% of its net assets in emerging market debt
securities. For purposes of this policy, net assets include any borrowings for
investment purposes. This policy may not be changed without 60 days' prior
written notice to shareholders. The Fund invests at least 65% of its
22
<PAGE>
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations referred to as "Brady Bonds," which
are issued as part of debt restructurings and collateralized in full as to
principal due at maturity by zero coupon U.S. Government securities.
The Fund also may invest up to 35% of its total assets in U.S. and non-U.S.
corporate fixed-income securities. The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects the average
weighted maturity of the Fund's investments will be approximately:
o for U.S. fixed-income securities, nine to 15 years;
o for non-U.S. fixed-income securities, 15 to 25 years; and
o for sovereign debt obligations, longer than 25 years.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P and Fitch) and unrated securities of equivalent investment quality. These
securities may have extremely poor prospects of ever attaining any real
investment standing and a current identifiable vulnerability to default, be
unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions, and be in
default or not current in the payment of interest or principal.
The Fund also may invest in investment grade securities. Unrated securities will
be considered for investment by the Fund when Alliance believes that the
financial condition of the issuers of such obligations and the protection
afforded by the terms of the obligations themselves limit the risk to the Fund
to a degree comparable to that of rated securities which are consistent with the
Fund's investment objectives and policies.
As of August 31, 2002, securities ratings (or equivalent quality) of the Fund's
securities were:
o A and above .79%
o Baa or BBB 24.05%
o Ba or BB 41.71%
o B 29.64%
o CCC 2.89%
o CC .33%
o Unrated .59%
The Fund's investments in sovereign debt obligations and non-U.S. corporate
fixed-income securities emphasize countries that are considered at the time of
purchase to be emerging markets or developing countries by the World Bank. A
substantial part of the Fund's investment focus is in obligations of or
securities of issuers in Argentina, Brazil, Mexico, Morocco, the Philippines,
Russia and Venezuela because these countries are now, or are expected in the
future to be, the principal participants in debt restructuring programs
(including, in the case of Argentina, Mexico, the Philippines and Venezuela,
issuers of currently outstanding Brady Bonds) that, in Alliance's opinion, will
provide the most attractive investment opportunities for the Fund. Alliance
anticipates that other countries that will provide investment opportunities for
the Fund include, among others, Bolivia, Costa Rica, the Dominican Republic,
Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay.
The Fund limits its investments in the sovereign debt obligations of any single
foreign country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations of and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that it
will limit its investments in any other single foreign country to not more than
10% of its total assets.
The Fund also may:
o invest in structured securities;
o invest in fixed and floating rate loans that are arranged through private
negotiations between an issuer of sovereign debt obligations and one or
more financial institutions and in participations in and assignments of
these types of loans;
o invest in other investment companies;
o invest in warrants;
o enter into swap transactions;
o enter into forward commitments;
o enter into standby commitment agreements;
o make short sales of securities or maintain a short position;
o write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;
o purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
o invest in variable, floating, and inverse floating rate instruments;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
While it does not currently intend to do so, the Fund reserves the right to
borrow an amount not to exceed one-third of the Fund's net assets.
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Alliance Multi-Market Strategy Trust
Alliance Multi-Market Strategy Trust seeks the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of high-quality debt securities having remaining
maturities of not more than five years. The Fund is a non-diversified investment
company that offers investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund. The Fund invests in
a portfolio of debt securities denominated in the U.S. Dollar and selected
foreign currencies. The Fund seeks investment opportunities in foreign, as well
as domestic, securities markets. The Fund normally expects to maintain at least
70% of its assets in debt securities denominated in foreign currencies. The Fund
limits its investments in a single currency other than the U.S. Dollar to 25% of
its net assets, except for the Euro in which the Fund may invest up to 50% of
its net assets.
In pursuing its investment objective, the Fund seeks to minimize credit risk and
fluctuations in net asset value by investing only in short-term debt securities.
Normally, a high proportion of the Fund's portfolio consists of money market
instruments. Alliance actively manages the Fund's portfolio in accordance with a
multi-market investment strategy, allocating the Fund's investments among
securities denominated in the U.S. Dollar and the currencies of a number of
foreign countries and, within each such country, among different types of debt
securities. Alliance adjusts the Fund's exposure to each currency so that the
percentage of assets invested in securities of a particular country or
denominated in a particular currency varies in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relative strength of a country's currency. Fundamental economic
strength, credit quality, and interest rate trends are the principal factors
considered by Alliance in determining whether to increase or decrease the
emphasis placed upon a particular type of security or industry sector within a
Fund's investment portfolio.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges", can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders and declines in the net asset
value of the Fund's shares resulting from adverse changes in currency exchange
rates. The Fund invests in debt securities denominated in the currencies of
countries whose governments are considered stable by Alliance.
An issuer of debt securities purchased by the Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated. In
addition, the Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while the principal
amounts of, and value of interest payments on, such securities are determined
with reference to another currency.
The Fund seeks to minimize investment risk by limiting its investments to debt
securities of high quality and invests in:
o U.S. Government securities;
o high-quality foreign government securities;
o obligations issued by supranational entities and corporate debt securities
having a high-quality rating;
o certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, banks (including foreign branches of
foreign banks) having total assets of more than $500 million, and
determined by Alliance to be of high quality; and
o prime commercial paper or unrated commercial paper of equivalent quality
and issued by U.S. or foreign companies having outstanding high-quality
debt securities.
As a matter of fundamental policy, the Fund concentrates at least 25% of its
total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. These
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks.
The Fund also may:
o invest in indexed commercial paper;
o enter into futures contracts and purchase and write options on futures
contracts;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o enter into swap transactions;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes certain investment practices and associated risks that
are common to a number of Funds. There can be no assurance that at any given
time a Fund will engage in any of these derivative or other practices.
Derivatives. The Funds may use derivatives to achieve their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond
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indices, and stock indices. Derivatives can be used to earn income or protect
against risk, or both. For example, one party with unwanted risk may agree to
pass that risk to another party who is willing to accept the risk, the second
party being motivated, for example, by the desire either to earn income in the
form of a fee or premium from the first party, or to reduce its own unwanted
risk by attempting to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails greater
risk than if derivatives were used solely for hedging purposes. Derivatives are
a valuable tool, which, when used properly, can provide significant benefits to
Fund shareholders. A Fund may take a significant position in those derivatives
that are within its investment policies if, in Alliance's judgment, this
represents the most effective response to current or anticipated market
conditions. Alliance High Yield, Alliance Global Strategic Income and Alliance
Multi-Market Strategy in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging that is
an integral part of their investment strategy. Alliance's use of derivatives is
subject to continuous risk assessment and control from the standpoint of each
Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards, and swaps -- from which virtually any type of derivative transaction
can be created.
o Options -- An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price
(the exercise price) during a period of time or on a specified date. A
call option entitles the holder to purchase, and a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount based
on an underlying asset, rate or index). Likewise, when an option is
exercised the writer of the option is obligated to sell (in the case of a
call option) or to purchase (in the case of a put option) the underlying
asset (or settle for cash an amount based on an underlying asset, rate or
index).
o Futures -- A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying
asset but instead is settled for cash equal to the difference between the
values of the contract on the date it is entered into and its maturity
date.
o Forwards -- A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity or
other tangible asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated agreements designed to
satisfy the objectives of each party. A forward contract usually results
in the delivery of the underlying asset upon maturity of the contract in
return for the agreed upon payment.
o Swaps -- A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
The payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and
again upon the termination, of the transaction. Swap transactions also
include credit default swaps in which one party pays a periodic fee,
typically expressed in basis points on a notional amount, in return for a
contingent payment, by the counterparty following a credit event in a
specific debt obligation or obligations. A credit event is typically a
default and the contingent payment may be a cash settlement or by physical
delivery of the reference obligation in return for payment of its face
amount.
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as
agents utilizing standard swap documentation. As a result, the swap market
has become well established and relatively liquid. The Funds will enter
into swap transactions only with counterparties whose debt securities have
ratings of at least A (or the
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equivalent) from any one nationally recognized statistical rating
organization or counterparties with guarantors with debt securities having
such a rating.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities. These
securities are described below under Mortgage-Related Securities and Other
Asset-Backed Securities.
While the judicious use of derivatives by highly-experienced investment managers
such as Alliance can be quite beneficial, derivatives involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in a Fund.
o Market Risk -- This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the Fund's
interest based on changes in the bond market generally.
o Management Risk -- Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use
and complexity of derivatives require the maintenance of adequate controls
to monitor the transactions entered into, the ability to assess the risk
that a derivative adds to a Fund's portfolio, and the ability to forecast
price, interest rate, or currency exchange rate movements correctly.
o Credit Risk -- This is the risk that a loss may be sustained by a Fund as
a result of the failure of a derivative counterparty to comply with the
terms of the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or counterparty to each
exchange-traded derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
o Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
o Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made
any initial investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment.
o Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counterparties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, a Fund's use of derivatives may
not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective. In
addition, there is no guarantee that a specific derivative will be
available for a Fund to utilize at any given time.
Derivatives Used by the Funds. The following describes specific derivatives that
one or more of the Funds may use.
Credit Default Swap Agreements. The "buyer" in a credit default contract is
obligated to pay the "seller" a periodic stream of payments over the term of the
contract in return for a contingent payment upon the occurrence of a credit
event with respect to an underlying reference obligation. Generally, a credit
event means bankruptcy, failure to pay, obligation acceleration or modified
restructuring. If a credit event occurs, the seller typically must pay the
contingent payment to the buyer, which is typically the "par value" (full
notional value) of the reference obligation. The contingent payment may be a
cash settlement or by physical delivery of the reference obligation in return
for payment of the face amount of the obligation. A Fund may be either the buyer
or seller in the transaction. If a Fund is a buyer and no credit event occurs,
the Fund may lose its investment and recover nothing. However, if a credit event
occurs, the buyer typically receives full notional value for a reference
obligation that may have little or no value. As a seller, a Fund receives a
fixed rate of income throughout the term of the contract, which typically is
between one month and five years,
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provided that no credit event occurs. If a credit event occurs, the seller must
pay the buyer the full notional value of the reference obligation.
Credit default swaps involve greater risks than if a Fund had invested in the
reference obligation directly. In addition to general market risks, credit
default swaps are subject to liquidity risk and credit risk. A buyer also may
lose its investment and recover nothing should no credit event occur. If a
credit event were to occur, the value of the reference obligation received by
the seller, coupled with the periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of value
to the Fund.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options that are linked to LIBOR.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. Alliance
Global Strategic Income intends to use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR (to which many short-term borrowings
and floating rate securities in which the Fund invests are linked).
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells forward
foreign currency exchange contracts ("forward contracts") to minimize the risk
from adverse changes in the relationship between the U.S. Dollar and other
currencies. A Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. Dollar price of the security (a
"transaction hedge"). When a Fund believes that a foreign currency may suffer a
substantial decline against the U.S. Dollar, it may enter into a forward sale
contract to sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount (a
"position hedge"). Instead of entering into a position hedge, a Fund may, in the
alternative, enter into a forward contract to sell a different foreign currency
for a fixed U.S. Dollar amount where the Fund believes that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. Dollar value of the currency in which
portfolio securities of the Fund are denominated (a "cross-hedge").
Futures Contracts and Options on Futures Contracts. A Fund may buy and sell
futures contracts on fixed-income or other securities or foreign currencies, and
contracts based on interest rates or financial indices, including any index of
U.S. Government securities, foreign government securities or corporate debt
securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except for Alliance Global
Strategic Income, will be used only for hedging purposes.
Alliance U.S. Government, Alliance Global Strategic Income, Alliance Americas
Government Income and Alliance Multi-Market Strategy will not enter into a
futures contract or write or purchase an option on a futures contract if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of its total assets. Alliance U.S.
Government, Alliance Global Strategic Income, Alliance Americas Government
Income and Alliance Multi-Market Strategy will not enter into a futures contract
or, if otherwise permitted, write or purchase an option on a futures contract,
if immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. Alliance High Yield will not purchase or sell futures
contracts or options on futures contracts unless either (i) the futures
contracts or options thereon are for "bona fide hedging" purposes (as that term
is defined under the Commodities Futures Trading Commission regulations) or (ii)
if for other purposes, the sum of amounts of initial margin deposits and
premiums required to establish non-hedging positions would not exceed 5% of the
Fund's liquidation value. In addition, Alliance Global Strategic Income will not
enter into any futures contract (i) other than one on fixed-income securities or
based on interest rates, or (ii) if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales and the aggregate futures market
prices of instruments required to be delivered under open futures contract
purchases would exceed 30% of the value of the Fund's total assets.
Interest Rate Transactions (Swaps, Caps, and Floors). Each Fund that may enter
into interest rate swap, cap, or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) computed based on a contractually-based
principal (or "notional") amount. Interest rate swaps are entered into on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
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Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. A Fund
may enter into interest rate swaps, caps, and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its assets or
liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
Alliance Global Strategic Income, Alliance Americas Government Income and
Alliance Multi-Market Strategy, may enter into interest rate swaps involving
payments in the same currency or in different currencies. Caps and floors may be
less liquid than swaps. These transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, unless there is
a counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
Options on Foreign Currencies. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates, although if rates move adversely, a Fund may forfeit the entire amount of
the premium plus related transaction costs.
Options on Securities. In purchasing an option on securities, a Fund would be in
a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is retained
by the Fund whether or not the option is exercised. Except with respect to
uncovered call options written for cross-hedging purposes, none of the Funds
will write uncovered call or put options on securities. A call option written by
a Fund is "covered" if the Fund owns the underlying security, has an absolute
and immediate right to acquire that security upon conversion or exchange of
another security it holds, or holds a call option on the underlying security
with an exercise price equal to or less than that of the call option it has
written. A put option written by a Fund is covered if the Fund holds a put
option on the underlying securities with an exercise price equal to or greater
than that of the put option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and a Fund could be
obligated to acquire the underlying security at its current price and sell it at
a lower price. The risk of loss from writing an uncovered put option is limited
to the exercise price of the option.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." A Fund would write a
call option for cross-hedging purposes, instead of writing a covered call
option, when the premium to be received from the cross-hedge transaction exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved with other hedging strategies.
Alliance U.S. Government, Alliance Quality Bond, Alliance Corporate Bond,
Alliance High Yield, Alliance Global Strategic Income, Alliance Americas
Government Income and Alliance Emerging Market Debt, generally purchase or write
privately negotiated options on securities. A Fund that does so will effect such
transactions only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy by
Alliance. Privately negotiated options purchased or written by a Fund may be
illiquid and it may not be possible for the Fund to effect a closing transaction
at an advantageous time. Alliance U.S. Government and Alliance Corporate Bond
will not purchase an option on a security if, immediately thereafter, the
aggregate cost of all outstanding options purchased by the Fund would exceed 2%
of the Fund's total assets. Nor will these Funds write an option if, immediately
thereafter, the aggregate value of the Fund's portfolio securities subject to
outstanding options would exceed 15% of the Fund's total assets.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Brady Bonds. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). They may be
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collateralized or uncollateralized and issued in various currencies (although
most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations that have
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having up to four valuation components: (i) collateralized
repayment of principal at final maturity, (ii) collateralized interest payments,
(iii) uncollateralized interest payments, and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts constitute
the "residual risk"). In the event of a default with respect to collateralized
Brady Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P or Fitch and comparable unrated
securities may share some or all of the risks of debt securities with those
ratings.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a when-issued basis or purchases or sales on a delayed
delivery basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a proposed
financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation
and no interest or dividends accrues to the purchaser prior to the settlement
date.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
Alliance Global Strategic Income, Alliance Americas Government Income or
Alliance Emerging Market Debt if, as a result, the Fund's aggregate forward
commitments under such transactions would be more than 25% of the total assets
of Alliance Global Strategic Income and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive against a forward commitment, it may realize a gain or
incur a loss.
Illiquid Securities. The Funds will limit their investments in illiquid
securities to 15% of their net assets, except that the limit is 10% for Alliance
Americas Government Income and Alliance Multi-Market Strategy. As a matter of
fundamental policy, Alliance Corporate Bond cannot purchase illiquid securities.
Illiquid securities generally include (i) direct placements or other securities
that are subject to legal or contractual restrictions on resale or for which
there is no readily available market (e.g., when trading in the security is
suspended or, in the case of unlisted securities, when market makers do not
exist or will
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not entertain bids or offers), including many currency swaps and any assets used
to cover currency swaps, (ii) over-the-counter options and assets used to cover
over-the-counter options, and (iii) repurchase agreements not terminable within
seven days.
A Fund that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor each Fund's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
Indexed Commercial Paper. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. Each Fund that invests in indexed
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return. A Fund will purchase such commercial paper for hedging purposes
only, not for speculation.
Investment in Other Investment Companies. Alliance Emerging Market Debt may
invest in other investment companies whose investment objectives and policies
are consistent with those of the Fund. If the Fund acquires shares in investment
companies, shareholders would bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses
of such investment companies (including management and advisory fees).
Loans of Portfolio Securities. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained by
the borrower with the Fund. A principal risk in lending portfolio securities, as
with other collateralized extensions of credit, consists of possible loss of
rights in the collateral should the borrower fail financially. In addition, the
Fund will be exposed to the risk that the sale of any collateral realized upon a
borrower's default will not yield proceeds sufficient to replace the loaned
securities.
In determining whether to lend securities to a particular borrower, Alliance
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Fund any income earned from the securities. A Fund may invest any
cash collateral directly or indirectly in short-term, high-quality debt
instruments and earn additional income or receive an agreed-upon amount of
income from a borrower who has delivered equivalent collateral. Any such
investment of cash collateral will be subject to the Fund's investment risks.
The Fund will have the right to regain record ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights, and
rights to dividends, interest or distributions. The Fund may pay reasonable
finders', administrative, and custodial fees in connection with a loan. Lending
of portfolio securities is limited to 50% of total assets for Alliance Quality
Bond and Alliance High Yield, 33 1/3% of total assets (including collateral) for
Alliance U.S. Government, 25% of net assets for Alliance Global Strategic
Income, 20% of net assets for Alliance Americas Government Income and Alliance
Emerging Market Debt and 20% of total assets for Alliance Multi-Market Strategy.
Loan Participations and Assignments. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will acquire
participations only if the lender interpositioned between the Fund and the
borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund purchases
a loan assignment from a lender it will acquire direct rights against the
borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to
Alliance Global Strategic Income and Alliance Emerging Market Debt, or foreign
government securities, with respect to Alliance Corporate Bond and Alliance High
Yield, is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Fund may acquire an interest in a
loan is through a participation and not an assignment. A Fund may have
difficulty disposing of assignments and participations because to do so it will
have to assign such securities to a third party. Because there may not be a
liquid market for such investments, they can probably be sold only to a limited
number of institutional investors. The lack of a liquid secondary market may
have an adverse effect on the value of such investments and a Fund's ability to
dispose of particular participations and assignments
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when necessary to meet its liquidity needs in response to a specific economic
event such as a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for participations and assignments also may make it
more difficult for the Fund to assign a value to these investments for purposes
of valuing the Fund's portfolio and calculating its net asset value.
Alliance Global Strategic Income and Alliance Emerging Market Debt may invest up
to 25%, and Alliance Corporate Bond may invest up to 15%, of their total assets
in loan participations and assignments.
Mortgage-Related Securities. The Funds' investments in mortgage-related
securities typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both interest
and principal, unlike more traditional debt securities, which normally do not
provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if the
borrowers on the underlying mortgages fail to make their mortgage payments. The
ratings of such non-governmental securities are generally dependent upon the
ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. A Fund may
buy mortgage-related securities without credit enhancement if the securities
meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing, or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as discussed
below, frequently causes these securities to experience significantly greater
price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by GNMA,
are referred to as "modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. CMOs may be
issued by a U.S. Government instrumentality or agency or by a private issuer.
Although payment of the principal of, and interest on, the underlying collateral
securing privately issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these
CMOs represent obligations solely of the private issuer and are not insured or
guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or any other
person or entity.
Another type of mortgage-related security, known as ARMS, bears interest at a
rate determined by reference to a predetermined interest rate or index. There
are two main categories of rates or indices: (i) rates based on the yield on
U.S. Treasury securities; and (ii) indices derived from a calculated measure
such as a cost of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate levels, while others
tend to lag changes in market rate levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Since many adjustable-rate mortgages only reset on an annual basis, the
values of ARMS tend to fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest rates payable on
the underlying adjustable-rate mortgages.
SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by
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a pool of mortgages or a pool of mortgage-backed bonds or pass-through
securities, with each class receiving different proportions of the principal and
interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities or IOs receiving all of the interest payments
from the underlying assets; while the other class of securities, principal-only
securities or POs, receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase in
value as interest rates decrease. If prepayments of the underlying mortgages are
greater than anticipated, the amount of interest earned on the overall pool will
decrease due to the decreasing principal balance of the assets. Changes in the
values of IOs and POs can be substantial and occur quickly, such as occurred in
the first half of 1994 when the value of many POs dropped precipitously due to
increases in interest rates. For this reason, none of the Funds relies on IOs
and POs as the principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund may
be unable to invest the proceeds from the early payment of the mortgage-related
securities in investments that provide as high a yield as the mortgage-related
securities. Early payments associated with mortgage-related securities cause
these securities to experience significantly greater price and yield volatility
than is experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions, and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. Conversely,
during periods of rising interest rates, a reduction in prepayments may increase
the effective life of mortgage-related securities, subjecting them to greater
risk of decline in market value in response to rising interest rates. If the
life of a mortgage-related security is inaccurately predicted, a Fund may not be
able to realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs, and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities at
any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities also can be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such an adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above, the
yields on ARMS vary with changes in the applicable interest rate or index, there
is often a lag between increases in general interest rates and increases in the
yield on ARMS as a result of relatively infrequent interest rate reset dates. In
addition, adjustable-rate mortgages and ARMS often have interest rate or payment
caps that limit the ability of the adjustable-rate mortgages or ARMS to fully
reflect increases in the general level of interest rates.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. In
some transactions, the value of the asset-backed security is dependent on the
performance of a third party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of vehicle loans or
leases) it may be administratively burdensome to perfect the interest of the
security issuer in the underlying collateral and the underlying collateral may
become damaged or stolen.
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Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive principal
and interest payments on these securities. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, a Fund forgoes principal and interest paid on the securities. A
Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. Under normal circumstances, Alliance
U.S. Government and Alliance Corporate Bond do not expect to engage in reverse
repurchase agreements and dollar rolls with respect to greater than 50% of their
total assets. Reverse repurchase agreements and dollar rolls together with any
borrowings by Alliance Emerging Market Debt will not exceed 33% of its total
assets less liabilities (other than amounts borrowed). Alliance Global Strategic
Income may enter into reverse repurchase agreements with commercial banks and
registered broker-dealers in order to increase income, in an amount up to 25% of
its total assets. Reverse repurchase agreements and dollar rolls together with
any borrowings by Alliance Global Strategic Income will not exceed 25% of its
total assets.
Rights and Warrants. Rights and warrants are option securities permitting their
holders to subscribe for other securities. Alliance Emerging Market Debt may
invest in warrants and Alliance Global Strategic Income may invest in rights and
warrants, for debt securities or for equity securities that are acquired in
connection with debt instruments. Rights are similar to warrants except that
they have a substantially shorter duration. Rights and warrants do not carry
with them dividend or voting rights with respect to the underlying securities,
or any rights in the assets of the issuer. As a result, an investment in rights
and warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not necessarily
change with the value of the underlying securities, and a right or a warrant
ceases to have value if it is not exercised prior to its expiration date.
Alliance Global Strategic Income may invest up to 20% of its total assets in
rights and warrants.
Short Sales. A short sale is effected by selling a security that a Fund does not
own, or if the Fund owns the security, is not to be delivered upon consummation
of the sale. A short sale is "against the box" if a Fund owns or has the right
to obtain without payment securities identical to those sold short. Alliance
Emerging Market Debt may make short sales only against the box and only for the
purpose of deferring realization of a gain or loss for U.S. federal income tax
purposes. In addition, the Fund may not make a short sale if, as a result, more
than 10% of its net assets (taken at market value) would be held as collateral
for short sales.
Alliance Global Strategic Income may make a short sale in anticipation that the
market price of that security will decline. When the Fund makes a short sale of
a security that it does not own, it must borrow from a broker-dealer the
security sold short and deliver the security to the broker-dealer upon
conclusion of the short sale. The Fund may be required to pay a fee to borrow
particular securities and is often obligated to pay over any payments received
on such borrowed securities. The Fund's obligation to replace the borrowed
security will be secured by collateral deposited with a broker-dealer qualified
as a custodian. Depending on the arrangements the Fund makes with the
broker-dealer from which it borrowed the security regarding remittance of any
payments received by the Fund on such security, the Fund may or may not receive
any payments (e.g., dividends or interest) on its collateral deposited with the
broker-dealer.
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In order to defer realization of a gain or loss for U.S. federal income tax
purposes, Alliance Global Strategic Income may also make short sales "against
the box" of securities which are eligible for such deferral. The Fund may not
make a short sale, if as a result, more than 25% of its total assets would be
held as collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price of
the securities subject to the commitments does not exceed 20%, or 25% with
respect to Alliance Global Strategic Income, of their assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in the
event that the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Structured Securities. Structured securities in which Alliance Emerging Market
Debt, Alliance Global Strategic Income and Alliance Corporate Bond may invest
represent interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations, with
respect to Alliance Emerging Market Debt and Alliance Global Strategic Income,
or foreign government securities, with respect to Alliance Corporate Bond. This
type of restructuring involves the deposit with or purchase by an entity, such
as a corporation or trust, of specified instruments (such as commercial bank
loans or Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. Alliance Emerging
Market Debt may invest up to 25% of its total assets, and Alliance Global
Strategic Income and Alliance Corporate Bond may invest without limit, in these
types of structured securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued without
interest coupons or stripped of their unmatured interest coupons, and include
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less
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than its face value. Such securities usually trade at a deep discount from their
face or par value and are subject to greater fluctuations in market value in
response to changing interest rates than debt obligations of comparable
maturities and credit quality that make current distributions of interest. On
the other hand, because there are no periodic interest payments to be reinvested
prior to maturity, these securities eliminate reinvestment risk and "lock in" a
rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations. Currently
the only U.S. Treasury security issued without coupons is the Treasury bill.
Although the U.S. Treasury does not itself issue Treasury notes and bonds
without coupons, under the U.S. Treasury STRIPS program interest and principal
payments on certain long-term Treasury securities may be maintained separately
in the Federal Reserve book entry system and may be separately traded and owned.
In addition, in the last few years a number of banks and brokerage firms have
separated ("stripped") the principal portions from the coupon portions of U.S.
Treasury bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments (which are
generally held by a bank in a custodial or trust account).
Alliance Quality Bond, Alliance Corporate Bond and Alliance Global Strategic
Income also may invest in pay-in-kind debentures (i.e., debt obligations the
interest on which may be paid in the form of obligations of the same type rather
than cash), which have characteristics similar to zero coupon securities.
Future Developments. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund, or are not available but may yet be developed, to the
extent such investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed those involved
in the practices described above.
Portfolio Turnover. The portfolio turnover rate for each Fund is included in the
Financial Highlights section. Generally, the Funds are actively managed and a
Fund's portfolio turnover may exceed 100%, in some cases in response to market
conditions or as otherwise discussed with respect to a specific Fund. A higher
rate of portfolio turnover increases brokerage and other expenses, which must be
borne by the Fund and its shareholders. High portfolio turnover also may result
in the realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, each Fund may
invest in certain types of short-term, liquid, high grade or high quality
(depending on the Fund) debt securities. These securities may include U.S.
Government securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. While a Fund is investing for temporary defensive
purposes, it may not meet its investment objectives.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. Certain of these risks may be heightened when investing in
emerging markets.
Currency Considerations. Those Funds that invest some portion of their assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect a Fund's net assets, distributions
and income. If the value of the foreign currencies in which a Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, a Fund may be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. Dollars to
meet the distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, as described above, which involve certain special
risks.
Effects of Borrowing. A Fund's loan agreements provide for additional borrowings
and for repayments and reborrowings from time to time, and each Fund that may
borrow expects to effect borrowings and repayments at such times and in such
amounts as will maintain investment leverage in an amount approximately equal to
its borrowing target. The loan agreements provide for a selection of interest
rates that are based on the bank's short-term funding costs in the U.S. and
London markets.
Borrowings by a Fund result in leveraging of the Fund's shares. Utilization of
leverage, which is usually considered speculative, involves certain risks to a
Fund's shareholders. These include a higher volatility of the net asset value of
a Fund's shares and the relatively greater effect on the net asset value of the
shares. So long as a Fund is able to realize a net return on its investment
portfolio that is higher than the interest expense paid on borrowings, the
effect of leverage will be to cause the Fund's shareholders to realize
35
<PAGE>
a higher current net investment income than if the Fund were not leveraged. On
the other hand, interest rates on U.S. Dollar-denominated and foreign
currency-denominated obligations change from time to time as does their
relationship to each other, depending upon such factors as supply and demand
forces, monetary and tax policies within each country and investor expectations.
Changes in such factors could cause the relationship between such rates to
change so that rates on U.S. Dollar-denominated obligations may substantially
increase relative to the foreign currency-denominated obligations of a Fund's
investments. If the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced. If the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments and reduce the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by Alliance Quality Bond,
Alliance Global Strategic Income, Alliance Americas Government Income or
Alliance Multi-Market Strategy could adversely affect the Funds' shareholders,
as noted above, or in anticipation of such changes, each Fund may increase the
percentage of its investment portfolio invested in U.S. Government securities,
which would tend to offset the negative impact of leverage on Fund shareholders.
Each Fund may also reduce the degree to which it is leveraged by repaying
amounts borrowed.
Fixed-Income Securities. The value of each Fund's shares will fluctuate with the
value of its investments. The value of each Fund's investments will change as
the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but will be reflected in the net asset value of a Fund.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund that invests in foreign securities, including
foreign fixed-income securities, may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in securities of
U.S. companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase the
cost and expenses of a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
A Fund also could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. These
factors may affect the liquidity of a Fund's investments in any country and
Alliance will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many foreign countries
are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such
36
<PAGE>
respects as growth of gross domestic product or gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Nationalization, expropriation or confiscatory taxation,
currency blockage, political changes, government regulation, political or social
instability, revolutions, wars or diplomatic developments could affect adversely
the economy of a foreign country. In the event of nationalization, expropriation
or other confiscation, a Fund could lose its entire investment in securities in
the country involved. In addition, laws in foreign countries governing business
organizations, bankruptcy and insolvency may provide less protection to security
holders such as the Fund than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S. Dollar
and the Canadian Dollar, the matters described above are not likely to have a
material adverse effect on Alliance Americas Government Income's investments in
the securities of Canadian issuers or investments denominated in Canadian
Dollars. The factors described above are more likely to have a material adverse
effect on the Fund's investments in the securities of Mexican and other
non-Canadian foreign issuers, including investments in securities denominated in
Mexican Pesos or other non-Canadian foreign currencies. If not hedged, however,
currency fluctuations could affect the unrealized appreciation and depreciation
of Canadian Government securities as expressed in U.S. Dollars.
Investment in the Banking Industry. Due to its investment policies with respect
to investments in the banking industry, Alliance Multi-Market Strategy will have
greater exposure to the risk factors which are characteristic of such
investments. In particular, the value of and investment return on the Fund's
shares will be affected by economic or regulatory developments in or related to
the banking industry. Sustained increases in interest rates can adversely affect
the availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of the
concentration of loan portfolios in particular businesses such as real estate,
energy, agriculture or high technology-related companies; competition within
those industries as well as with other types of financial institutions; and
national and local governmental regulation. In addition, the Fund's investments
in commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking and
diversified securities activities. As discussed above, however, the Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty in
valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political conditions.
There can be no assurance, however, that losses will not occur. Since the risk
of default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
a Fund's securities than would be the case if a Fund did not invest in
lower-rated securities. In considering investments for the Fund, Alliance will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. Alliance's analysis focuses on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
Unrated Securities. Unrated securities will also be considered for investment by
Alliance Quality Bond, Alliance Corporate Bond, Alliance High Yield, Alliance
Global Strategic Income, Alliance Americas Government Income and Alliance
Emerging Market Debt when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to
37
<PAGE>
a degree comparable to that of rated securities which are consistent with the
Fund's objective and policies.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which Alliance Global Strategic Income,
Alliance Americas Government Income and Alliance Emerging Market Debt will
invest. Reduced secondary market liquidity may have an adverse effect on the
market price and a Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific economic
events such as a deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for certain sovereign debt obligations may also make
it more difficult for a Fund to obtain accurate market quotations for the
purpose of valuing its portfolio. Market quotations are generally available on
many sovereign debt obligations only from a limited number of dealers and may
not necessarily represent firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social, and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected in, among other things, its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations, and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Funds' investment objectives. The
Funds may have limited legal recourse in the event of a default with respect to
certain sovereign debt obligations it holds. For example, remedies from defaults
on certain sovereign debt obligations, unlike those on private debt, must, in
some cases, be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy, moratorium and
other similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness of an issuer of
sovereign debt obligations to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt will not contest payments to the
holders of securities issued by foreign governments in the event of default
under commercial bank loan agreements.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Alliance High Yield and Alliance Emerging Market Debt invest
may include securities issued in connection with corporate restructurings such
as takeovers or leveraged buyouts, which may pose particular risks. Securities
issued to finance corporate restructurings may have special credit risks due to
the highly leveraged conditions of the issuer. In addition, such issuers may
lose experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Funds may also invest in
U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Funds'
rights with respect to defaults on such securities will be subject to applicable
U.S. bankruptcy, moratorium and other similar laws.
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment adviser managing client accounts with assets as of June 30, 2002,
totaling more than $412 billion (of which more than $157 billion represented
assets of investment companies). As of June 30, 2002, Alliance managed
retirement assets for many of the largest public and private employee benefit
plans (including 43 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 44 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 57 registered
investment companies, managed by Alliance, comprising 145 separate investment
portfolios, currently have approximately 7.5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Funds. For these advisory services, the Funds paid Alliance as a
percentage of average daily net assets:
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<PAGE>
Fee as a
percentage of
average daily Fiscal
Fund net assets Year Ending
---- -------------- -----------
Alliance U.S. Government .54% 6/30/02
Alliance Quality Bond .10* 6/30/02
Alliance Corporate Bond .55 6/30/02
Alliance High Yield .75 8/31/02
Alliance Global Strategic
Income .75 10/31/01
Alliance Americas
Government Income .72 11/30/01
Alliance Emerging
Market Debt .75 8/31/02
Alliance Multi-Market Strategy .60 10/31/01
--------------------------------------------------------------------------------
* Fee stated net of any waivers and/or reimbursements. See the "Fee Table"
at the beginning of the Prospectus for more information about fee waivers.
PORTFOLIO MANAGERS
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible for the Fund's portfolio, and each
person's principal occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years*
--------------------------------------------------------------------------------
U.S. Government Sean Kelleher; Associated with
since August 2002; Alliance since 1999;
Senior Vice President prior thereto, managed
the MBS swaps desk
at Deutsche Bank from
1997 to 1999.
Quality Bond Matthew Bloom; Associated with
since inception; Alliance
Senior Vice President
Corporate Bond Lawrence J. Shaw; since Associated with
August 2002; Alliance
Senior Vice President
Michael A. Snyder; Associated with
since May 2001; Alliance since May
Senior Vice President 2001, prior thereto
Managing Director in
the high yield asset
management group at
both Donaldson, Lufkin,
& Jenrette Corporation
from 1998 to 2001 and
Bear Stearns & Co. from
1997 to 1998.
High Yield Michael A. Snyder; (see above)
since May 2001;
Senior Vice President
Global Strategic Douglas J. Peebles; Associated with
Income since inception; Alliance
Senior Vice President
Americas Paul J. DeNoon; since Associated with
Government Income August 2002; Alliance
Senior Vice President
Ivan Rudolph-Shabinsky; Associated with
since August 2002; Alliance
Vice President
Sean Kelleher; since (see above)
August 2002;
Senior Vice President
Emerging Paul J. DeNoon; since (see above)
Market Debt August 2002;
Senior Vice President
Multi-Market Douglas J. Peebles; (see above)
Strategy since inception;
(see above)
--------------------------------------------------------------------------------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
PERFORMANCE OF SIMILARLY MANAGED PORTFOLIOS
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of
Alliance High Yield. Alliance since July 22, 1993, and prior thereto, Equitable
Capital Management Corporation, whose advisory business Alliance acquired on
that date, have served as investment adviser to the Historical Portfolio since
its inception in 1987.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of Alliance High
Yield and the Lipper High Current Yield Mutual Funds Average as a comparative
benchmark. As of December 31, 2001, the assets in the Historical Portfolio
totalled approximately $542 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Portfolio. In addition, the
performance data do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The performance data
have not been adjusted for corporate or individual taxes, if any, payable with
respect to the Historical Portfolio. The rates of return shown for the
Historical Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Funds Average is a survey of the performance of a
large number of mutual funds the investment objective of each of which is
similar to that of
39
<PAGE>
the Fund. Nonetheless, the investment policies pursued by funds in the survey
may differ from those of Alliance High Yield and the Historical Portfolio. This
survey is published by Lipper Inc. ("Lipper"), a firm recognized for its
reporting of performance of actively managed funds. According to Lipper,
performance data are presented net of investment management fees, operating
expenses and, for funds with Rule 12b-1 plans, asset-based sales charges.
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would have
produced the corresponding cumulative return had performance been constant over
the entire period. Rates of return for Alliance High Yield Class A shares assume
the imposition of the maximum 4.25% sales charge. The inception date for the
Historical Portfolio and Lipper data is January 2, 1987 and for Alliance High
Yield is April 22, 1997.
Annualized Rates of Return
Periods Ended December 31, 2001
--------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
--------------------------------------------------------------------------------
Historical Portfolio 0.89% -3.80% 0.02% 7.09% 7.47%
Lipper High Current
Yield Funds
Average 1.06 -1.13 1.78 6.77 7.20
Alliance High Yield -4.82 -6.26 n/a n/a 0.14
Cumulative Rates of Return
Periods Ending December 31, 2001
--------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
--------------------------------------------------------------------------------
Historical Portfolio 0.89% -10.98% 0.08% 98.29% 194.74%
Lipper High Current
Yield Funds
Average 1.06 -2.83 10.41 95.45 195.75
Alliance High Yield -4.82 -17.62 n/a n/a 0.64
Alliance is also the investment adviser of a portfolio (the "Historical Fund")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with substantially the same investment strategies and techniques as those of
Alliance Quality Bond. Alliance has served as investment adviser to the
Historical Fund since its inception in 1993.
The following tables set forth performance results for the Historical Fund since
its inception on October 1, 1993, together with those of the Lipper Corporate
Debt Funds BBB Rated Average and the Lehman Aggregate Bond Index as comparative
benchmarks. As of December 31, 2001, the assets in the Historical Fund totalled
approximately $355 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Fund. In addition, the performance
data do not reflect Alliance Quality Bond's higher expenses, which, if
reflected, would lower the performance of the Historical Fund. The performance
data have not been adjusted for corporate or individual taxes, if any, payable
with respect to the Historical Fund. The rates of return shown for the
Historical Fund are not an estimate or guarantee of future investment
performance of Alliance Quality Bond.
The Lipper Corporate Debt Funds BBB Rated Average is a survey of the performance
of a large number of mutual funds the investment objective of each of which is
similar to that of Alliance Quality Bond. Nonetheless, the investment policies
pursued by funds in the survey may differ from those of Alliance Quality Bond
and the Historical Fund. This survey is published by Lipper Inc., a firm
recognized for its reporting of performance of actively managed funds. According
to Lipper Inc., performance data are presented net of investment management
fees, operating expenses and, for funds with Rule 12b-1 plans, asset-based sales
charges. The Lehman Aggregate Bond Index is an Index comprised of investment
grade fixed-income securities, including U.S. Treasury, mortgage-backed,
corporate and "Yankee bonds" (U.S. dollar-denominated bonds issued outside the
United States).
The performance results presented below are based on percent changes in net
asset values of the Historical Fund with dividends and capital gains reinvested.
Cumulative rates of return reflect performance over a stated period of time.
Annualized rates of return represent the rate of growth that would have produced
the corresponding cumulative return had performance been constant over the
entire period. The inception date for the Historical Fund, the Lipper data and
the Lehman Index date is October 1, 1993.
Annualized Rates of Return
Periods Ended December 31, 2001
--------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
--------------------------------------------------------------------------------
Historical Fund 8.28% 5.76% 7.02% 6.13%
Lehman Aggregate
Bond Index 8.44 6.28 7.43 6.71
Lipper Corporate Debt
Funds BBB Rated
Average 7.33 4.75 6.30 6.07
Alliance Quality Bond 2.84 n/a n/a 5.81
Cumulative Rates of Return
Periods Ended December 31, 2001
--------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
--------------------------------------------------------------------------------
Historical Fund 8.28% 18.31% 40.37% 63.42%
Lehman Aggregate
Bond Index 8.44 20.06 43.08 70.01
Lipper Corporate Debt
Funds BBB Rated
Average 7.33 15.02 35.85 61.93
Alliance Quality Bond 2.84 n/a n/a 15.18
40
<PAGE>
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PURCHASE AND SALE OF SHARES
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HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, a Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Funds value their
securities at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such other methods
as the Funds' Directors or Trustees believe accurately reflect fair market
value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund. Your
purchase of Fund shares may be subject to an initial sales charge. Sales of Fund
shares may be subject to a contingent deferred sales charge or CDSC. See the
Distribution Arrangements section of this Prospectus for details.
HOW TO BUY SHARES
You may purchase a Fund's shares through broker-dealers, banks, or other
financial intermediaries. You also may purchase shares directly from the Funds'
principal underwriter, Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
o Initial $1,000
o Subsequent $50
o Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase shares by electronic
funds transfer in amounts not exceeding $500,000 if you have completed the
appropriate section of the Subscription Application or the Shareholder Options
form obtained from Alliance Global Investor Services, Inc., or AGIS. Call
800-221-5672 to arrange a transfer from your bank account.
A Fund is required to withhold 30% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Funds may refuse any order to purchase shares. In this regard, the Funds
reserve the right to restrict purchases of Fund shares (including through
exchanges) when they appear to evidence a pattern of frequent purchases and
sales made in response to short-term considerations.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of other Alliance
Mutual Funds (including AFD Exchange Reserves, a money market fund managed by
Alliance). Exchanges of shares are made at next-determined NAV, without sales or
service charges. You may request an exchange by mail or telephone. You must call
by 4:00 p.m., Eastern time, to receive that day's NAV. The Funds may change,
suspend, or terminate the exchange service on 60 days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV, less any applicable CDSC, after the
Fund receives your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by check or
electronic funds transfer, your redemption payment may be delayed until the Fund
is reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
o Selling Shares Through Your Broker
Your broker must receive your request by 4:00 p.m., Eastern time, and submit it
to the Fund by 5:00 p.m., Eastern time, for you to receive that day's NAV, less
any applicable CDSC. Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
o Selling Shares Directly to a Fund
By Mail
-- Send a signed letter of instruction or stock power, along with
certificates, to:
Alliance Global Investor Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national stock
exchange or other eligible guarantor institution must guarantee
signatures. Stock power forms are available from your financial
intermediary, AGIS, and many commercial banks. Additional
documentation is required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners. If you have
any questions about these procedures, contact AGIS.
By Telephone
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AGIS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
-- A telephone redemption request must be made by 4:00 p.m., Eastern
time, for you to receive that day's NAV, less any applicable CDSC
and, except for certain omnibus accounts, may be made only once per
day.
-- If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds may
41
<PAGE>
be sent directly to your bank. Otherwise, the proceeds will be
mailed to you.
-- Redemption requests by electronic funds transfer may not exceed
$100,000 per day and redemption requests by check cannot exceed
$50,000 per day.
-- Telephone redemption is not available for shares held in nominees or
"street name" accounts or retirement plan accounts or shares held by
a shareholder who has changed his or her address of record within
the previous 30 calendar days.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
--------------------------------------------------------------------------------
AND TAXES
--------------------------------------------------------------------------------
The Funds declare dividends on their shares each Fund business day. For
Saturdays, Sundays, and holidays, dividends will be as of the previous business
day. Each Fund pays dividends on its shares after the close of business on the
twentieth day of each month or on the first business day after that day if the
day is not a business day.
The income dividends and capital gains distributions, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund. If paid
in additional shares, the shares will have an aggregate net asset value as of
the close of business on the declaration date of the dividend or distribution
equal to the cash amount of the dividend or distribution. You may make an
election to receive dividends and distributions in cash or in shares at the time
you purchase shares. Your election can be changed at any time prior to a record
date for a dividend. There is no sales or other charge in connection with the
reinvestment of dividends or capital gains distributions. Cash dividends may be
paid in check, or at your election, electronically via the ACH network.
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate and there can be no assurance
that a Fund will pay any dividends or realize any capital gains.
For federal income tax purposes, a Fund's distributions of net income (or
short-term capital gains) will be taxable to you as ordinary income.
Distributions of long-term capital gains generally will be taxable to you as
long-term capital gains. A Fund's distributions also may be subject to certain
state and local taxes. Dividends and distributions are taxable whether you
receive them in cash or shares or reinvest a cash distribution in additional
shares.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that a
Fund is liable for foreign income taxes withheld at the source, the Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction for foreign taxes paid by a Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not be permitted to
claim all or a portion of a credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable as a capital gain.
If you buy shares just before a Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for federal income
tax purposes.
Each year shortly after December 31, a Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
42
<PAGE>
--------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
--------------------------------------------------------------------------------
Share Classes. The Funds offer three classes of shares in this Prospectus.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at NAV plus an initial sales charge, as follows:
Initial Sales Charge
-----------------------------------------------------
As % of Commission to
Net Amount As % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
------------------- ------------ -------------- ------------------
Up to $100,000 .......... 4.44% 4.25% 4.00%
$100,000 up to
$250,000............... 3.36 3.25 3.00
$250,000 up to
$500,000............... 2.30 2.25 2.00
$500,000 up to
$1,000,000............. 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A shares in the amount of
$1,000,000 or more, but may pay a 1% CDSC if you redeem your shares within 1
year. Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges under a Fund's Combined Purchase Privilege, Cumulative
Quantity Discount, Statement of Intention, Privilege for Certain Retirement
Plans, Reinstatement Privilege, and Sales at Net Asset Value Programs. Consult
the Subscription Application and a Fund's SAI for additional information about
these options.
Class B Shares -- Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a CDSC if you redeem shares within three years (four years in
the case of Alliance Global Strategic Income and Alliance High Yield) after
purchase. The CDSC varies depending on the number of years you hold the shares.
The CDSC amounts are:
Alliance Global Strategic Income and Alliance High Yield:
Years Since Purchase CDSC
-------------------- ------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
All Other Funds:
Years Since Purchase CDSC
-------------------- -------
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another Alliance Mutual
Fund, the CDSC also will apply to those Class B shares. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
The Fund's Class B shares purchased for cash automatically convert to Class A
shares six years after the end of the month of your purchase (except for Class B
shares of Alliance High Yield Fund and Alliance Global Strategic Income Trust,
which automatically convert to Class A shares eight years after the end of the
month of purchase). If you purchase shares by exchange for the Class B shares of
another Alliance Mutual Fund, the conversion period runs from the date of your
original purchase.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without any initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a 1% CDSC if you redeem your shares within 1 year. If you
exchange your shares for the Class C shares of another Alliance Mutual Fund, the
1% CDSC also will apply to those Class C shares. The one-year period for the
CDSC begins with the date of your original purchase, not the date of the
exchange for the other Class C shares.
Class C shares do not convert to any other class of shares of the Fund.
Asset-based Sales Charge or Rule 12b-1 Fees. Each Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its shares. The
amount of these fees for each class of the Fund's shares is:
Rule 12b-1 Fee (as a percent of
aggregate average daily net assets)
-----------------------------------
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Class B and Class C shares are subject to
higher distribution fees than Class A shares (Class B shares are subject to
these higher fees for a period of six years, after which they convert to Class A
shares except for Alliance High Yield Fund and Alliance Global Strategic Income
Trust's Class B shares which convert to Class A shares after eight years). The
higher fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Choosing a Class of Shares. The decision as to which class of shares is more
beneficial to you depends on the amount
43
<PAGE>
and intended length of your investment. If you are making a large investment,
thus qualifying for a reduced sales charge, you might consider purchasing Class
A shares. If you are making a smaller investment, you might consider purchasing
Class B shares because 100% of your purchase is invested immediately. If you are
unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and no CDSC as long as the shares are
held for one year or more. Dealers and agents may receive differing compensation
for selling Class A, Class B, or Class C shares. There is no size limit on
purchases of Class A shares. The maximum purchase of Class B shares is $250,000.
The maximum purchase of Class C shares is $1,000,000.
You should consult your financial agent to assist in choosing a class of Fund
shares.
Application of the CDSC. The CDSC is applied to the lesser of the original cost
of shares being redeemed or NAV at the time of redemption (or, as to Fund shares
acquired through an exchange, the cost of the Alliance Fund shares originally
purchased for cash). Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The Fund may waive the CDSC on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans, or under a monthly,
bi-monthly, or quarterly systematic withdrawal plan. See the Fund's SAI for
further information about CDSC waivers.
Other. A transaction, service, administrative, or other similar fee may be
charged by your broker-dealer, agent, financial intermediary, or other financial
representative with respect to the purchase, sale, or exchange of Class A, Class
B or Class C shares made through your financial representative. The financial
intermediaries also may impose requirements on the purchase, sale, or exchange
of shares that are different from, or in addition to, those imposed by a Fund,
including requirements as to the minimum initial and subsequent investment
amounts.
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
Under unusual circumstances, a Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by federal securities law. The
Funds reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AGIS by telephone, in which event you should issue written instructions
to AGIS. AGIS is not responsible for the authenticity of telephonic requests to
purchase, sell, or exchange shares. AGIS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
Shareholder Services. AGIS offers a variety of shareholder services. For more
information about these services or your account, call AGIS's toll-free number,
800-221-5672. Some services are described in the attached Subscription
Application. You may request a shareholder's manual explaining all available
services by calling 800-227-4618.
Employee Benefit Plans. Certain employee benefit plans, including
employer-sponsored tax-qualified 401(k) plans and other defined contribution
retirement plans ("Employee Benefit Plans"), may establish requirements as to
the purchase, sale or exchange of shares of the Funds, including maximum and
minimum initial investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer all classes of
shares of the Funds. In order to enable participants investing through Employee
Benefit Plans to purchase shares of the Funds, the maximum and minimum
investment amounts may be different for shares purchased through Employee
Benefit Plans from those described in this Prospectus. In addition, the Class A,
Class B and Class C CDSC may be waived for investments made through Employee
Benefit Plans.
Householding. Many shareholders of the Alliance Mutual Funds have family members
living in the same home who also own shares of the same Funds. In order to
reduce the amount of duplicative mail that is sent to homes with more than one
Fund account and to reduce expenses of the Fund, all Alliance Mutual Funds will,
until notified otherwise, send only one copy of each prospectus, shareholder
report and proxy statement to each household address. This process, known as
"householding", does not apply to account statements, confirmations, or personal
tax information. If you do not wish to participate in householding, or wish to
discontinue householding at any time, call AGIS at 1-800-221-5672. We will
resume separate mailings for your account within 30 days of your request.
44
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of each Fund. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). Except as otherwise indicated,
this information has been audited by Ernst & Young LLP, the independent auditors
for the Funds, whose reports, along with each Fund's financial statements, are
included in each Fund's Annual Report, which is available upon request.
45
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations
---------------------------------------------------
Net Net Net
Asset Realized and Increase
Value, Unrealized (Decrease) in
Beginning of Net Investment Gain (Loss) on Net Asset Value
Fiscal Year or Period Period Income(a) Investments From Operations
--------------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government
Class A
Year Ended 6/30/02 (f) ......... $ 7.14 $ .37 $ .13 $ .50
Year Ended 6/30/01 ............. 6.99 .47 .17 .64
Year Ended 6/30/00 ............. 7.19 .50 (.20) .30
Year Ended 6/30/99 ............. 7.57 .52 (.37) .15
Year Ended 6/30/98 ............. 7.41 .54 .18 .72
Class B
Year Ended 6/30/02 (f) ......... $ 7.14 $ .32 $ .13 $ .45
Year Ended 6/30/01 ............. 7.00 .42 .16 .58
Year Ended 6/30/00 ............. 7.20 .44 (.19) .25
Year Ended 6/30/99 ............. 7.57 .46 (.36) .10
Year Ended 6/30/98 ............. 7.41 .48 .18 .66
Class C
Year Ended 6/30/02 (f) ......... $ 7.15 $ .32 $ .13 $ .45
Year Ended 6/30/01 ............. 7.00 .43 .16 .59
Year Ended 6/30/00 ............. 7.20 .45 (.20) .25
Year Ended 6/30/99 ............. 7.57 .46 (.36) .10
Year Ended 6/30/98 ............. 7.41 .48 .18 .66
Quality Bond
Class A
Year Ended 6/30/02 (f) ......... $10.22 $ .46(b) $ .17 $ .63
Year Ended 6/30/01 ............. 9.85 .55(b) .42 .97
Year Ended 6/30/00 ............. 10.00 .60(b) (.21) .39
Class B
Year Ended 6/30/02 (f) ......... $10.21 $ .38(b) $ .16 $ .54
Year Ended 6/30/01 ............. 9.84 .47(b) .43 .90
Year Ended 6/30/00 ............. 10.00 .50(b) (.18) .32
Class C
Year Ended 6/30/02 (f) ......... $10.19 $ .38(b) $ .17 $ .55
Year Ended 6/30/01 ............. 9.83 .48(b) .41 .89
Year Ended 6/30/00 ............. 10.00 .51(b) (.20) .31
Corporate Bond
Class A
Year Ended 6/30/02 (f) ......... $12.29 $ .94 $(1.55) $ (.61)
Year Ended 6/30/01 ............. 11.91 .97 .42 1.39
Year Ended 6/30/00 ............. 12.49 1.04 (.55) .49
Year Ended 6/30/99 ............. 14.19 1.06 (1.64) (.58)
Year Ended 6/30/98 ............. 14.19 1.08 .12 1.20
Class B
Year Ended 6/30/02 (f) ......... $12.30 $ .85 $(1.55) $ (.70)
Year Ended 6/30/01 ............. 11.92 .88 .42 1.30
Year Ended 6/30/00 ............. 12.49 .95 (.54) .41
Year Ended 6/30/99 ............. 14.19 .97 (1.64) (.67)
Year Ended 6/30/98 ............. 14.19 .98 .13 1.11
Class C
Year Ended 6/30/02 (f) ......... $12.30 $ .85 $(1.55) $ (.70)
Year Ended 6/30/01 ............. 11.91 .89 .42 1.31
Year Ended 6/30/00 ............. 12.49 .94 (.54) .40
Year Ended 6/30/99 ............. 14.19 .97 (1.64) (.67)
Year Ended 6/30/98 ............. 14.19 .99 .12 1.11
High Yield
Class A
Year Ended 8/31/02 (f) ......... $ 6.49 $ .60 $(1,16) $ (.56)
Year Ended 8/31/01 ............. 8.10 .76 (1.50) (.74)
Year Ended 8/31/00 ............. 9.47 .92 (1.26) (.34)
Year Ended 8/31/99 ............. 10.76 1.02 (1.08) (.06)
Year Ended 8/31/98 ............. 11.17 1.03 (.27) .76
Class B
Year Ended 8/31/02 (f) ......... $ 6.50 $ .56 $(1.17) $ (.61)
Year Ended 8/31/01 ............. 8.10 .70 (1.48) (.78)
Year Ended 8/31/00 ............. 9.46 .86 (1.26) (.40)
Year Ended 8/31/99 ............. 10.75 .95 (1.08) (.13)
Year Ended 8/31/98 ............. 11.17 .96 (.28) .68
Class C
Year Ended 8/31/02 (f) ......... $ 6.50 $ .56 $(1.17) $ (.61)
Year Ended 8/31/01 ............. 8.10 .70 (1.48) (.78)
Year Ended 8/31/00 ............. 9.47 .86 (1.27) (.41)
Year Ended 8/31/99 ............. 10.75 .95 (1.07) (.12)
Year Ended 8/31/98 ............. 11.17 .96 (.28) .68
<CAPTION>
Less Dividends and Distributions
-------------------------------------------------
Distributions
in Excess Distributions
Dividends From of Net From Net
Net Investment Investment Realized Gain
Fiscal Year or Period Income Income on Investments
--------------------- -------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government
Class A
Year Ended 6/30/02 (f) ......... $ (.37) $ (.03) $ 0.00
Year Ended 6/30/01 ............. (.47) (.01) 0.00
Year Ended 6/30/00 ............. (.49) 0.00 0.00
Year Ended 6/30/99 ............. (.52) (.01) 0.00
Year Ended 6/30/98 ............. (.54) 0.00 0.00
Class B
Year Ended 6/30/02 (f) ......... $ (.32) $ (.03) $ 0.00
Year Ended 6/30/01 ............. (.42) (.01) 0.00
Year Ended 6/30/00 ............. (.44) 0.00 0.00
Year Ended 6/30/99 ............. (.46) (.01) 0.00
Year Ended 6/30/98 ............. (.48) 0.00 0.00
Class C
Year Ended 6/30/02 (f) ......... $ (.32) $ (.03) $ 0.00
Year Ended 6/30/01 ............. (.43) (.01) 0.00
Year Ended 6/30/00 ............. (.44) 0.00 0.00
Year Ended 6/30/99 ............. (.46) (.01) 0.00
Year Ended 6/30/98 ............. (.48) 0.00 0.00
Quality Bond
Class A
Year Ended 6/30/02 (f) ......... $ (.46) $ (.10) $ (.01)
Year Ended 6/30/01 ............. (.55) (.04) (.01)
Year Ended 6/30/00 ............. (.54) 0.00 0.00
Class B
Year Ended 6/30/02 (f) ......... $ (.38) $ (.09) $ (.01)
Year Ended 6/30/01 ............. (.47) (.05) (.01)
Year Ended 6/30/00 ............. (.48) 0.00 0.00
Class C
Year Ended 6/30/02 (f) ......... $ (.38) $ (.09) $ (.01)
Year Ended 6/30/01 ............. (.48) (.04) (.01)
Year Ended 6/30/00 ............. (.48) 0.00 0.00
Corporate Bond
Class A
Year Ended 6/30/02 (f) ......... $ (.94) $ 0.00 $ 0.00
Year Ended 6/30/01 ............. (.97) (.01) 0.00
Year Ended 6/30/00 ............. (1.04) 0.00 0.00
Year Ended 6/30/99 ............. (1.07) (.01) 0.00
Year Ended 6/30/98 ............. (1.08) (.12) 0.00
Class B
Year Ended 6/30/02 (f) ......... $ (.85) $ (.01) $ 0.00
Year Ended 6/30/01 ............. (.88) (.01) 0.00
Year Ended 6/30/00 ............. (.95) 0.00 0.00
Year Ended 6/30/99 ............. (.98) (.01) 0.00
Year Ended 6/30/98 ............. (.98) (.13) 0.00
Class C
Year Ended 6/30/02 (f) ......... $ (.85) $ (.01) $ 0.00
Year Ended 6/30/01 ............. (.89) 0.00 0.00
Year Ended 6/30/00 ............. (.95) 0.00 0.00
Year Ended 6/30/99 ............. (.98) (.01) 0.00
Year Ended 6/30/98 ............. (.99) (.12) 0.00
High Yield
Class A
Year Ended 8/31/02 (f) ......... $ (.58) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.72) 0.00 0.00
Year Ended 8/31/00 ............. (.98) 0.00 0.00
Year Ended 8/31/99 ............. (1.02) (.05) (.15)
Year Ended 8/31/98 ............. (1.02) (.01) (.14)
Class B
Year Ended 8/31/02 (f) ......... $ (.54) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.68) 0.00 0.00
Year Ended 8/31/00 ............. (.91) 0.00 0.00
Year Ended 8/31/99 ............. (.95) (.05) (.15)
Year Ended 8/31/98 ............. (.95) (.01) (.14)
Class C
Year Ended 8/31/02 (f) ......... $ (.54) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.68) 0.00 0.00
Year Ended 8/31/00 ............. (.91) 0.00 0.00
Year Ended 8/31/99 ............. (.95) (.05) (.15)
Year Ended 8/31/98 ............. (.95) (.01) (.14)
</TABLE>
--------------------------------------------------------------------------------
Please refer to the footnotes on pages 50 and 51.
46
<PAGE>
<TABLE>
<CAPTION>
Less Distributions
-------------------------------------------
Distributions Total
in Excess of Tax Total Investment
Net Realized Return Dividends Net Asset Return
Gain on of and Value, End Based on Net
Fiscal Year or Period Investments Capital Distributions of Period Asset Value (c)
--------------------- ------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
U.S. Government
Class A
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.03) $ (.43) $ 7.21 7.11%
Year Ended 6/30/01 ............ 0.00 (.01) (.49) 7.14 9.30
Year Ended 6/30/00 ............ 0.00 (.01) (.50) 6.99 4.41
Year Ended 6/30/99 ............ 0.00 0.00 (.53) 7.19 1.83
Year Ended 6/30/98 ............ 0.00 (.02) (.56) 7.57 10.02
Class B
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.03) $ (.38) $ 7.21 6.36%
Year Ended 6/30/01 ............ 0.00 (.01) (.44) 7.14 8.39
Year Ended 6/30/00 ............ 0.00 (.01) (.45) 7.00 3.64
Year Ended 6/30/99 ............ 0.00 0.00 (.47) 7.20 1.22
Year Ended 6/30/98 ............ 0.00 (.02) (.50) 7.57 9.20
Class C
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.03) $ (.38) $ 7.22 6.35%
Year Ended 6/30/01 ............ 0.00 0.00 (.44) 7.15 8.54
Year Ended 6/30/00 ............ 0.00 (.01) (.45) 7.00 3.64
Year Ended 6/30/99 ............ 0.00 0.00 (.47) 7.20 1.22
Year Ended 6/30/98 ............ 0.00 (.02) (.50) 7.57 9.21
Quality Bond
Class A
Year Ended 6/30/02 (f) ........ $ (.03) $ 0.00 $ (.60) $ 10.25 6.23%
Year Ended 6/30/01 ............ 0.00 0.00 (.60) 10.22 10.09
Year Ended 6/30/00 ............ 0.00 0.00 (.54) 9.85 4.40
Class B
Year Ended 6/30/02 (f) ........ $ (.03) $ 0.00 $ (.51) $ 10.24 5.52%
Year Ended 6/30/01 ............ 0.00 0.00 (.53) 10.21 9.34
Year Ended 6/30/00 ............ 0.00 0.00 (.48) 9.84 3.56
Class C
Year Ended 6/30/02 (f) ........ $ (.03) $ 0.00 $ (.51) $ 10.23 5.63%
Year Ended 6/30/01 ............ 0.00 0.00 (.53) 10.19 9.25
Year Ended 6/30/00 ............ 0.00 0.00 (.48) 9.83 3.47
Corporate Bond
Class A
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.04) $ (.98) $ 10.70 (5.51)%
Year Ended 6/30/01 ............ 0.00 (.03) (1.01) 12.29 12.03
Year Ended 6/30/00 ............ 0.00 (.03) (1.07) 11.91 4.11
Year Ended 6/30/99 ............ 0.00 (.04) (1.12) 12.49 (4.08)
Year Ended 6/30/98 ............ 0.00 0.00 (1.20) 14.19 8.66
Class B
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.04) $ (.90) $ 10.70 (6.23)%
Year Ended 6/30/01 ............ 0.00 (.03) (.92) 12.30 11.24
Year Ended 6/30/00 ............ 0.00 (.03) (.98) 11.92 3.39
Year Ended 6/30/99 ............ 0.00 (.04) (1.03) 12.49 (4.77)
Year Ended 6/30/98 ............ 0.00 0.00 (1.11) 14.19 7.95
Class C
Year Ended 6/30/02 (f) ........ $ 0.00 $ (.04) $ (.90) $ 10.70 (6.23)%
Year Ended 6/30/01 ............ 0.00 (.03) (.92) 12.30 11.33
Year Ended 6/30/00 ............ 0.00 (.03) (.98) 11.91 3.30
Year Ended 6/30/99 ............ 0.00 (.04) (1.03) 12.49 (4.77)
Year Ended 6/30/98 ............ 0.00 0.00 (1.11) 14.19 7.95
High Yield
Class A
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.02) $ (.60) $ 5.33 (9.14)%
Year Ended 8/31/01 ............ 0.00 (.15) (.87) 6.49 (9.39)
Year Ended 8/31/00 ............ 0.00 (.05) (1.03) 8.10 (3.79)
Year Ended 8/31/99 ............ 0.00 (.01) (1.23) 9.47 (.58)
Year Ended 8/31/98 ............ 0.00 0.00 (1.17) 10.76 6.42
Class B
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.02) $ (.56) $ 5.33 (9.94)%
Year Ended 8/31/01 ............ 0.00 (.14) (.82) 6.50 (9.94)
Year Ended 8/31/00 ............ 0.00 (.05) (.96) 8.10 (4.40)
Year Ended 8/31/99 ............ 0.00 (.01) (1.16) 9.46 (1.26)
Year Ended 8/31/98 ............ 0.00 0.00 (1.10) 10.75 5.69
Class C
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.02) $ (.56) $ 5.33 (9.94)%
Year Ended 8/31/01 ............ 0.00 (.14) (.82) 6.50 (9.94)
Year Ended 8/31/00 ............ 0.00 (.05) (.96) 8.10 (4.51)
Year Ended 8/31/99 ............ 0.00 (.01) (1.16) 9.47 (1.16)
Year Ended 8/31/98 ............ 0.00 0.00 (1.10) 10.75 5.69
<CAPTION>
Ratios / Supplemental Data
------------------------------------------------------
Net Assets, Ratio of Net
End of Ratio Investment
Period of Expenses Income Portfolio
(000's to Average to Average Turnover
Fiscal Year or Period omitted) Net Assets Net Assets Rate
--------------------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
U.S. Government
Class A
Year Ended 6/30/02 (f) ........ $865,739 1.23%(d) 5.15% 1009%
Year Ended 6/30/01 ............ 884,574 2.11(d) 6.57 712
Year Ended 6/30/00 ............ 430,895 2.14(d) 7.13 398
Year Ended 6/30/99 ............ 426,167 1.17(d) 6.86 320
Year Ended 6/30/98 ............ 352,749 1.06 7.08 153
Class B
Year Ended 6/30/02 (f) ........ $400,221 1.93%(d) 4.41% 1009%
Year Ended 6/30/01 ............ 276,308 2.90(d) 5.95 712
Year Ended 6/30/00 ............ 200,283 2.80(d) 6.28 398
Year Ended 6/30/99 ............ 338,310 1.87(d) 6.13 320
Year Ended 6/30/98 ............ 390,253 1.76 6.37 153
Class C
Year Ended 6/30/02 (f) ........ $202,030 1.93%(d) 4.42% 1009%
Year Ended 6/30/01 ............ 169,213 2.89(d) 5.94 712
Year Ended 6/30/00 ............ 112,808 2.82(d) 6.35 398
Year Ended 6/30/99 ............ 144,145 1.87(d) 6.13 320
Year Ended 6/30/98 ............ 114,392 1.76 6.38 153
Quality Bond
Class A
Year Ended 6/30/02 (f) ........ $ 44,852 .98%(e) 4.39% 573%
Year Ended 6/30/01 ............ 20,068 .98(e) 5.49 385
Year Ended 6/30/00 ............ 5,071 .98(e) 5.96 215
Class B
Year Ended 6/30/02 (f) ........ $ 50,354 1.68%(e) 3.70% 573%
Year Ended 6/30/01 ............ 13,960 1.68(e) 4.82 385
Year Ended 6/30/00 ............ 1,007 1.68(e) 5.32 215
Class C
Year Ended 6/30/02 (f) ........ $ 16,131 1.68%(e) 3.71% 573%
Year Ended 6/30/01 ............ 4,315 1.68(e) 4.88 385
Year Ended 6/30/00 ............ 514 1.68(e) 5.35 215
Corporate Bond
Class A
Year Ended 6/30/02 (f) ........ $520,984 1.12%(d) 7.79% 276%
Year Ended 6/30/01 ............ 530,446 1.31(d) 7.95 340
Year Ended 6/30/00 ............ 473,578 1.12(d) 8.51 302
Year Ended 6/30/99 ............ 476,141 1.11 8.13 281
Year Ended 6/30/98 ............ 510,397 1.05 7.52 244
Class B
Year Ended 6/30/02 (f) ........ $458,394 1.83%(d) 7.05% 276%
Year Ended 6/30/01 ............ 509,953 2.03(d) 7.18 340
Year Ended 6/30/00 ............ 477,259 1.83(d) 7.77 302
Year Ended 6/30/99 ............ 630,631 1.82 7.41 281
Year Ended 6/30/98 ............ 672,374 1.75 6.80 244
Class C
Year Ended 6/30/02 (f) ........ $179,418 1.82%(d) 7.07% 276%
Year Ended 6/30/01 ............ 185,022 2.03(d) 7.22 340
Year Ended 6/30/00 ............ 176,814 1.83(d) 7.75 302
Year Ended 6/30/99 ............ 204,271 1.81 7.37 281
Year Ended 6/30/98 ............ 254,530 1.75 6.83 244
High Yield
Class A
Year Ended 8/31/02 (f) ........ $ 72,455 1.43% 10.06% 57%
Year Ended 8/31/01 ............ 78,053 1.34 10.62 98
Year Ended 8/31/00 ............ 83,645 1.33 10.92 102
Year Ended 8/31/99 ............ 102,400 1.31 10.21 182
Year Ended 8/31/98 ............ 43,960 1.43(e) 8.89 311
Class B
Year Ended 8/31/02 (f) ........ $256,533 2.15% 9.34% 57%
Year Ended 8/31/01 ............ 356,062 2.06 9.97 98
Year Ended 8/31/00 ............ 421,105 2.04 10.21 102
Year Ended 8/31/99 ............ 527,337 2.03 9.52 182
Year Ended 8/31/98 ............ 269,426 2.13(e) 8.18 311
Class C
Year Ended 8/31/02 (f) ........ $ 48,448 2.14% 9.35% 57%
Year Ended 8/31/01 ............ 67,360 2.04 9.97 98
Year Ended 8/31/00 ............ 79,826 2.03 10.23 102
Year Ended 8/31/99 ............ 99,927 2.02 9.54 182
Year Ended 8/31/98 ............ 48,337 2.13(e) 8.17 311
</TABLE>
--------------------------------------------------------------------------------
Please refer to the footnotes on pages 50 and 51.
47
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations
---------------------------------------------------
Net Net Net
Asset Realized and Increase
Value, Unrealized (Decrease) in
Beginning of Net Investment Gain (Loss) on Net Asset Value
Fiscal Year or Period Period Income(a) Investments From Operations
--------------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Global Strategic Income
Class A
11/1/01 - 4/30/02 (f)+ ......... $ 8.43 $ .31 $ (.20) $ .11
Year Ended 10/31/01 ............ 9.53 .78 (.90) (.12)
Year Ended 10/31/00 ............ 9.91 .83 (.22) .61
Year Ended 10/31/99 ............ 10.18 .94 (.22) .72
Year Ended 10/31/98 ............ 11.46 .78(b) (.64) .14
Year Ended 10/31/97 ............ 10.83 .74(b) 1.02 1.76
Class B
11/1/01 - 4/30/02 (f)+ ......... $ 8.42 $ .28 $ (.19) $ .09
Year Ended 10/31/01 ............ 9.52 .71 (.90) (.19)
Year Ended 10/31/00 ............ 9.90 .76 (.23) .53
Year Ended 10/31/99 ............ 10.17 .87 (.22) .65
Year Ended 10/31/98 ............ 11.46 .69(b) (.63) .06
Year Ended 10/31/97 ............ 10.83 .66(b) 1.03 1.69
Class C
11/1/01 - 4/30/02 (f)+ ......... $ 8.43 $ .28 $ (.20) $ .08
Year Ended 10/31/01 ............ 9.52 .72 (.90) (.18)
Year Ended 10/31/00 ............ 9.90 .77 (.24) .53
Year Ended 10/31/99 ............ 10.17 .88 (.23) .65
Year Ended 10/31/98 ............ 11.46 .68(b) (.62) .06
Year Ended 10/31/97 ............ 10.83 .66(b) 1.03 1.69
Americas Government Income
Class A
12/1/01 - 5/31/02 (f)+ ......... $ 7.07 $ .29 $ (.18) $ .11
Year Ended 11/30/01 ............ 7.55 .77 (.50) .27
Year Ended 11/30/00 ............ 7.28 .75 .34 1.09
Year Ended 11/30/99 ............ 7.59 .87 (.25) .62
Year Ended 11/30/98 ............ 8.02 .87 (.33) .54
Year Ended 11/30/97 ............ 8.01 1.03 (.05) .98
Class B
12/1/01 - 5/31/02 (f)+ ......... $ 7.07 $ .26 $ (.18) $ .08
Year Ended 11/30/01 ............ 7.58 .69 (.50) .19
Year Ended 11/30/00 ............ 7.31 .69 .36 1.05
Year Ended 11/30/99 ............ 7.61 .81 (.25) .56
Year Ended 11/30/98 ............ 8.02 .81 (.32) .49
Year Ended 11/30/97 ............ 8.01 .98 (.07) .91
Class C
12/1/01 - 5/31/02 (f)+ ......... $ 7.09 $ .27 $ (.19) $ .08
Year Ended 11/30/01 ............ 7.58 .71 (.50) .21
Year Ended 11/30/00 ............ 7.31 .70 .35 1.05
Year Ended 11/30/99 ............ 7.61 .81 (.25) .56
Year Ended 11/30/98 ............ 8.02 .82 (.33) .49
Year Ended 11/30/97 ............ 8.01 .98 (.07) .91
Emerging Market Debt
Class A
Year Ended 8/31/02 (f) ......... $ 6.37 $ .69 $ (.24) $ .45
Year Ended 8/31/01 ............. 7.06 .85 (.76) .09
Year Ended 8/31/00 ............. 5.69 .75 1.40 2.15
Year Ended 8/31/99 ............. 5.05 .71 .74 1.45
Year Ended 8/31/98 ............. 10.64 .73 (4.03) (3.30)
Class B
Year Ended 8/31/02 (f) ......... $ 6.45 $ .64 $ (.24) $ .40
Year Ended 8/31/01 ............. 7.14 .79 (.76) .03
Year Ended 8/31/00 ............. 5.74 .71 1.40 2.11
Year Ended 8/31/99 ............. 5.05 .67 .76 1.43
Year Ended 8/31/98 ............. 10.64 .67 (4.05) (3.38)
Class C
Year Ended 8/31/02 (f) ......... $ 6.46 $ .64 $ (.24) $ .40
Year Ended 8/31/01 ............. 7.15 .79 (.76) .03
Year Ended 8/31/00 ............. 5.74 .71 1.41 2.12
Year Ended 8/31/99 ............. 5.05 .67 .76 1.43
Year Ended 8/31/98 ............. 10.64 .67 (4.05) (3.38)
Multi-Market Strategy
Class A
11/1/01 - 4/30/02 (f)+ ......... $ 5.99 $ .10 $ (.12) $ (.02)
Year Ended 10/31/01 ............ 6.08 .35 .13 .48
Year Ended 10/31/00 ............ 6.29 .38 (.19) .19
Year Ended 10/31/99 ............ 6.64 .42 (.22) .20
Year Ended 10/31/98 ............ 7.11 .44 .02 .46
Year Ended 10/31/97 ............ 7.23 .47 .08 .55
Class B
11/1/01 - 4/30/02 (f)+ ......... $ 6.01 $ .07 $ (.11) $ (.04)
Year Ended 10/31/01 ............ 6.10 .30 .13 .43
Year Ended 10/31/00 ............ 6.32 .33 (.19) .14
Year Ended 10/31/99 ............ 6.66 .36 (.22) .14
Year Ended 10/31/98 ............ 7.11 .36 .05 .41
Year Ended 10/31/97 ............ 7.23 .42 .06 .48
Class C
11/1/01 - 4/30/02 (f)+ ......... $ 6.01 $ .08 $ (.12) $ (.04)
Year Ended 10/31/01 ............ 6.10 .30 .13 .43
Year Ended 10/31/00 ............ 6.31 .34 (.19) .15
Year Ended 10/31/99 ............ 6.65 .36 (.22) .14
Year Ended 10/31/98 ............ 7.11 .25 .16 .41
Year Ended 10/31/97 ............ 7.23 .42 .07 .49
<CAPTION>
Less Dividends and Distributions
-------------------------------------------------
Distributions
in Excess Distributions
Dividends From of Net From Net
Net Investment Investment Realized Gain
Fiscal Year or Period Income Income on Investments
--------------------- -------------- ------------- --------------
<S> <C> <C> <C>
Global Strategic Income
Class A
11/1/01 - 4/30/02 (f)+ ......... $ (.33) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.71) 0.00 0.00
Year Ended 10/31/00 ............ (.83) (.16) 0.00
Year Ended 10/31/99 ............ (.94) (.05) 0.00
Year Ended 10/31/98 ............ (.78) (.28) (.36)
Year Ended 10/31/97 ............ (.75) (.28) (.10)
Class B
11/1/01 - 4/30/02 (f)+ ......... $ (.30) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.65) 0.00 0.00
Year Ended 10/31/00 ............ (.76) (.15) 0.00
Year Ended 10/31/99 ............ (.87) (.05) 0.00
Year Ended 10/31/98 ............ (.69) (.30) (.36)
Year Ended 10/31/97 ............ (.67) (.29) (.10)
Class C
11/1/01 - 4/30/02 (f)+ ......... $ (.30) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.65) 0.00 0.00
Year Ended 10/31/00 ............ (.76) (.15) 0.00
Year Ended 10/31/99 ............ (.88) (.04) 0.00
Year Ended 10/31/98 ............ (.68) (.31) (.36)
Year Ended 10/31/97 ............ (.67) (.29) (.10)
Americas Government Income
Class A
12/1/01 - 5/31/02 (f)+ ......... $ (.37) $ 0.00 $ 0.00
Year Ended 11/30/01 ............ (.75) 0.00 0.00
Year Ended 11/30/00 ............ (.49) 0.00 0.00
Year Ended 11/30/99 ............ (.64) (.11) 0.00
Year Ended 11/30/98 ............ (.87) (.07) 0.00
Year Ended 11/30/97 ............ (.97) 0.00 0.00
Class B
12/1/01 - 5/31/02 (f)+ ......... $ (.34) $ 0.00 $ 0.00
Year Ended 11/30/01 ............ (.70) 0.00 0.00
Year Ended 11/30/00 ............ (.48) 0.00 0.00
Year Ended 11/30/99 ............ (.59) (.10) 0.00
Year Ended 11/30/98 ............ (.81) (.06) 0.00
Year Ended 11/30/97 ............ (.90) 0.00 0.00
Class C
12/1/01 - 5/31/02 (f)+ ......... $ (.34) $ 0.00 $ 0.00
Year Ended 11/30/01 ............ (.70) 0.00 0.00
Year Ended 11/30/00 ............ (.47) 0.00 0.00
Year Ended 11/30/99 ............ (.59) (.10) 0.00
Year Ended 11/30/98 ............ (.82) (.05) 0.00
Year Ended 11/30/97 ............ (.90) 0.00 0.00
Emerging Market Debt
Class A
Year Ended 8/31/02 (f) ......... $ (.74) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.78) 0.00 0.00
Year Ended 8/31/00 ............. (.75) 0.00 0.00
Year Ended 8/31/99 ............. (.74) (.04) 0.00
Year Ended 8/31/98 ............. (.73) (.04) (1.37)
Class B
Year Ended 8/31/02 (f) ......... $ (.70) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.72) 0.00 0.00
Year Ended 8/31/00 ............. (.68) 0.00 0.00
Year Ended 8/31/99 ............. (.68) (.03) 0.00
Year Ended 8/31/98 ............. (.67) (.04) (1.36)
Class C
Year Ended 8/31/02 (f) ......... $ (.70) $ 0.00 $ 0.00
Year Ended 8/31/01 ............. (.72) 0.00 0.00
Year Ended 8/31/00 ............. (.68) 0.00 0.00
Year Ended 8/31/99 ............. (.68) (.03) 0.00
Year Ended 8/31/98 ............. (.67) (.04) (1.36)
Multi-Market Strategy
Class A
11/1/01 - 4/30/02 (f)+ ......... $ (.16) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.32) 0.00 0.00
Year Ended 10/31/00 ............ (.38) (.02) 0.00
Year Ended 10/31/99 ............ (.42) (.02) 0.00
Year Ended 10/31/98 ............ (.44) (.42) 0.00
Year Ended 10/31/97 ............ (.47) (.20) 0.00
Class B
11/1/01 - 4/30/02 (f)+ ......... $ (.14) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.29) 0.00 0.00
Year Ended 10/31/00 ............ (.34) (.02) 0.00
Year Ended 10/31/99 ............ (.36) (.02) 0.00
Year Ended 10/31/98 ............ (.36) (.43) 0.00
Year Ended 10/31/97 ............ (.42) (.18) 0.00
Class C
11/1/01 - 4/30/02 (f)+ ......... $ (.14) $ 0.00 $ 0.00
Year Ended 10/31/01 ............ (.29) 0.00 0.00
Year Ended 10/31/00 ............ (.34) (.02) 0.00
Year Ended 10/31/99 ............ (.36) (.02) 0.00
Year Ended 10/31/98 ............ (.41) (.42) 0.00
Year Ended 10/31/97 ............ (.42) (.19) 0.00
</TABLE>
--------------------------------------------------------------------------------
Please refer to the footnotes on pages 50 and 51.
48
<PAGE>
<TABLE>
<CAPTION>
Less Distributions
-------------------------------------------
Distributions Total
in Excess of Tax Total Investment
Net Realized Return Dividends Net Asset Return
Gain on of and Value, End Based on Net
Fiscal Year or Period Investments Capital Distributions of Period Asset Value (c)
--------------------- ------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Global Strategic Income
Class A
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.33) $ 8.21 1.36%
Year Ended 10/31/01 ........... 0.00 (.27) (.98) 8.43 (1.50)
Year Ended 10/31/00 ........... 0.00 0.00 (.99) 9.53 6.12
Year Ended 10/31/99 ........... 0.00 0.00 (.99) 9.91 7.17
Year Ended 10/31/98 ........... 0.00 0.00 (1.42) 10.18 1.00
Year Ended 10/31/97 ........... 0.00 0.00 (1.13) 11.46 16.83
Class B
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.30) $ 8.21 1.13%
Year Ended 10/31/01 ........... 0.00 (.26) (.91) 8.42 (2.24)
Year Ended 10/31/00 ........... 0.00 0.00 (.91) 9.52 5.38
Year Ended 10/31/99 ........... 0.00 0.00 (.92) 9.90 6.44
Year Ended 10/31/98 ........... 0.00 0.00 (1.35) 10.17 .27
Year Ended 10/31/97 ........... 0.00 0.00 (1.06) 11.46 16.12
Class C
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.30) $ 8.21 1.01%
Year Ended 10/31/01 ........... 0.00 (.26) (.91) 8.43 (2.13)
Year Ended 10/31/00 ........... 0.00 0.00 (.91) 9.52 5.38
Year Ended 10/31/99 ........... 0.00 0.00 (.92) 9.90 6.44
Year Ended 10/31/98 ........... 0.00 0.00 (1.35) 10.17 .27
Year Ended 10/31/97 ........... 0.00 0.00 (1.06) 11.46 16.12
Americas Government Income
Class A
12/1/01 - 5/31/02 (f)+ ........ $ 0.00 $ 0.00 $ (.37) $ 6.81 1.46%
Year Ended 11/30/01 ........... 0.00 0.00 (.75) 7.07 3.32
Year Ended 11/30/00 ........... 0.00 (.33) (.82) 7.55 15.80
Year Ended 11/30/99 ........... 0.00 (.18) (.93) 7.28 8.56
Year Ended 11/30/98 ........... 0.00 (.03) (.97) 7.59 7.14
Year Ended 11/30/97 ........... 0.00 0.00 (.97) 8.02 12.85
Class B
12/1/01 - 5/31/02 (f)+ ........ $ 0.00 $ 0.00 $ (.34) $ 6.81 1.08%
Year Ended 11/30/01 ........... 0.00 0.00 (.70) 7.07 2.20
Year Ended 11/30/00 ........... 0.00 (.30) (.78) 7.58 14.99
Year Ended 11/30/99 ........... 0.00 (.17) (.86) 7.31 7.79
Year Ended 11/30/98 ........... 0.00 (.03) (.90) 7.61 6.46
Year Ended 11/30/97 ........... 0.00 0.00 (.90) 8.02 11.88
Class C
12/1/01 - 5/31/02 (f)+ ........ $ 0.00 $ 0.00 $ (.34) $ 6.83 1.08%
Year Ended 11/30/01 ........... 0.00 0.00 (.70) 7.09 2.48
Year Ended 11/30/00 ........... 0.00 (.31) (.78) 7.58 14.99
Year Ended 11/30/99 ........... 0.00 (.17) (.86) 7.31 7.79
Year Ended 11/30/98 ........... 0.00 (.03) (.90) 7.61 6.46
Year Ended 11/30/97 ........... 0.00 0.00 (.90) 8.02 11.88
Emerging Market Debt
Class A
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.06) $ (.80) $ 6.02 7.38%
Year Ended 8/31/01 ............ 0.00 0.00 (.78) 6.37 1.55
Year Ended 8/31/00 ............ 0.00 (.03) (.78) 7.06 39.76
Year Ended 8/31/99 ............ 0.00 (.03) (.81) 5.69 29.40
Year Ended 8/31/98 ............ 0.00 (.15) (2.29) 5.05 (38.56)
Class B
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.06) $ (.76) $ 6.09 6.50%
Year Ended 8/31/01 ............ 0.00 0.00 (.72) 6.45 .63
Year Ended 8/31/00 ............ 0.00 (.03) (.71) 7.14 38.41
Year Ended 8/31/99 ............ 0.00 (.03) (.74) 5.74 28.85
Year Ended 8/31/98 ............ 0.00 (.14) (2.21) 5.05 (39.11)
Class C
Year Ended 8/31/02 (f) ........ $ 0.00 $ (.06) $ (.76) $ 6.10 6.50%
Year Ended 8/31/01 ............ 0.00 0.00 (.72) 6.46 .63
Year Ended 8/31/00 ............ 0.00 (.03) (.71) 7.15 38.58
Year Ended 8/31/99 ............ 0.00 (.03) (.74) 5.74 28.85
Year Ended 8/31/98 ............ 0.00 (.14) (2.21) 5.05 (39.09)
Multi-Market Strategy
Class A
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.16) $ 5.81 (.29)%
Year Ended 10/31/01 ........... 0.00 (.25) (.57) 5.99 8.27
Year Ended 10/31/00 ........... 0.00 0.00 (.40) 6.08 3.17
Year Ended 10/31/99 ........... 0.00 (.11) (.55) 6.29 2.95
Year Ended 10/31/98 ........... 0.00 (.07) (.93) 6.64 6.90
Year Ended 10/31/97 ........... 0.00 0.00 (.67) 7.11 7.82
Class B
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.14) $ 5.83 (.63)%
Year Ended 10/31/01 ........... 0.00 (.23) (.52) 6.01 7.49
Year Ended 10/31/00 ........... 0.00 0.00 (.36) 6.10 2.30
Year Ended 10/31/99 ........... 0.00 (.10) (.48) 6.32 2.13
Year Ended 10/31/98 ........... 0.00 (.07) (.86) 6.66 6.24
Year Ended 10/31/97 ........... 0.00 0.00 (.60) 7.11 6.90
Class C
11/1/01 - 4/30/02 (f)+ ........ $ 0.00 $ 0.00 $ (.14) $ 5.83 (.64)%
Year Ended 10/31/01 ........... 0.00 (.23) (.52) 6.01 7.48
Year Ended 10/31/00 ........... 0.00 0.00 (.36) 6.10 2.46
Year Ended 10/31/99 ........... 0.00 (.10) (.48) 6.31 2.13
Year Ended 10/31/98 ........... 0.00 (.04) (.87) 6.65 6.10
Year Ended 10/31/97 ........... 0.00 0.00 (.61) 7.11 6.92
<CAPTION>
Ratios / Supplemental Data
------------------------------------------------------
Net Assets, Ratio of Net
End of Ratio Investment
Period of Expenses Income Portfolio
(000's to Average to Average Turnover
Fiscal Year or Period omitted) Net Assets Net Assets Rate
--------------------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
Global Strategic Income
Class A
11/1/01 - 4/30/02 (f)+ ........ $ 46,692 1.46%* 7.47%* 228%
Year Ended 10/31/01 ........... 57,667 1.45 8.60 304
Year Ended 10/31/00 ........... 52,561 1.54 8.32 321
Year Ended 10/31/99 ........... 33,813 1.77 9.34 254
Year Ended 10/31/98 ........... 24,576 1.89(e) 7.08(b) 183
Year Ended 10/31/97 ........... 12,954 1.90(e) 6.56(b) 417
Class B
11/1/01 - 4/30/02 (f)+ ........ $ 140,196 2.17%* 6.78%* 228%
Year Ended 10/31/01 ........... 156,948 2.16 7.85 304
Year Ended 10/31/00 ........... 118,356 2.27 7.66 321
Year Ended 10/31/99 ........... 79,085 2.47 8.54 254
Year Ended 10/31/98 ........... 58,058 2.58(e) 6.41(b) 183
Year Ended 10/31/97 ........... 18,855 2.60(e) 5.86(b) 417
Class C
11/1/01 - 4/30/02 (f)+ ........ $ 27,395 2.17%* 6.77%* 228%
Year Ended 10/31/01 ........... 33,035 2.15 7.90 304
Year Ended 10/31/00 ........... 32,345 2.25 7.68 321
Year Ended 10/31/99 ........... 22,598 2.46 8.52 254
Year Ended 10/31/98 ........... 16,067 2.58(e) 6.43(b) 183
Year Ended 10/31/97 ........... 4,388 2.60(e) 5.86(b) 417
Americas Government Income
Class A
12/1/01 - 5/31/02 (f)+ ........ $ 956,267 1.53%*(d) 8.28%* 197%
Year Ended 11/30/01 ........... 1,009,606 1.96(d) 10.07 315
Year Ended 11/30/00 ........... 979,126 2.26(d) 10.03 234
Year Ended 11/30/99 ........... 730,468 2.09(d) 11.72 158
Year Ended 11/30/98 ........... 740,066 2.04(d) 11.17 175
Year Ended 11/30/97 ........... 511,749 2.15(d) 12.78 118
Class B
12/1/01 - 5/31/02 (f)+ ........ $ 817,428 2.25%*(d) 7.55%* 197%
Year Ended 11/30/01 ........... 888,457 2.66(d) 9.06 315
Year Ended 11/30/00 ........... 826,340 2.93(d) 9.37 234
Year Ended 11/30/99 ........... 1,011,395 2.78(d) 10.97 158
Year Ended 11/30/98 ........... 1,300,519 2.75(d) 10.44 175
Year Ended 11/30/97 ........... 1,378,407 2.86(d) 12.15 118
Class C
12/1/01 - 5/31/02 (f)+ ........ $ 296,238 2.24%*(d) 7.54%* 197%
Year Ended 11/30/01 ........... 310,985 2.65(d) 9.34 315
Year Ended 11/30/00 ........... 267,646 2.95(d) 9.35 234
Year Ended 11/30/99 ........... 258,696 2.78(d) 10.98 158
Year Ended 11/30/98 ........... 276,073 2.74(d) 10.45 175
Year Ended 11/30/97 ........... 283,483 2.85(d) 12.14 118
Emerging Market Debt
Class A
Year Ended 8/31/02 (f) ........ $ 76,397 1.88%(d) 11.02% 170%
Year Ended 8/31/01 ............ 66,750 2.20(d) 12.78 150
Year Ended 8/31/00 ............ 66,075 1.76(d) 11.59 173
Year Ended 8/31/99 ............ 50,540 1.59 12.34 179
Year Ended 8/31/98 ............ 32,365 1.48 8.51 188
Class B
Year Ended 8/31/02 (f) ........ $ 80,064 2.58%(d) 10.25% 170%
Year Ended 8/31/01 ............ 83,706 2.88(d) 11.80 150
Year Ended 8/31/00 ............ 108,075 2.45(d) 10.85 173
Year Ended 8/31/99 ............ 110,003 2.31 11.59 179
Year Ended 8/31/98 ............ 79,660 2.22 7.78 188
Class C
Year Ended 8/31/02 (f) ........ $ 45,527 2.56%(d) 10.16% 170%
Year Ended 8/31/01 ............ 40,667 2.87(d) 11.81 150
Year Ended 8/31/00 ............ 48,960 2.45(d) 10.78 173
Year Ended 8/31/99 ............ 39,024 2.30 11.56 179
Year Ended 8/31/98 ............ 23,711 2.19 7.75 188
Multi-Market Strategy
Class A
11/1/01 - 4/30/02 (f)+ ........ $ 274,660 1.51%* 3.43%* 107%
Year Ended 10/31/01 ........... 289,265 1.48 5.87 79
Year Ended 10/31/00 ........... 305,610 1.52(g) 6.25 82
Year Ended 10/31/99 ........... 396,867 1.44(g) 6.23 124
Year Ended 10/31/98 ........... 95,568 1.74(g) 6.46 240
Year Ended 10/31/97 ........... 96,133 1.58(g) 6.50 173
Class B
11/1/01 - 4/30/02 (f)+ ........ $ 9,345 2.28%* 2.62%* 107%
Year Ended 10/31/01 ........... 11,311 2.24 5.05 79
Year Ended 10/31/00 ........... 13,052 2.28(g) 5.44 82
Year Ended 10/31/99 ........... 18,129 2.15(g) 5.46 124
Year Ended 10/31/98 ........... 7,217 2.41(g) 5.64 240
Year Ended 10/31/97 ........... 29,949 2.29(g) 5.79 173
Class C
11/1/01 - 4/30/02 (f)+ ........ $ 14,372 2.23%* 2.69%* 107%
Year Ended 10/31/01 ........... 15,208 2.19 5.10 79
Year Ended 10/31/00 ........... 16,578 2.22(g) 5.52 82
Year Ended 10/31/99 ........... 19,076 2.15(g) 5.50 124
Year Ended 10/31/98 ........... 16,518 2.61(g) 5.28 240
Year Ended 10/31/97 ........... 1,203 2.28(g) 5.80 173
</TABLE>
--------------------------------------------------------------------------------
Please refer to the footnotes on pages 50 and 51.
49
<PAGE>
+ Unaudited.
* Annualized.
(a) Based on average shares outstanding.
(b) Net of expenses waived/reimbursed by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and
a redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment return does not reflect the
deduction of taxes that a shareholder would pay on fund distributions or
the redemption of fund shares. Total investment returns calculated for
periods of less than one year are not annualized.
(d) Includes interest expense. If the following Funds had not borne interest
expense, the ratio of expenses to average net assets would have been as
follows:
<TABLE>
<CAPTION>
2002 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Alliance U.S. Government
Class A 1.09% 1.13% 1.12% 1.08% -- --
Class B 1.80% 1.83% 1.83% 1.79% -- --
Class C 1.79% 1.83% 1.83% 1.78% -- --
Alliance Corporate Bond
Class A 1.09% 1.09% 1.11% -- -- --
Class B 1.80% 1.81% 1.83% -- -- --
Class C 1.79% 1.81% 1.82% -- -- --
Alliance Americas Government Income
Class A 1.27%* 1.23% 1.33% 1.38% 1.36% 1.38%
Class B 1.98%* 1.94% 2.03% 2.08% 2.07% 2.09%
Class C 1.97%* 1.93% 2.03% 2.08% 2.06% 2.08%
Alliance Emerging Market Debt
Class A 1.50% 1.47% 1.51% -- -- --
Class B 2.20% 2.17% 2.21% -- -- --
Class C 2.19% 2.16% 2.20% -- -- --
</TABLE>
(e) Net of expenses assumed and/or waived/reimbursed. If Alliance High Yield
had borne all expenses for the fiscal year ended August 31, 1998, the
expense ratios would have been with respect to Class A shares, 1.46%; with
respect to Class B shares, 2.16%; and with respect to Class C shares,
2.16%. If Alliance Global Strategic Income had borne all expenses for the
respective fiscal years ended 1997 and 1998, the expense ratio would have
been with respect to Class A shares, 4.06% and 2.08%, respectively; with
respect to Class B shares, 4.76% and 2.76% respectively; and with respect
to Class C shares, 4.77% and 2.77% respectively. If Alliance Quality Bond
had borne all expenses for the fiscal years ended June 30, 2002, 2001 and
2000, the expense ratios would have been with respect to Class A shares,
1.48%, 2.85% and 13.10%, with respect to Class B shares, 2.19%, 3.36% and
11.29%, and with respect to Class C shares, 2.19%, 3.42% and 11.75%,
respectively.
50
<PAGE>
(f) As required, the Funds have adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing
premium on debt securities for financial statement reporting purposes
only. For each Fund, the effective data and impact of this change to each
class of shares is as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) in
Net Realized
Decrease in and Unrealized
Net Investment Gain (Loss) on Decrease in Ratio to Net Investment
Effective Income per Investments Income to Average Net Assets:
Date Share per Share From: To:
-------- -------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Alliance U.S. Government Portfolio 7/1/01
Class A (0.03) 0.03 5.56% 5.15%
Class B (0.03) 0.03 4.82% 4.41%
Class C (0.03) 0.03 4.83% 4.42%
Alliance Quality Bond Portfolio 7/1/01
Class A (0.05) 0.05 4.93% 4.39%
Class B (0.05) 0.05 4.24% 3.70%
Class C (0.05) 0.05 4.25% 3.71%
Alliance Corporate Bond Portfolio 7/1/01
Class A (0.01) (0.01) 7.82% 7.79%
Class B (0.01) (0.01) 7.08% 7.05%
Class C (0.01) (0.01) 7.10% 7.07%
Alliance High Yield Fund 9/1/01
Class A (0.01) (0.01) 10.19% 10.06%
Class B (0.01) (0.01) 9.47% 9.34%
Class C (0.01) (0.01) 9.47% 9.35%
Alliance Global Strategic
Income Trust 11/1/01
Class A (0.01) (0.01) 7.71%* 7.47%*
Class B (0.01) (0.01) 7.02% 6.78%
Class C (0.01) (0.01) 7.01% 6.77%
Alliance Americas Government
Income Trust 12/1/01
Class A (0.02) (0.02) 8.95%* 8.28%*
Class B (0.02) (0.02) 8.23%* 7.55%*
Class C (0.02) (0.02) 8.22%* 7.54%*
Alliance Emerging Market Debt Fund 9/1/01
Class A (0.01) (0.01) 11.10% 11.02%
Class B (0.01) (0.01) 10.34% 10.25%
Class C (0.01) (0.01) 10.24% 10.16%
Alliance Multi-Market Strategy Trust 11/1/01
Class A (0.06) (0.06) 5.47%* 3.43%*
Class B (0.06) (0.06) 4.66% 2.62%
Class C (0.06) (0.06) 4.73% 2.69%
</TABLE>
(g) Amounts do not reflect the impact of expense offset arrangement with the
transfer agent. Taking into account such expense offset arrangements, the
ratio of expenses to average net assets, for Alliance Multi-Market
Strategy would have been with respect to Class A shares 1.57% for 1997,
1.73% for 1998, 1.42% for 1999 and 1.50% for 2000, with respect to Class B
shares 2.28% for 1997, 2.40% for 1998, 2.14% for 1999 and 2.27% for 2000,
and with respect to Class C shares 2.27% for 1997, 2.60% for 1998, 2.14%
for 1999 and 2.21% for 2000.
51
<PAGE>
--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
--------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating -- When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note -- Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and
52
<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated BB is less vulnerable to nonpayment than other speculative
debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B -- Debt rated B is more vulnerable to nonpayment than debt rated BB, but
there is capacity to pay interest and repay principal. Adverse business,
financial or economic conditions will likely impair the capacity or
willingness to pay principal or repay interest.
CCC -- Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest
and repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC -- Debt rated CC is currently highly vulnerable to nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D -- The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-) -- The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR -- Not rated.
FITCH RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F1+.
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, D -- Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR -- Indicates that Fitch does not rate the specific issue.
53
<PAGE>
--------------------------------------------------------------------------------
APPENDIX B
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
ABOUT CANADA, MEXICO
--------------------------------------------------------------------------------
AND ARGENTINA
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and three federal territories
(which generally fall under federal authority) with a constitutional division of
powers between the federal and Provincial governments. The Parliament of Canada
has jurisdiction over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the federal public debt
and property, the regulation of trade and commerce, currency and coinage, banks
and banking, national defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the Canadian Dollar-U.S. Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.6128 Canadian
Dollars per U.S. Dollar on January 18, 2002. On October 1, 2002, the Canadian
Dollar-U.S. Dollar exchange rate was 1.5813. The range of fluctuation that has
occurred in the past is not necessarily indicative of the range of fluctuation
that will occur in the future. Future rates of exchange cannot be accurately
predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which took
effect on May 1, 1917, established Mexico as a Federal Republic and provides for
the separation of executive, legislative and judicial branches. The President
and the members of the General Congress are elected by popular vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product and
a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994, Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by inflows
of foreign capital, were factors contributing to the crisis. A weakening economy
and unsettling political and social developments caused investors to lose
confidence in the Mexican economy. This resulted in a large decline in foreign
reserves followed by a sharp and rapid devaluation of the Mexican Peso. The
ensuing economic and financial crisis resulted in higher inflation and domestic
interest rates, a contraction in real gross domestic product and a liquidity
crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced new
accords designed to encourage economic growth and reduce inflation. While it
cannot be accurately predicted whether these accords will continue to achieve
their objectives, the Mexican economy has stabilized since the economic crisis
of 1994, and the high inflation and high interest rates that continued to be a
factor after 1994 have subsided as well. After declining for five consecutive
quarters beginning with the first quarter of 1995, Mexico's gross domestic
product began to grow in
54
<PAGE>
the second quarter of 1996. That growth was sustained through 2000, resulting in
increases of 5.1%, 6.8%, 4.9%, 3.8% and 6.9% in 1996, 1997, 1998, 1999 and 2000,
respectively. During 2001, the gross domestic product is contracted by 0.3%. In
addition, inflation dropped from a 52% annual rate in 1995 to a 5.5% annual rate
in 2001. Mexico's economy is influenced by international economic conditions,
particularly those in the United States, and by world prices for oil and other
commodities. Reflecting Mexico's strengthened economy, S&P upgraded Mexico's
sovereign debt rating on February 7, 2002 to investment grade. Fitch and Moody's
took similar actions on January 22, 2002 and March 4, 2000, respectively. The
continuing recovery of the economy will require economic and fiscal discipline
as well as stable political and social conditions. In addition, there is no
assurance that Mexico's economic policy initiatives will be successful or that
the current President and succeeding administrations will continue these
initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against other
currencies, resulting in a precipitous decline against the U.S. Dollar. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately 40%
from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, from 1997 through 1999 the Peso-Dollar exchange rate decreased
approximately 20%. There has been relatively little change in the Peso-Dollar
exchange rate since 1999.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the federal
capital of Buenos Aires. Its federal constitution provides for an executive
branch headed by a President, a legislative branch and a judicial branch. Each
province has its own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
Shortly after taking office in 1989, the country's then President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the 1980's.
The 1991 economic plan represented a pronounced departure from its predecessors
in calling for raising revenues, cutting expenditures and reducing the public
deficit. The extensive privatization program commenced in 1989 was accelerated,
the domestic economy deregulated and opened up to foreign trade and the
framework for foreign investment reformed. As a result of the economic
stabilization reforms, inflation was brought under control and gross domestic
product increased each year between 1991 and 1998, with the exception of 1995.
Since the fourth quarter of 1998, however, Argentina's economy has been
contracting, with GDP growth rates of -3.4%, -0.8% and -4.4% recorded for 1999,
2000 and 2001, respectively. Argentina's protracted recession has contributed to
a serious fiscal crisis that has resulted in a suspension of payment on
Argentina's foreign debt, as announced by the government in late December 2001,
as well as a suspension of its loan repayments to the International Monetary
Fund and other multilateral lending bodies, as announced by the government in
late September 2002. Amidst the country's worsening economic and fiscal
condition, and associated civil unrest that ensued, Argentina's President
Fernando de la Rua was forced to resign on December 20, 2001. Thereafter,
Argentina had several interim Presidents. On January 1, 2002 Eduardo Duhalde,
who pledged sweeping economic, fiscal and social reforms, became the fourth
interim President. President Duhalde has been unable, however, to achieve the
necessary political consensus to meet the difficult challenges that Argentina
faces. As a result, Argentina's fragile condition has persisted well into 2002.
The Argentine Peso has been the Argentine currency since January 1, 1992. Until
February 11, 2002, the rate of exchange from the Argentine Peso to the U.S.
Dollar remained approximately one to one. The fixed exchange rate was
instrumental in stabilizing the economy, but in recent years has been viewed as
an impediment to economic growth. Since February 11, 2002, the Argentine Peso
has been allowed to float freely against the U.S. Dollar. There is no assurance
that ending the fixed exchange rate will achieve its desired result. On October
1, 2002, the Argentine Peso-U.S. Dollar exchange rate was 3.7355. The
devaluation of the Argentine Peso has resulted in the reappearance of high
inflation, as evidenced by the 35% rise in the consumer price index during the
first seven months of 2002. The Argentine foreign exchange market was highly
controlled until December 1989, when a free exchange rate was established for
all foreign currency transactions. Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. In 1993, legislation was
adopted abolishing previous requirements of a three-year waiting period for
capital repatriation. Under the legislation, foreign investors are permitted to
remit profits at any time.
55
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For more information about the Funds, the following documents are available upon
request:
Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
Each Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Funds' SAIs are
incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
or make inquiries concerning the Funds, by contacting your broker or other
financial intermediary, or by contacting Alliance:
By mail: c/o Alliance Global Investor Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the Commision at 1-202-942-8090 for information on the operation of
the Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing the
Commission's Public Reference Section, Wash. DC 20549-0102.
You also may find more information about Alliance and the Funds on the Internet
at: www.Alliancecapital.com.
Fund SEC File No.
----- -----------
U.S. Government 811-02383
Quality Bond 811-02383
Corporate Bond 811-02383
High Yield 811-9160
Global Strategic Income 811-07391
Americas Government Income 811-06554
Emerging Market Debt 811-08188
Multi-Market Strategy 811-06251
--------------------------------------------------------------------------------
Privacy Notice (This information is not part of the Prospectus.)
Alliance, the Alliance Family of Funds and Alliance Fund Distributors,
Inc. (collectively, "Alliance" or "we") understand the importance of maintaining
the confidentiality of our customers' nonpublic personal information. In order
to provide financial products and services to our customers efficiently and
accurately, we may collect nonpublic personal information about our customers
from the following sources: (1) information we receive from account
documentation, including applications or other forms (which may include
information such as a customer's name, address, social security number, assets
and income) and (2) information about our customers' transactions with us, our
affiliates and others (including information such as a customer's account
balances and account activity).
It is our policy not to disclose nonpublic personal information about our
customers (or former customers) except to our affiliates, or to others as
permitted or required by law. From time to time, Alliance may disclose nonpublic
personal information that we collect about our customers (or former customers),
as described above, to non-affiliated third party providers, including those
that perform processing or servicing functions and those that provide marketing
services for us or on our behalf pursuant to a joint marketing agreement that
requires the third party provider to adhere to Alliance's privacy policy. We
have policies and procedures to safeguard nonpublic personal information about
our customers (or former customers) which include: (1) restricting access to
such nonpublic personal information and (2) maintaining physical, electronic and
procedural safeguards that comply with federal standards to safeguard such
nonpublic personal information.
--------------------------------------------------------------------------------
56
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Alliance High Yield Fund
Advisor Class Prospectus and Application
November 1, 2002
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Alliance Capital [LOGO](R)
<PAGE>
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
2
<PAGE>
TABLE OF CONTENTS
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Page
RISK/RETURN SUMMARY ....................................................... 3
Alliance High Yield Fund .................................................. 4
FEES AND EXPENSES OF THE FUND ............................................. 5
GLOSSARY .................................................................. 6
DESCRIPTION OF THE FUND ................................................... 7
Investment Objective, Policies, and Risk
Considerations ............................................................ 7
Description of Investment Practices ....................................... 8
Additional Risk Considerations ............................................ 14
MANAGEMENT OF THE FUND .................................................... 16
PURCHASE AND SALE OF SHARES ............................................... 17
How The Fund Values Its Shares ............................................ 17
How To Buy Shares ......................................................... 17
How To Exchange Shares .................................................... 17
How To Sell Shares ........................................................ 17
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 18
CONVERSION FEATURE ........................................................ 19
GENERAL INFORMATION ....................................................... 19
FINANCIAL HIGHLIGHTS ...................................................... 19
APPENDIX A: BOND RATINGS .................................................. 22
Alliance High Yield Fund's investment adviser is Alliance Capital Management
L.P., a global investment manager providing diversified services to institutions
and individuals through a broad line of investments including more than 100
mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance High Yield
Fund. You will find additional information about the Fund, including a detailed
description of the risks of an investment in the Fund, after this Summary.
Please be sure to read the more complete description of the Fund following this
summary, including the risks associated with investing in the Fund, BEFORE you
invest. The Fund may at times use certain types of investment derivatives such
as options, futures, forwards and swaps. The use of these techniques includes
special risks that are discussed in this Prospectus.
3
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Alliance High Yield Fund
--------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is to achieve a high total return by maximizing
current income and, to the extent consistent with that objective, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests, under normal circumstances, at least 80% of its net assets in
high yield debt securities. The Fund invests in high yield, below investment
grade debt securities, commonly known as "junk bonds." The Fund seeks to
maximize current income by taking advantage of market developments, yield
disparities, and variations in the creditworthiness of issuers.
PRINCIPAL RISKS:
Among the principal risks of investing in the Fund are interest rate risk, which
is the risk that changes in interest rates will affect the value of the Fund's
investments in debt securities, credit risk, which is the risk that the issuer
or the guarantor of a debt security, or the counterparty to a derivatives
contract, will be unable or unwilling to make timely payments of interest or
principal, and market risk, which is the risk that the value of the Fund's
investments will fluctuate as the bond markets fluctuate and that prices overall
will decline over shorter or longer-term periods. Because the Fund invests in
lower-rated securities, it has significantly more risk than other types of bond
funds and its returns will be more volatile. The Fund's investments in foreign
securities have foreign risk, which is the risk of investments in issuers
located in foreign countries, and currency risk, which is the risk that
fluctuations in the exchange rates between the U.S. Dollar and foreign
currencies may negatively affect the value of the Fund's investments.
Other important things for you to note:
o You may lose money by investing in the Fund.
o An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE TABLE
--------------------------------------------------------------------------------
Average Annual Total Returns
(For the periods ended December 31, 2001)
--------------------------------------------------------------------------------
Since
1 Year Inception*
--------------------------------------------------------------------------------
Advisor
Class** Return Before Taxes -0.27% 1.40%
--------------------------------------------------------------------------------
Return After Taxes
on Distributions -4.22% -2.99%
---------------------------------------------------------------
Return After Taxes on
Distributions and Sale
of Fund Shares -0.15% -0.81%
--------------------------------------------------------------------------------
First (reflects no deduction
Boston for fees, expenses
High Yield or taxes)
Index 5.80% 2.97%
--------------------------------------------------------------------------------
* Inception Date for Advisor Class shares: 4/22/97.
** After-tax Returns:
- Are an estimate, which is based on the highest historical individual
federal marginal income tax rates and do not reflect the impact of
state and local taxes; actual after-tax returns depend on an
individual investor's tax situation and are likely to differ from
those shown; and
- Are not relevant to investors who hold Fund shares through
tax-deferred arrangements such as 401(k) plans or individual
retirement accounts.
BAR CHART
--------------------------------------------------------------------------------
The following chart shows the annual return for Advisor Class shares for each
calendar year since the Fund's inception. Through September 30, 2002, the
year-to-date unannualized return for Advisor Class shares was -8.83.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
n/a n/a n/a n/a n/a n/a -1.32 -1.59 -11.47 -0.27
--------------------------------------------------------------------------------
92 93 94 95 96 97 98 99 00 01
Calendar Year End
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 7.81%, 4th quarter, 2001; and Worst quarter was down -7.38%,
4th quarter, 2000.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund by showing how the Fund's average annual returns before
and after taxes, for one year and over the life of the Fund compare to a
broad-based securities market index and by showing the Fund's performance from
year to year over the life of the Fund. The Fund's past performance before and
after taxes, of course, does not necessarily indicate how it will perform in the
future.
4
<PAGE>
--------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
--------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Advisor Class Shares
--------------------
Maximum Front-end or Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) and
EXAMPLE
The Example is to help you compare the cost of investing in the Fund with the
cost of investing in other funds. It assumes that you invest $10,000 in the Fund
for the time periods indicated and then redeem all your shares at the end of
those periods. It also assumes that your investment has a 5% return each year,
that the Fund's operating expenses stay the same and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
Operating Expenses
--------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses .41%
----
Total Fund Operating Expenses 1.16%
====
Example
--------------------------------------------------------------------
After 1 year $ 118
After 3 years $ 368
After 5 years $ 638
After 10 years $1,409
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5
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GLOSSARY
--------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are bonds, debentures, corporate notes, and preferred
stocks that are convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Equity securities are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Fixed-income securities are debt securities, convertible securities, and
preferred stocks, including floating rate and variable rate instruments.
Fixed-income securities may be rated (or, if unrated, for purposes of the Fund's
investment policies may be determined by Alliance to be of equivalent quality to
those rated) triple-A (Aaa or AAA), high quality (Aa or AA or above), high grade
(A or above) or investment grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P or Fitch, or may be lower-rated securities, as defined below. In
the case of "split-rated" fixed-income securities (i.e., securities assigned
non-equivalent credit quality ratings, such as Baa by Moody's but BB by S&P or
Ba by Moody's and BB by S&P but B by Fitch), a Fund will use the rating deemed
by Alliance to be the most appropriate under the circumstances.
Foreign fixed-income securities consist of foreign government securities and
securities issued by non-U.S. companies.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.
Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
principal-only or PO class, that receives only the principal payments on the
underlying debt obligation. POs are similar to, and are sometimes referred to
as, zero coupon securities, which are debt securities issued without interest
coupons.
Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual fund) by various governmental,
government-related, and private organizations. These securities include:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government National
Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.
Non-U.S. company is an entity that (i) is organized under the laws of a foreign
country, (ii) has its principal place of business in a foreign country, and
(iii) issues equity or debt securities that are traded principally in a foreign
country.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A under the
Securities Act.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury, and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA. U.S. Government securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES AND RATED SECURITIES
Fitch is Fitch Ratings, the international rating agency formed through the
merger of Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co.
Higher quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P or F2 by Fitch.
Lower-rated securities are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred to
as "junk bonds."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
Prime commercial paper is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P or F1 by Fitch.
S&P is Standard & Poor's Ratings Services.
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to changes
in interest rates. The duration of a debt security is the weighted average term
to maturity, expressed in years, of the present value of all future cash flows,
including coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Securities Act is the Securities Act of 1933, as amended.
6
<PAGE>
--------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
--------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of the
investment objective and principal strategies and risks of the Fund. Of course,
there can be no assurance that the Fund will achieve its investment objective.
Please note that:
o Additional discussions of the Fund's investments, including the risks of
the investments, can be found in the discussions under Description of
Additional Investment Practices and Additional Risk Considerations
following this section.
o Additional descriptions of the Fund's strategies, investments, and risks,
can be found in the Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Fund's investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Fund's
investment policies are not fundamental and thus can be changed without a
shareholder vote. When an investment policy or restriction has a
percentage limitation, such limitation is applied at the time of
investment. Changes in the market value of securities in the Fund's
portfolio after they are purchased by the Fund will not cause the Fund to
be in violation of such limitations.
INVESTMENT OBJECTIVE, POLICIES, AND RISK CONSIDERATIONS
Investment Objective and Policies
Alliance High Yield Fund seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund invests, under normal circumstances, at least 80%
of its net assets in high yield debt securities. For purposes of this policy,
net assets include any borrowings for investment purposes. This policy may not
be changed without 60 days' prior written notice to shareholders. The Fund
invests in a diversified mix of high yield, below investment grade debt
securities, known as "junk bonds." These securities involve greater volatility
of price and risk of principal and income than higher quality debt securities.
The Fund is managed to maximize current income by taking advantage of market
developments, yield disparities, and variations in the creditworthiness of
issuers. The Fund uses various strategies in attempting to achieve its
objective.
The Fund normally invests in high yield debt securities rated below investment
grade by two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than
BBB by S&P) or, if unrated, of equivalent quality. The Fund may not invest more
than 10% of its total assets in (i) fixed-income securities which are rated
lower than B3 or B- or their equivalents by two or more NRSROs or, if unrated,
of equivalent quality, and (ii) money market instruments of any entity which has
an outstanding issue of unsecured debt that is rated lower than B3 or B- or
their equivalents by two or more NRSROs or, if unrated, of equivalent quality.
As of August 31, 2002, the Fund's investments were rated (or equivalent
quality):
o A and above 7.28%
o BBB 4.69%
o Ba or BB 22.69%
o B 59.98%
o CCC 4.04%
o CC .03%
o D .16%
o Unrated 1.13%
The Fund may invest a portion of its assets in foreign fixed-income securities.
The Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities.
The Fund also may invest in:
o U.S. Government securities;
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by certain
domestic and foreign banks;
o commercial paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if
unrated, issued by domestic or foreign companies having high quality
outstanding debt securities) and participation interests in loans extended
by banks to these companies;
o corporate debt obligations with remaining maturities of less than one year
rated at least high quality as well as corporate debt obligations rated at
least high grade provided the corporation also has outstanding an issue of
commercial paper rated at least A-1 by S&P or Prime-1 by Moody's; and
o floating rate or master demand notes.
The Fund also may:
o invest in mortgage-backed and asset-backed securities;
o invest in loan participations and assignments of loans to corporate,
governmental, or other borrowers originally made by institutional lenders
or lending syndicates;
o enter into forward commitments;
o write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on
fixed-income securities, securities indices and foreign currencies;
o purchase and sell futures contracts and related options on debt securities
and on indices of debt securities;
o enter into contracts for the purchase or sale of a specific currency for
hedging purposes only;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
7
<PAGE>
Risk Considerations
The value of your investment in the Fund will change with changes in the values
of the Fund's investments. Many factors can affect those values. In this
discussion, we describe the principal risks that may affect the Fund as a whole.
The Fund could be subject to additional principal risks because the types of
investments made by the Fund can change over time. This Prospectus has
additional descriptions of the types of investments that appear in bold type in
the discussions under "Description of Additional Investment Practices" and
"Additional Risk Considerations." These sections also include more information
about the Fund, its investments, and related risks.
Interest Rate Risk
This is the risk that changes in interest rates will affect the value of the
Fund's investments in debt securities, or other income-producing securities.
Increases in interest rates may cause the value of the Fund's investments to
decline.
Interest rate risk generally is greater for the Fund because it invests a
significant portion of its assets in lower-rated securities or comparable
unrated securities.
Credit Risk
This is the risk that the issuer or the guarantor of a debt security, or the
counterparty to a derivatives contract, will be unable or unwilling to make
timely payments of interest or principal, or to otherwise honor its obligations.
The degree of risk for a particular security may be reflected in its credit
rating. Credit risk is greater for the Fund's investments in lower-rated
securities. These debt securities and similar unrated securities (commonly known
as "junk bonds") have speculative elements or are predominantly speculative
credit risks.
The Fund is subject to higher credit risk because of its investments in debt
securities issued in connection with corporate restructurings by highly
leveraged issuers and in debt securities not current in the payment of interest
or principal or are in default.
Market Risk
This is the risk that the value of the Fund's investments will fluctuate as the
bond markets fluctuate and that prices overall will decline over shorter or
longer-term periods.
Foreign Risk
This is the risk of investments in issuers located in foreign countries. The
Fund's investments in foreign securities may experience more rapid and extreme
changes in value than if it invested solely in securities of U.S. companies. The
securities markets of many foreign countries are relatively small, with a
limited number of companies representing a small number of securities. In
addition, foreign companies usually are not subject to the same degree of
regulation as U.S. companies. Reporting, accounting, and auditing standards of
foreign countries differ, in some cases significantly, from U.S. standards.
Nationalization, expropriation or confiscatory taxation, currency blockage,
political changes, or diplomatic developments could adversely affect the Fund's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, the Fund could lose its entire investment.
Currency Risk
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of a Fund's investments.
The Fund's investments in securities denominated in, and receiving revenues in,
foreign currencies, are subject to currency risk.
Derivatives Risk
Derivatives that the Fund may use are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate, or
index. Alliance will sometimes use derivatives as part of a strategy designed to
reduce other risks. Generally, however, the Fund uses derivatives as direct
investments to earn income, enhance yield, and broaden Fund diversification,
which entail greater risk than if used solely for hedging purposes. In addition
to other risks such as the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and the risk that changes in
the value of the derivative may not correlate perfectly with relevant assets,
rates, or indices.
Management Risk
The Fund is subject to management risk because it is an actively managed
investment Fund. Alliance will apply its investment techniques and risk analyses
in making investment decisions for the Fund, but there can be no guarantee that
these decisions will produce the desired results. In some cases, derivatives and
other investment techniques may be unavailable or Alliance may determine not to
use them, possibly even under market conditions where their use could benefit
the Fund.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Fund's investment practices and associated risks.
There can be no assurance that at any given time the Fund will engage in any of
these derivative or other practices.
Derivatives. The Fund may use derivatives to achieve its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices, and stock indices. Derivatives can be
used to earn income or protect against risk, or both. For example, one party
with unwanted risk may agree to pass that risk to another party who is willing
to accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and enhance
returns, to hedge or adjust the risk profile of a portfolio, and either to
replace more traditional direct investments or to obtain exposure to otherwise
inaccessible markets. The Fund is permitted to use derivatives for one or more
of these purposes, although the Fund generally use derivatives primarily as
direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. Derivatives are a valuable tool which,
when
8
<PAGE>
used properly, can provide significant benefit to the Fund's shareholders. The
Fund may take a significant position in those derivatives that are within its
investment policies if, in Alliance's judgment, this represents the most
effective response to current or anticipated market conditions. The Fund
generally makes extensive use of carefully selected forwards and other
derivatives to achieve the currency hedging that is an integral part of its
investment strategy. Alliance's use of derivatives is subject to continuous risk
assessment and control from the standpoint of the Fund's investment objectives
and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction can
be created.
o Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a specified price
(the exercise price) during a period of time or on a specified date. A
call option entitles the holder to purchase, and a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount based
on an underlying asset, rate or index). Likewise, when an option is
exercised the writer of the option is obligated to sell (in the case of a
call option) or to purchase (in the case of a put option) the underlying
asset (or settle for cash an amount based on an underlying asset, rate or
index).
o Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset (or
settle for cash the value of a contract based on an underlying asset, rate
or index) at a specific price on the contract maturity date. Futures
contracts are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other). This
fungibility allows futures contracts to be readily offset or cancelled
through the acquisition of equal but opposite positions, which is the
primary method in which futures contracts are liquidated. A cash-settled
futures contract does not require physical delivery of the underlying
asset but instead is settled for cash equal to the difference between the
values of the contract on the date it is entered into and its maturity
date.
o Forwards--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or
other tangible asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated agreements designed to
satisfy the objectives of each party. A forward contract usually results
in the delivery of the underlying asset upon maturity of the contract in
return for the agreed upon payment.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
The payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and
again upon the termination, of the transaction. Swap transactions also
include credit default swaps in which one party pays a periodic fee,
typically expressed in basis points on a notional amount, in return for a
contingent payment, by the counterparty following a credit event in a
specific debt obligation or obligations. A credit event is typically a
default and the contingent payment may be a cash settlement or by physical
delivery of the reference obligation in return for payment of its face
amount.
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as
agents utilizing standard swap documentation. As a result, the swap market
has become well established and relatively liquid. The funds will enter
into swap transactions only with counterparties whose debt securities
have ratings of at least A (or the equivalent) from any one nationally
recognized statistical rating organization or counterparties with
guarantors with debt securities having such a rating.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities. These
securities are described below under Mortgage-Related Securities and Other
Asset-Backed Securities.
While the judicious use of derivatives by highly-experienced investment managers
such as Alliance can be quite beneficial, derivatives involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in a Fund.
o Market Risk--This is the general risk of all investments that the value of
a particular investment will change in a way
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detrimental to the Fund's interest based on changes in the bond market
generally.
o Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use
and complexity of derivatives require the maintenance of adequate controls
to monitor the transactions entered into, the ability to assess the risk
that a derivative adds to the Fund's portfolio, and the ability to
forecast price, interest rate, or currency exchange rate movements
correctly.
o Credit Risk--This is the risk that a loss may be sustained by the Fund as
a result of the failure of a derivative counterparty to comply with the
terms of the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or counterparty to each
exchange-traded derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
o Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
o Leverage Risk--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made
any initial investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment.
o Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counterparties or a loss of
value to the Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, the Fund's use of derivatives may
not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
Derivatives Used by the Fund. The following describes specific derivatives that
the Fund may use.
Credit Default Swap Agreements. The "buyer" in a credit default contract is
obligated to pay the "seller" a periodic stream of payments over the term of the
contract in return for a contingent payment upon the occurrence of a credit
event with respect to an underlying reference obligation. Generally, a credit
event means bankruptcy, failure to pay, obligation acceleration or modified
restructuring. If a credit event occurs, the seller typically must pay the
contingent payment to the buyer, which is typically the "par value" (full
notional value) of the reference obligation. The contingent payment may be a
cash settlement or by physical delivery of the reference obligation in return
for payment of the face amount of the obligation. The Fund may be either the
buyer or seller in the transaction. If the Fund is a buyer and no credit event
occurs, the Fund may lose its investment and recover nothing. However, if a
credit event occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value. As a seller, the Fund
receives a fixed rate of income throughout the term of the contract, which
typically is between one month and five years, provided that no credit event
occurs. If a credit event occurs, the seller must pay the buyer the full
notional value of the reference obligation.
Credit default swaps involve greater risks than if the Fund had invested in the
reference obligation directly. In addition to general market risks, credit
default swaps are subject to liquidity risk and credit risk. A buyer also may
lose its investment and recover nothing should no credit event occur. If a
credit event were to occur, the value of the reference obligation received by
the seller, coupled with the periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of value
to the Fund.
Futures Contracts and Options on Futures Contracts. The Fund may buy and sell
futures contracts on fixed-income or other securities or foreign currencies, and
contracts based on interest rates or financial indices, including any index of
U.S. Government securities, foreign government securities or corporate debt
securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by
the Fund will be traded on U.S. or foreign exchanges and will be used for income
or hedging purposes.
The Fund will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
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Options on Foreign Currencies. The Fund may invest in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign exchanges
for the purpose of protecting against declines in the U.S. Dollar value of
foreign currency denominated securities held by the Fund and against increases
in the U.S. Dollar cost of securities to be acquired. The purchase of an option
on a foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, the Fund may forfeit the
entire amount of the premium plus related transaction costs.
Options on Securities. In purchasing an option on securities, the Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
the Fund would realize a loss if the price of the underlying security declined
or remained the same (in the case of a call) or increased or remained the same
(in the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
The Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with respect
to uncovered call options written for cross-hedging purposes, the Fund will not
write uncovered call or put options on securities. A call option written by the
Fund is "covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by the Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and the Fund could be
obligated to acquire the underlying security at its current price and sell it at
a lower price. The risk of loss from writing an uncovered put option is limited
to the exercise price of the option.
The Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." 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 exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved with other hedging strategies.
The Fund generally purchases or writes privately negotiated options on
securities. The Fund effects such transactions only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by Alliance. Privately negotiated options
purchased or written by the Fund may be illiquid and it may not be possible for
the Fund to effect a closing transaction at an advantageous time.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a when-issued basis or purchases or sales on a delayed
delivery basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a proposed
financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation
and no interest or dividends accrues to the purchaser prior to the settlement
date.
The use of forward commitments helps 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 bond
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.
The Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Fund enters into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If the Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
Illiquid Securities. The Fund will limit its investments in illiquid securities
to 15% of its net assets. 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
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makers do not exist or will not entertain bids or offers), including many
currency swaps and any assets used to cover currency swaps, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days.
The Fund may not be able to sell its illiquid securities and may not be able to
realize their full value upon sale. Alliance will monitor the Fund's investments
in illiquid securities. Rule 144A securities will not be treated as "illiquid"
for the purposes of the limit on investments so long as the securities meet
liquidity guidelines established by the Board of Directors.
Loans of Portfolio Securities. The Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained by
the borrower with the Fund. A principal risk in lending portfolio securities, as
with other collateralized extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In addition, the
Fund will be exposed to the risk that the sale of any collateral realized upon a
borrower's default will not yield proceeds sufficient to replace the loaned
securities.
In determining whether to lend securities to a particular borrower, Alliance
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Fund any income earned from the securities. The Fund may invest any
cash collateral in portfolio securities and earn additional income or receive an
agreed-upon amount of income from a borrower who has delivered equivalent
collateral. Any such investment of cash collateral will be subject to the Fund's
investment risks. The Fund will have the right to regain record ownership of
loaned securities to exercise beneficial rights such as voting rights,
subscription rights, and rights to dividends, interest or distributions. The
Fund may pay reasonable finders', administrative, and custodial fees in
connection with a loan. Lending of portfolio securities is limited to 50% of the
Fund's total assets.
Loan Participations and Assignments. The Fund's investments in loans are
expected in most instances to be in the form of participations in loans and
assignments of all or a portion of loans from third parties. The Fund's
investment in loan participations typically will result in the Fund having a
contractual relationship only with the lender and not with the borrower. The
Fund will acquire participations only if the lender interpositioned between the
Fund and the borrower is a lender having total assets of more than $25 billion
and whose senior unsecured debt is rated investment grade or higher. When the
Fund purchases a loan assignment from a lender it will acquire direct rights
against the borrower on the loan. Because loan assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by the Fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning lender.
The assignability of certain foreign government securities is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. The Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments, they
can probably be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse effect on the value of
such investments and the Fund's ability to dispose of particular participations
and assignments when necessary to meet its liquidity needs in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for participations and
assignments also may make it more difficult for the Fund to assign a value to
these investments for purposes of valuing the Fund's portfolio and calculating
its net asset value.
Mortgage-Related Securities. The Fund's investments in mortgage-related
securities typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as the Fund) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both interest
and principal, unlike more traditional debt securities, which normally do not
provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if the
borrowers on the underlying mortgages fail to make their mortgage payments. The
ratings of such non-governmental securities are generally dependent upon the
ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. The Fund
may buy mortgage-related securities without credit enhancement if the securities
meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing, or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as discussed
below, frequently causes these securities to experience significantly
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greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by GNMA,
are referred to as "modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. CMOs may be
issued by a U.S. Government instrumentality or agency or by a private issuer.
Although payment of the principal of, and interest on, the underlying collateral
securing privately issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these
CMOs represent obligations solely of the private issuer and are not insured or
guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or any other
person or entity.
Another type of mortgage-related security, known as ARMS, bears interest at a
rate determined by reference to a predetermined interest rate or index. There
are two main categories of rates or indices: (i) rates based on the yield on
U.S. Treasury securities and (ii) indices derived from a calculated measure such
as a cost of fund index or a moving average of mortgage rates. Some rates and
indices closely mirror changes in market interest rate levels, while others tend
to lag changes in market rate levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Since many adjustable-rate mortgages only reset on an annual basis, the
values of ARMS tend to fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest rates payable on
the underlying adjustable-rate mortgages.
SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by a pool of mortgages or a pool of
mortgaged-backed bonds or pass-through securities, with each class receiving
different proportions of the principal and interest payments from the underlying
assets. A common type of SMRS has one class of interest-only securities or IOs
receiving all of the interest payments from the underlying assets; while the
other class of securities, principal-only securities or POs, receives all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease, while POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Changes in the values of IOs
and POs can be substantial and occur quickly, such as occurred in the first half
of 1994 when the value of many POs dropped precipitously due to increases in
interest rates. For this reason, the Fund does not rely on IOs and POs as the
principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. These prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, the Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level of general interest
rates, general economic conditions, and other social and demographic factors.
During periods of falling interest rates, the rate of mortgage prepayments tends
to increase, thereby tending to decrease the life of mortgage-related
securities. Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective life of mortgage-related securities,
subjecting them to greater risk of decline in market value in response to rising
interest rates. If the life of a mortgage-related security is inaccurately
predicted, the Fund may not be able to realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs, and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby
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potentially limiting the Fund's ability to buy or sell those securities at any
particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such an adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting the Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above, the
yields on ARMS vary with changes in the applicable interest rate or index, there
is often a lag between increases in general interest rates and increases in the
yield on ARMS as a result of relatively infrequent interest rate reset dates. In
addition, adjustable-rate mortgages and ARMS often have interest rate or payment
caps that limit the ability of the adjustable-rate mortgages or ARMS to fully
reflect increases in the general level of interest rates.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. In
some transactions, the value of the asset-backed security is dependent on the
performance of a third party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of vehicle loans or
leases) it may be administratively burdensome to perfect the interest of the
security issuer in the underlying collateral and the underlying collateral may
become damaged or stolen.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit 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 of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, the Fund would suffer
a loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, the Fund might be delayed
in, or prevented from, selling the collateral for its benefit.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund, or are not available but may yet be developed, to the
extent such investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed those involved
in the practices described above.
Portfolio Turnover. The Fund's portfolio turnover rate is included in the
Financial Highlights section. The Fund is actively managed and, in some cases in
response to market conditions, its portfolio turnover may exceed 100%. A higher
rate of portfolio turnover increases brokerage and other expenses, which must be
borne by the Fund and its shareholders. High portfolio turnover also may result
in the realization of substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, the Fund may
invest in certain types of short-term, liquid, high-grade or high-quality debt
securities. These securities may include U.S. Government securities, qualifying
bank deposits, money market instruments, prime commercial paper and other types
of short-term debt securities, including notes and bonds. The Fund's investments
in foreign countries may include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign governmental entities,
companies and supranational organizations. While the Fund is investing for
temporary defensive purposes, it may not meet its investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Fund involves the special risk considerations described below.
Certain of these risks may be heightened when investing in emerging markets.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, since the Fund's investment portfolio includes foreign
securities, including foreign fixed-income securities, it may experience greater
price volatility and
14
<PAGE>
significantly lower liquidity than a portfolio invested solely in securities of
U.S. companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase the
cost and expenses of the Fund. In addition, the repatriation of investment
income, capital or the proceeds of sales of securities from certain of the
countries is controlled under regulations, including in some cases the need for
certain advance government notification or authority, and if a deterioration
occurs in a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
The Fund also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Fund. These factors may affect the liquidity of the Fund's
investments in any country and Alliance will monitor the effect of any such
factor or factors on the Fund's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, the Fund could
lose its entire investment in securities in the country involved. In addition,
laws in foreign countries governing business organizations, bankruptcy and
insolvency may provide less protection to security holders such as the Fund than
that provided by U.S. laws.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political conditions.
There can be no assurance, however, that losses will not occur. Since the risk
of default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
the Fund's securities than would be the case if a Fund did not invest in
lower-rated securities. In considering investments for the Fund, Alliance will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. Alliance's analysis focuses on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
Unrated Securities. Unrated securities will also be considered for investment by
the Fund when Alliance believes that the financial condition of the issuers of
such securities, or the protection afforded by the terms of the securities
themselves,
15
<PAGE>
limits the risk to the Fund to a degree comparable to that of rated securities
which are consistent with the Fund's objective and policies.
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISER
The Fund's Adviser is Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment adviser managing client accounts with assets as of June 30, 2002,
totaling more than $412 billion (of which more than $157 billion represented
assets of investment companies). As of June 30, 2002, Alliance managed
retirement assets for many of the largest public and private employee benefit
plans (including 43 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 44 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 57 registered
investment companies, managed by Alliance, comprising 145 separate investment
portfolios, currently have approximately 7.5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Fund. For these advisory services, the Fund paid Alliance as a
percentage of net assets .75% for the fiscal year ending August 31, 2002.
PORTFOLIO MANAGER
Michael A. Snyder, Senior Vice President of Alliance Capital Management
Corporation ("ACMC"), is primarily responsible for the day-to-day management of
the Fund. Mr. Snyder has served as Portfolio Manager of the Fund and has been
associated with Alliance since May 2001. Previously, he was Managing Director in
the high yield asset management group at both Donaldson, Lufkin, & Jenrette
Corporation from 1998 to 2001 and Bear Stearns & Co. from 1997 to 1998.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of the
Fund. Alliance since July 22, 1993, and prior thereto, Equitable Capital
Management Corporation, whose advisory business Alliance acquired on that date,
have served as investment adviser to the Historical Portfolio since its
inception in 1987.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of the Fund and the
Lipper High Current Yield Mutual Funds Average as a comparative benchmark. As of
December 31, 2001, the assets in the Historical Portfolio totalled approximately
$542 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Portfolio. In addition, the
performance data do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The performance data
have not been adjusted for corporate or individual taxes, if any, payable with
respect to the Historical Portfolio. The rates of return shown for the
Historical Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by funds in the survey may differ from those of the Fund and the
Historical Portfolio. This survey is published by Lipper Inc. ("Lipper"), a firm
recognized for its reporting of performance of actively managed funds. According
to Lipper, performance data are presented net of investment management fees,
operating expenses and, for funds with Rule 12b-1 plans, asset-based sales
charges.
The performance results presented below are based on percentage changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would have
produced the corresponding cumulative return had performance been constant over
the entire period. The inception date for the Historical Portfolio and Lipper
data is January 2, 1987 and for the Fund is April 22, 1997.
16
<PAGE>
Annualized Rates of Return
Periods Ended December 31, 2001
Portfolio/ Since
Benchmark 1 Year 3 Years 5 Years 10 Years Inception
--------- ------ ------- ------- -------- ---------
Historical
Portfolio ............ 0.89% -3.80% 0.02% 7.09% 7.47%
Lipper High
Current
Yield Funds
Average .............. 1.06 -1.13 1.78 6.77 7.20
Alliance High
Yield Fund ........... -4.82 -6.26 n/a n/a 0.14
Cumulative Rates of Return
Periods Ending December 31, 2001
Portfolio/ Since
Benchmark 1 Year 3 Years 5 Years 10 Years Inception
--------- ------ ------- ------- -------- ---------
Historical
Portfolio ............ 0.89% -10.98% 0.08% 98.29% 194.74%
Lipper High
Current
Yield Funds
Average .............. 1.06 -2.83 10.41 95.45 195.75
Alliance High
Yield Fund ........... -4.82 -17.62 n/a n/a 0.64
--------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
--------------------------------------------------------------------------------
How The Fund Values Its Shares
The Fund's net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, the Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund values its
securities at their current market value determined on the basis of market
quotations, or, if such quotations are not readily available, such other methods
as the Fund's directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund.
How To Buy Shares
You may purchase Advisor Class shares through your financial representative at
NAV. Advisor Class shares are not subject to any initial or contingent sales
charges or distribution expenses. You may purchase and hold shares solely:
o through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by the Fund's principal underwriter, Alliance Fund
Distributors, Inc. or AFD;
o through a self-directed defined contribution employee benefit plan (e.g.,
a 401(k) plan) that has at least 1,000 participants or $25 million in
assets;
o by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Fund; and
o through registered investment advisers or other financial intermediaries
who charge a management, consulting or other fee for their services and
who purchase shares through a broker or agent approved by AFD and clients
of such registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment adviser or
financial intermediary on the books of such approved broker or agent.
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares to be approved by AFD
for investment in Advisor Class shares. The Fund's Statement of Additional
Information has more detailed information about who may purchase and hold
Advisor Class shares.
The Fund may refuse any order to purchase Advisor Class shares. In this regard,
the Fund reserves the right to restrict purchases of Advisor Class shares
(including through exchanges) when they appear to evidence a pattern of frequent
purchases and sales made in response to short-term considerations.
How To Exchange Shares
You may exchange your Advisor Class shares for Advisor Class shares of other
Alliance Mutual Funds. Exchanges of Advisor Class shares are made at the
next-determined NAV without any sales or service charge. You may request an
exchange by mail or telephone. You must call by 4:00 p.m., Eastern time, to
receive that day's NAV. The Fund may change, suspend, or terminate the exchange
service on 60 days' written notice.
How To Sell Shares
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV after the Fund receives your sales
request in proper form. Normally, proceeds will be sent to you within 7 days. If
you recently purchased your shares by check or electronic funds transfer, you
cannot redeem any portion of it until the Fund is reasonably satisfied that the
check or electronic funds transfer has been collected (which may take up to 15
days). If you are in doubt about what procedures or documents are required by
your fee-based program or employee benefit plan to sell your shares, you should
contact your financial representative.
o Selling Shares Through Your Financial Representative
Your financial representative must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV. Your financial representative is responsible for
submitting all necessary documentation to the Fund and may charge you for this
service.
17
<PAGE>
o Selling Shares Directly to the Fund
By Mail:
-- Send a signed letter of instruction or stock power, along with
certificates, to:
Alliance Global Investor Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national stock exchange,
or other eligible guarantor institution, must guarantee signatures. Stock
power forms are available from your financial intermediary, Alliance
Global Investor Services, Inc. or AGIS, and many commercial banks.
Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries, and surviving joint owners. If
you have any questions about these procedures, contact AGIS.
By Telephone:
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AGIS at 800-221-5672 with instructions
on how you wish to receive your sale proceeds.
-- A telephone redemption request must be received by 4:00 p.m., Eastern
time, for you to receive that day's NAV.
-- If you have selected electronic funds transfer in your Shareholder
Application, the redemption proceeds may be sent directly to your bank.
Otherwise, the proceeds will be mailed to you.
-- Redemption requests by electronic funds transfer may not exceed $100,000
per day and redemption requests by check cannot exceed $50,000 per day.
-- Telephone redemption is not available for shares held in nominee or
"street name" accounts, retirement plan accounts, or shares held by a
shareholder who has changed his or her address of record within the
previous 30 calendar days.
Other
If you are a Fund shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with respect to the
purchase, sale, or exchange of Advisor Class shares of the Fund that are
different from those described in this Prospectus. A transaction, service,
administrative or other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with respect to the
purchase, sale or exchange of Advisor Class shares made through such financial
representative. Such financial intermediaries may also impose requirements with
respect to the purchase, sale or exchange of shares that are different from, or
in addition to, those imposed by the Fund, including requirements as to the
minimum initial and subsequent investment amounts.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
The Fund declares dividends on its shares each Fund business day. For Saturdays,
Sundays, and holidays, dividends will be as of the previous business day. The
Fund pays dividends on its shares after the close of business on the twentieth
day of each month or on the first day after that day if the day is not a
business day.
The Fund's income dividends and capital gains distributions, if any, declared by
the Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or in additional shares of the same class of shares of the Fund. If
paid in additional shares, the shares will have an aggregate net asset value as
of the close of business on the declaration date of the dividend or distribution
equal to the cash amount of the dividend or distribution. You may make an
election to receive dividends and distributions in cash or in shares at the time
you purchase shares. Your election can be changed at any time prior to a record
date for a dividend. There is no sales or other charge in connection with the
reinvestment of dividends or capital gains distributions. Cash dividends may be
paid in check, or at your election, electronically via the ACH network.
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of the Fund without charge by returning to
Alliance, with appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
the Fund.
While 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, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. There is no fixed dividend rate and there can be no assurance
that the Fund will pay any dividends or realize any capital gains.
For federal income tax purposes, the Fund's distributions of net income (or
short-term capital gains) will be taxable to you as ordinary income.
Distributions of long-term capital gains generally will be taxable to you as
long-term capital gains. The Fund's distributions also may be subject to certain
state and local taxes. Dividends and distributions are taxable whether you
receive them in cash or shares, or reinvest a cash distribution in additional
shares.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source.
Under certain circumstances, if the Fund realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a
18
<PAGE>
dividend, all or a portion of the dividend may subsequently be characterized as
a return of capital. Returns of capital are generally nontaxable, but will
reduce a shareholder's basis in shares of the Fund. If that basis is reduced to
zero (which could happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as capital gain.
If you buy shares just before the Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
--------------------------------------------------------------------------------
CONVERSION FEATURE
--------------------------------------------------------------------------------
CONVERSION
As described above, Advisor Class shares may be held solely through certain
fee-based program accounts, employee benefit plans and registered investment
advisory or other financial intermediary relationships, and by investment
advisory clients of, and certain persons associated with, Alliance and its
affiliates or the Fund. If a holder of Advisor Class shares (i) ceases to
participate in the fee-based program or plan, or to be associated with an
eligible investment advisor or financial intermediary or (ii) is otherwise no
longer eligible to purchase Advisor Class shares (each a "Conversion Event"),
then all Advisor Class shares held by the shareholder will convert automatically
to Class A shares of the Fund. The Fund will provide the shareholder with at
least 30 days advance notice of such conversion. The failure of a shareholder or
a fee-based program to satisfy the minimum investment requirements to purchase
Advisor Class shares will not constitute a Conversion Event. The conversion
would occur on the basis of the relative NAV of the two classes and without the
imposition of any sales load, fee or other charge.
DESCRIPTION OF CLASS A SHARES
The Class A shares of the Fund have a distribution fee of .30% under the Fund's
Rule 12b-1 plan that allows the Fund to pay distribution and service fees for
the distribution and sale of its shares. Because this fee is paid out of the
Fund's assets, Class A shares have a higher expense ratio and may pay lower
dividends and may have a lower NAV than Advisor Class shares.
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
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 AGIS by telephone, in which event you should issue written instructions
to AGIS. AGIS is not responsible for the authenticity of telephone requests to
purchase, sell, or exchange shares. AGIS 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. Dealers and
agents may charge a commission for handling telephone requests. The telephone
service may be suspended or terminated at any time without notice.
Householding. Many shareholders of the Alliance Mutual Funds have family members
living in the same home who also own shares of the same Funds. In order to
reduce the amount of duplicative mail that is sent to homes with more than one
Fund account and to reduce expenses of the Fund, all Alliance Mutual Funds will,
until notified otherwise, send only one copy of each prospectus, shareholder
report and proxy statement to each household address. This process, known as
"householding", does not apply to account statements, confirmations, or personal
tax information. If you do not wish to participate in householding, or wish to
discontinue householding at any time, call AGIS at 1-800-221-5672. We will
resume separate mailings for your account within 30 days of your request.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming investment of all dividends and
distributions). The information has been audited by Ernst & Young LLP, the
independent auditors for the Fund whose report, along with the Fund's financial
statements, is included in the Fund's Annual Report, which is available upon
request.
19
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations
-----------------------------------------
Net Realized Net Increase
Net Asset and (Decrease)
Value, Net Unrealized in Net Asset
Beginning Investment Gain (Loss) on Value From
Fiscal Year of Period Income (b) Investments Operations
---------------- --------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Alliance High Yield Fund
Year Ended 8/31/02(a) .. $ 6.50 $ .62 $(1.16) $ (.54)
Year Ended 8/31/01 ..... $ 8.10 $ .70 $(1.40) $ (.70)
Year Ended 8/31/00 ..... $ 9.47 $ .95 $(1.27) $ (.32)
Year Ended 8/31/99 ..... $10.76 $ 1.06 $(1.09) $ (.03)
Year Ended 8/31/98 ..... $11.17 $ 1.11(c) $ (.32) $ .79
<CAPTION>
Less Dividends and Distributions Less Distributions
------------------------------------------------------ ------------------
Dividends Distributions Distributions Total Net Asset Total
from Net in Excess of from Net Tax Dividends Value, Investment Return
Investment Net Investment Realized Gain Return and End of Based on Net
Fiscal Year Income Income on Investments of Capital Distributions Period Asset Value (d)
---------------- ---------- -------------- -------------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance High Yield Fund
Year Ended 8/31/02(a) .. $ (.61) $ 0.00 $ 0.00 $(.01) $ (.62) $ 5.34 (8.82)%
Year Ended 8/31/01 ..... $ (.74) $ 0.00 $ 0.00 $(.16) $ (.90) $ 6.50 (8.96)%
Year Ended 8/31/00 ..... $(1.00) $ 0.00 $ 0.00 $(.05) $ (1.05) $ 8.10 (3.47)%
Year Ended 8/31/99 ..... $(1.06) $ (.04) $ (.15) $(.01) $ (1.26) $ 9.47 (.28)%
Year Ended 8/31/98 ..... $(1.05) $ (.01) $ (.14) $0.00 $ (1.20) $ 10.76 6.68%
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------
Ratio of Ratio of Net
Net Assets, Expenses Investment Income
End of Period to Average to Average Portfolio
Fiscal Year (000's omitted) Net Assets Net Assets Turnover Rate
---------------- --------------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Alliance High Yield Fund
Year Ended 8/31/02(a) .. $95,895 1.16% 10.43% 57%
Year Ended 8/31/01 ..... $27,762 1.04% 10.92% 98%
Year Ended 8/31/00 ..... $ 2,441 1.01% 11.20% 102%
Year Ended 8/31/99 ..... $ 3,564 1.03% 10.58% 182%
Year Ended 8/31/98 ..... $ 2,256 1.14%(e) 9.25% 311%
</TABLE>
--------------------------------------------------------------------------------
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investments
Companies, and began amortizing premium on debt securities for financial
statement reporting purposes only. For the year ended August 31, 2002, the
effect of this change to the Advisor Class was to decrease net investment
income per share by $.01 and decrease net realized and unrealized loss on
investment transactions per share by $.01. Consequently, the ratio of net
investment income to average net assets decreased from 10.56% to 10.43%
for the Advisor Class. Per share, ratios and supplemental data for periods
prior to September 1, 2001 have not been restated to reflect this change
in presentation.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions of net asset value during the period, and
redemption on the last day of the period. Total return does not reflect
the deduction of taxes that a shareholder would pay on Fund distributions
or the redemption of Fund shares. Total investment return calculated for a
period of less than one year is not annualized.
(e) Net of expenses assumed and/or waived/reimbursed. If Alliance High Yield
Fund Advisor Class had borne all expenses, the expense ratio would have
been 1.16% for 1998.
Please refer to the footnotes on page 20.
20 & 21
<PAGE>
--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
--------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bond which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if: new and material circumstances arise, the
effects of which preclude satisfactory analysis; there is no longer available
reasonable up-to-date data to permit a judgment to be formed; a bond is called
for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and
22
<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
FITCH RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
23
<PAGE>
For more information about the Fund, the following documents are available upon
request:
o Annual/Semi-Annual Reports to Shareholders
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
o Statement of Additional Information (SAI)
The Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Fund's SAI is incorporated
by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
or make inquiries concerning the Fund, by contacting your broker or other
financial intermediary, or by contacting Alliance:
By Mail: c/o Alliance Global Investor Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the Commission at 1-202-942-8090 for information on the operation of
the Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing the
Commission's Public Reference Section, Wash., DC 20549-0102.
You also may find more information about Alliance and the Fund on the Internet
at www.Alliancecapital.com.
--------------------------------------------------------------------------------
Privacy Notice (This information is not part of the Prospectus.)
Alliance, the Alliance Family of Funds and Alliance Fund Distributors, Inc.
(collectively, "Alliance" or "we") understand the importance of maintaining the
confidentiality of our customers' nonpublic personal information. In order to
provide financial products and services to our customers efficiently and
accurately, we may collect nonpublic personal information about our customers
from the following sources: (1) information we receive from account
documentation, including applications or other forms (which may include
information such as a customer's name, address, social security number, assets
and income) and (2) information about our customers' transactions with us, our
affiliates and others (including information such as a customer's account
balances and account activity).
It is our policy not to disclose nonpublic personal information about our
customers (or former customers) except to our affiliates, or to others as
permitted or required by law. From time to time, Alliance may disclose nonpublic
personal information that we collect about our customers (or former customers),
as described above, to non-affiliated third party providers, including those
that perform processing or servicing functions and those that provide marketing
services for us or on our behalf pursuant to a joint marketing agreement that
requires the third party provider to adhere to Alliance's privacy policy. We
have policies and procedures to safeguard nonpublic personal information about
our customers (or former customers) which include: (1) restricting access to
such nonpublic personal information and (2) maintaining physical, electronic and
procedural safeguards that comply with federal standards to safeguard such
nonpublic personal information.
--------------------------------------------------------------------------------
SEC File No. 811-9160
24
<PAGE>
(LOGO) ALLIANCE HIGH YIELD FUND, INC.
----------------------------------------------------------------
c/o Alliance Global Investor Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2002
----------------------------------------------------------------
This Statement of Additional Information ("SAI") is not a
prospectus but supplements and should be read in conjunction with
the prospectus, dated November 1, 2002, of Alliance High
Yield Fund, Inc. (the "Fund") that offers Class A, Class B and
Class C shares of the Fund (the "Prospectus"), and the
prospectus, dated November 1, 2002, that offers the Advisor Class
shares of the Fund (the "Advisor Class Prospectus" and, together
with the Prospectus that offers the Class A, Class B and Class C
shares, the "Prospectuses"). Financial statements for the Fund
for the year ended August 31, 2002 are included in the Fund's
annual report to shareholders and are incorporated into this SAI
by reference. Copies of the Prospectuses and the Fund's annual
report may be obtained by contacting Alliance Global Investor
Services, Inc. ("AGIS") at the address or the "For Literature"
telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Portfolio Transactions
General Information
Report of Independent Auditors and
Financial Statements
Appendix A: Options A-1
Appendix B: Bond Ratings B-1
Appendix C: Certain Employee Benefit Plans C-1
----------------------
(R): This registered service mark used under license from the owner,
Alliance Capital Management L.P.
<PAGE>
----------------------------------------------------------------
DESCRIPTION OF THE FUND
----------------------------------------------------------------
The Fund is a diversified, open-ended investment company.
Except as otherwise indicated, the investment policies of the
Fund are not "fundamental policies" and may, therefore, be
changed by the Board of Directors without a shareholder vote.
However, the Fund will not change its investment policies without
contemporaneous written notice to its shareholders. The Fund's
investment objectives may not be changed without shareholder
approval. There can be, of course, no assurance that the Fund
will achieve its investment objectives.
Investment Objective
--------------------
The Fund's fundamental investment objective is to achieve
high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation. The Fund
will pursue this objective by investing primarily in a
diversified mix of high yield, below investment grade
fixed-income securities involving greater volatility of price and
risk of principal and income than higher quality fixed-income
securities. The below investment grade debt securities in which
the Fund may invest are known as "junk bonds."
Investment Policies
-------------------
The Fund attempts to achieve its objective by investing
primarily in a diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of
price and risk of principal and income than higher fixed-income
securities. The Fund will be managed to maximize current income
by taking advantage of market developments, yield disparities and
variations in the creditworthiness of issuers. The Fund will use
various strategies in attempting to achieve its objective.
Under normal circumstances, at least 80% of the Fund's net
assets will be invested in high yield debt securities rated below
investment grade by two or more NRSROs (i.e., rated lower than
Baa by Moody's Investors Services, Inc. ("Moody's") or lower than
BBB by Standard & Poor's Ratings Services ("S&P")) or unrated but
deemed by the Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser" or "Alliance"), to be
equivalent to such lower-rated securities. The Fund's policy of
investing at least 80% of its net assets in high yield debt
securities may not be changed without 60 days' prior written
notice to shareholders. In addition, for purposes of this policy,
net assets include any borrowings for investment purposes. The
Fund will not, however, invest more than 10% of its total assets
in (i) fixed-income securities which are rated lower than B3 or
B- or their equivalents by two or more NRSROs or if unrated are
of equivalent quality as determined by the Adviser, and (ii)
money market instruments of any entity which has an outstanding
issue of unsecured debt that is rated lower than B3 or B- or
their equivalents by two or more NRSROs or if unrated is of
equivalent quality as determined by the Adviser.
Certain of the Fund's investments will be in fixed-income
securities that are providing high current yields because of
risks other than credit. For example, the Fund may invest in
securities which have prepayment risks, and non-U.S. dollar
denominated foreign securities, which may have currency risks.
See Appendix B, "Bond Ratings," for a description of each
rating category. In the event that any securities held by the
Fund fall below those ratings, the Fund will not be obligated to
dispose of such securities and may continue to hold such
securities if, in the opinion of the Adviser, such investment is
considered appropriate under the circumstances.
Although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed
and other asset-backed securities, (ii) enter into repurchase
agreements, (iii) invest in loan participations and assignments
of loans to corporate, governmental, or other borrowers
originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of
securities and purchase and sell securities on a when-issued or
delayed delivery basis, (v) write covered put and call options on
fixed-income securities, securities indices and foreign
currencies and purchase put or call options on fixed-income
securities, securities indices and foreign currencies, (vi)
purchase and sell futures contracts and related options on debt
securities and on indices of debt securities, (vii) enter into
contracts for the purchase or sale of a specific currency for
hedging purposes only, (viii) invest in foreign securities and
buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation or
purchasing foreign securities provided, however, that the value
of foreign issues denominated in foreign currencies shall not
exceed 20% of the Fund's total assets and the value of foreign
issues denominated in United States currency shall not exceed 25%
of the Fund's total assets, and (ix) lend portfolio securities.
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 government that is the borrower on
the loan will be considered by the Fund to be the issuer of a
loan participation or assignment for purposes of its fundamental
investment policy that it may not invest 25% or more of its total
assets in securities of issuers conducting their principal
business activities in the same industry (i.e., foreign
government).
In addition to the foregoing, the Fund may from time to time
make investments in (1) U.S. Government Securities, (2)
certificates of deposit, bankers' acceptances, bank notes, time
deposits and interest bearing savings deposits issued or
guaranteed by certain domestic and foreign banks, (3) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not
rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests
in loans extended by banks to such companies, (4) corporate debt
obligations with remaining maturities of less than one year rated
at least high quality as well as corporate debt obligations rated
at least high grade provided the corporation also has outstanding
an issue of commercial paper rated at least A-1 by S&P or Prime-1
by Moody's, and (5) floating rate or master demand notes.
Securities Ratings. The ratings of fixed-income securities
by S&P, Moody's, and Fitch Ratings ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Additional Investment Policies and Practices
--------------------------------------------
The following additional investment policies supplement
those set forth above.
Options. The Fund may (a) write covered call options on
fixed-income securities or securities indices for the purpose of
increasing its return or to provide a partial hedge against a
decline in the value of its portfolio securities or both, (b)
write covered put options on fixed-income securities or
securities indices in order to earn additional income or (in the
case of put options written on individual securities) to purchase
the underlying securities at a price below the current market
price, (c) purchase put or call options on fixed-income
securities and securities indices in order to hedge against
changes in interest rates or stock prices which may adversely
affect the prices of securities that the Fund wants to purchase
at a later date, to hedge its existing investments against a
decline in value, or to attempt to reduce the risk of missing a
market or industry segment advance, and (d) purchase put and call
options and write covered put and call options against declines
in the dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired (i.e. as a hedge
and not for speculation).
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by the
Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid
assets in a segregated account with the Custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with the Custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates. It would realize a
loss if the price of the underlying security increased or
remained the same or did not decrease during that period by more
than the amount of the premium. If a put or call option purchased
by the Fund were permitted to expire without being sold or
exercised, its premium would be lost by the Fund.
A call option is for cross-hedging purposes if the Fund does
not own the underlying security, and is designed to provide a
hedge against a decline in value in another security which the
Fund owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Custodian liquid
assets in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would write
a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received
from writing a covered call option, while at the same time
achieving the desired hedge.
In purchasing a call option, the Fund would be in a position
to realize a gain if, during the option period, the price of the
underlying security increased by an amount in excess of the
premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund
would be obligated to purchase the underlying security at the
exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value
of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the option
holder to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction. The Fund retains the premium received
from writing a put or call option whether or not the option is
exercised. See Appendix A for a discussion of the use, risks and
costs of option trading.
The Fund may purchase or write options on securities of the
types in which it is permitted to invest in privately negotiated
(i.e., over-the-counter) transactions. The Fund will effect such
transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Adviser and the Adviser
has adopted procedures for monitoring the creditworthiness of
such entities. Options purchased or written by the Fund in
negotiated transactions are illiquid and it may not be possible
for the Fund to effect a closing transaction at a time when the
Adviser believes it would be advantageous to do so. See "Illiquid
Securities."
Options on Securities Indices. The Fund may purchase and
sell exchange-traded options on any securities index composed of
the types of securities in which it may invest. An option on a
securities index is similar to an option on a security except
that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in
the case of a put) the exercise price of the option. There are no
specific limitations on the Fund's purchasing and selling of
options on securities indices.
Through the purchase of listed index options, the Fund could
achieve many of the same objectives as through the use of options
on individual securities. Price movements in the Fund's portfolio
securities probably will not correlate perfectly with movements
in the level of the index and, therefore, the Fund would bear a
risk of loss on index options purchased by it if favorable price
movements of the hedged portfolio securities do not equal or
exceed losses on the options or if adverse price movements of the
hedged portfolio securities are greater than gains realized from
the options.
Credit Default Swap Agreements. The "buyer" in a credit
default contract is obligated to pay the "seller" a periodic
stream of payments over the term of the contract in return for a
contingent payment upon the occurrence of a credit event with
respect to an underlying reference obligation. Generally, a
credit event means bankruptcy, failure to pay, obligation
acceleration or modified restructuring. If a credit event occurs,
the seller typically must pay the contingent payment to the
buyer, which is typically the "par value" (full notional value)
of the reference obligation. The contingent payment may be a cash
settlement or by physical delivery of the reference obligation in
return for payment of the fact amount of the obligation. A Fund
may be either the buyer or seller in the transaction. If a Fund
is a buyer and no credit event occurs, the Fund may lose its
investment and recover nothing. However, if a credit event
occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value. As a
seller, a Fund receives a fixed rate of income throughout the
term of the contract, which typically is between one month and
five years, provided that no credit event occurs. If a credit
event occurs, the seller must pay the buyer the full notional
value of the reference obligation.
Credit default swaps involve greater risks than if a Fund
had invested in the reference obligation directly. In addition to
general market risks, credit default swaps are subject to
liquidity risk and credit risk. A buyer also may lose its
investment and recover nothing should no credit event occur. If a
credit event were to occur, the value of the reference
obligation, received by the seller, coupled with the periodic
payments previously received, may be less than the full notional
value it pays to the buyer, resulting in a loss of value to the
Fund.
The Fund will not enter into a credit default swap if the
swap provides for settlement by physical delivery and such
delivery would result in the Fund investing less than 80% of its
net assets in high yield debt securities or more than 10% of its
total assets in securities rated lower than B3 or 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 is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest accrues to the purchaser
prior to the settlement date. At the time the Fund enters into a
forward commitment, it will record the transaction and thereafter
reflect the value of the security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be
canceled in the event that the required condition did not occur
and the trade was canceled.
The use of forward commitments enables the Fund to protect
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher cash
yields. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values.
The Fund's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Custodian
will maintain, in a segregated account of the Fund, liquid assets
having value equal to, or greater than, any commitments to
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.
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 traders and their
customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's custodian will place cash
not available for investment or liquid assets in a segregated
account of the Fund having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into
with respect to position hedges and cross-hedges. If the value of
the securities placed in a segregated account declines,
additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
As an alternative to maintaining all or part of the segregated
account, the Fund may purchase a call option permitting the Fund
to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher than the forward
contract price or the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a
forward purchase contract at a price as high or higher than the
forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for the Fund than if it
had not entered into such contracts.
Futures Contracts and Options on Futures Contracts. The Fund
may invest in futures contracts and options thereon in order to
hedge against anticipated changes in interest rates that might
otherwise have an adverse effect on the value of the Fund's
assets or assets it intends to acquire, sell stock index futures
contracts and related options to hedge the equity portion of the
Fund's assets or equity assets it intends to acquire with regard
to market as distinguished from stock-specific risk, and enter
into futures contracts and related options on foreign currencies
in order to limit its exchange risk.
Mortgage-Related Securities. The mortgage-related securities
in which the Fund principally invests provide funds for mortgage
loans made to residential home buyers. These include securities
which represent interests in pools of mortgage loans made by
lenders such as savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are
assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations.
Interests in pools of mortgage-related securities differ
from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a monthly payment that consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred. Some
mortgage-related securities, such as securities issued by the
Government National Mortgage Association ("GNMA"), are described
as "modified pass-through." These securities entitle the holder
to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether or not
the mortgagor actually makes the payment.
The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of
principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. As prepayment rates of individual
pools vary widely, it is not possible to accurately predict the
average life of a particular pool. For pools of fixed-rate
30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will
have varying average life assumptions. The assumed average life
of pools of mortgages having terms of less than 30 years, is less
than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from
the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund. The compounding
effect from reinvestment of monthly payments received by the Fund
will increase the yield to shareholders compared with bonds that
pay interest semi-annually.
The principal governmental (i.e., backed by the full faith
and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government,
the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed
by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and
credit of the United States Government) guarantors include the
Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the
Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Pass-through securities issued by
FNMA are guaranteed as to timely payment of principal and
interest by FNMA but are not backed by the full faith and credit
of the United States Government. The Federal Home Loan Mortgage
Corporation ("FHLMC") is a corporate instrumentality of the
United States Government whose stock is owned by the twelve
Federal Home Loan Banks. Participation certificates issued by
FHLMC, which represent interests in mortgages from FHLMC's
national portfolio, are guaranteed by FHLMC as to the timely
payment of interest and ultimate collection of principal but are
not backed by the full faith and credit of the United States
Government.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may also be
the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's investment quality
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers the Adviser determines that the securities meet the
Fund's quality standards. Although the market for such securities
is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. The Fund
will not maintain more than 15% of its net assets in illiquid
securities.
Mortgage-related securities in which the Fund may invest may
also include collateralized mortgage obligations ("CMOs"). CMOs
are debt obligations issued generally by finance subsidiaries or
trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although
payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by
GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC or
any other governmental agency, or by any other person or entity.
The issuers of CMOs typically have no significant assets other
than those pledged as collateral for the obligations.
In a common structure, payments of principal, including any
principal prepayments, on the underlying mortgages are applied to
the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that
no payment of principal will be made on any class of a CMO until
all other classes having an earlier stated maturity or final
distribution date have been paid in full. One or more tranches of
a CMO may have coupon rates that reset periodically, or "float,"
at a specified increment over an index such as the London
Interbank Offered Rate ("LIBOR"). Floating-rate CMOs may be
backed by fixed or adjustable rate mortgages. To date, fixed-rate
mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the
coupon rate thereon. These caps, similar to the caps on
adjustable-rate mortgages described below, represent a ceiling
beyond which the coupon rate on a floating-rate CMO may not be
increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the
CMOs may consist of a pool of mortgages, but may also consist of
mortgage-backed bonds or pass-through securities. The Fund also
expects that governmental, government-related or private entities
may create mortgage loan pools offering pass-through investments
in addition to those described above. The mortgages underlying
these securities may be alternative mortgage instruments, that
is, mortgage instruments whose principal or interest payments may
vary or whose terms to maturity may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective, policies
and quality standards, consider making investments in such new
types of securities.
Other Asset-Backed Securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than
mortgage loans and is less likely to experience unexpected levels
of prepayments. As with mortgage-related securities, asset-backed
securities are often backed by a pool of assets representing the
obligations of a number of different parties and use similar
credit enhancement techniques.
Repurchase Agreements. The Fund may enter into repurchase
agreements pertaining to the types of securities in which it
invests with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in such securities. There is no percentage restriction
on the Fund's ability to enter into repurchase agreements. The
Fund may enter into repurchase agreements with the Custodian and
such primary dealers. 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. The Fund requires
continual maintenance by its custodian for its account in the
Federal Reserve/Treasury Book Entry System of collateral in an
amount equal to, or in excess of, the resale price. In the event
a vendor defaulted on its repurchase obligation, the Fund might
suffer a loss to the extent that the proceeds from the sale of
the collateral were less than the repurchase price. In the event
of a vendor's bankruptcy, the Fund might be delayed in, or
prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the Fund
enters into repurchase agreement transactions.
Illiquid Securities. The Fund has adopted the following
investment policy, which may be changed by the vote of the Board
of Directors.
The Fund will not maintain more than 15% of its net assets
(taken at market value) in illiquid securities. For this purpose,
illiquid securities include, among others (a) direct placements
or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will
not entertain bids or offers), (b) over-the-counter options
purchased or written by the Fund and all assets used to cover
written over-the-counter options, and (c) repurchase agreements
not terminable within seven days.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933,
as amended ("Securities Act") and securities which are otherwise
not readily marketable. Securities which have not been registered
under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
A large institutional market has developed for certain
securities that are not registered under the Securities Act
including repurchase agreements, foreign securities and corporate
bonds. Institutional investors depend on an efficient
institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
The Fund may invest up to 5% of its net assets (taken at
market value) in restricted securities, other than securities
issued under Rule 144A, 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 be resold
only in transactions that are exempt from the registration
requirements of the Securities Act and only to institutional
investors; they cannot be resold to the general public without
registration.
Securities eligible for resale under Rule 144A of the
Securities Act that have legal or contractual restrictions on
resale but have a readily available market are not deemed
illiquid for purposes of this limitation. More specifically, Rule
144A allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. An insufficient
number of qualified institutional buyers interested in purchasing
certain restricted securities held by the Fund, however, could
affect adversely the marketability of such portfolio securities
and the Fund might be unable to dispose of such securities
promptly or at reasonable prices. Rule 144A has already produced
enhanced liquidity for many restricted securities, and market
liquidity for such securities may continue to expand as a result
of this regulation and the consequent inception of the PORTAL
System sponsored by the National Association of Securities
Dealers, Inc. ("NASD"), an automated system for the trading,
clearance and settlement of unregistered securities of domestic
and foreign issuers.
The Adviser, acting under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the security;
(5) the nature of the security (including its unregistered
nature) and the nature of the marketplace for the security (e.g.,
the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (6) any
applicable Securities and Exchange Commission (the "Commission")
interpretation or position with respect to such type of
securities.
Loans of Portfolio Securities. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that liquid assets, or bank
letters of credit equal to at least 100% of the market value of
the securities loaned are deposited and maintained by the
borrower with the Fund. A principal risk 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 addition, the Fund will be exposed to the
risk that the sale of any collateral realized upon a borrower's
default will not yield proceeds sufficient to replace the loaned
securities. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed-upon amount of income from a borrower who has delivered
equivalent collateral. Any such investment of cash collateral
will be subject to the Fund's investment risks. The Fund will
have the right to regain record ownership of loaned securities or
equivalent securities in order to exercise ownership rights such
as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Fund may pay reasonable
finders, administrative and custodial fees in connection with a
loan. The Fund will not lend its portfolio securities to any
officer, director, employee or affiliate of the Fund or the
Adviser. The Board of Directors will monitor the Fund's lending
of portfolio securities.
U.S. Government Securities. U.S. Government securities may
be backed by the full faith and credit of the United States,
supported only by the right of the issuer to borrow from the U.S.
Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S. Treasury
securities, which are backed by the full faith and credit of the
United States and differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturities of one
year or less with no interest paid and hence issued at a discount
and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six
months) and U.S. Treasury bonds (generally maturities of greater
than ten years with interest payable every six months); (ii)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit
of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban
Development, the Export-Import Bank, the General Services
Administration and the Small Business Administration; and (iii)
obligations issued or guaranteed by U.S. government agencies and
instrumentalities that are not supported by the full faith and
credit of the U.S. Government, such as securities issued by FNMA
and FHLMC, and governmental CMOs. The maturities of the U.S.
Government securities listed in paragraphs (i) and (ii) above
usually range from three months to 30 years. Such securities,
except GNMA certificates, normally provide for periodic payments
of interest in fixed amount with principal payments at maturity
or specified call dates.
Securities issued by GNMA ("GNMA Certificates") differ in
certain respects from other U.S. Government securities, which
normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call
dates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These
loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan-associations -- are either insured by
the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors
through securities dealers. Once approved by GNMA, the timely
payment of interest and principal on each mortgage is guaranteed
by the full faith and credit of the United States. GNMA
Certificates also differ from other U.S. Government securities in
that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because both
interest and principal payments (including pre-payments) are
passed through to the holder of the Certificate. Upon receipt,
principal payments are used by the Portfolio to purchase
additional U.S. Government securities.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain SMRS. In
addition, other U.S. Government agencies and instrumentalities
have issued stripped securities that are similar to SMRS. Such
securities include those that are issued with an interest only
("IO") class and a principal only ("PO") class. Although these
stripped securities are purchased and sold by institutional
investors through several investment banking firms acting as
brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its
agencies or instrumentalities guarantee only the payment of
principal and interest on the securities, and do not guarantee
the securities' yield or value or the yield or value of the
shares of the Fund that holds the securities.
U.S. Government securities are considered among the safest
of fixed-income investments. As a result, however, their yields
are generally lower than the yields available from other
fixed-income securities.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skills and
experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of these
practices or may realize losses and, thus be in an worse position
than if such strategies had not been used. In addition, the
correlation between movements in the prices of such instruments
and movements in the prices of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in options,
interest rate transactions and forward commitment contracts will
depend on the availability of liquid markets in such instruments.
Markets for all these vehicles with respect to a number of
fixed-income securities are relatively new and still developing.
If, for example, a secondary market does not exist with respect
to an option purchased or written by the Fund over-the-counter,
it might not be possible to effect a closing transaction in the
option (i.e., dispose of the option) with the result that (i) an
option purchased by the Fund would have to be exercised in order
for the Fund to realize any profit and (ii) the Fund may not be
able to sell portfolio securities covering an option written by
the Fund until the option expires. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.
Certain Risk Considerations
---------------------------
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
Commission. 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 Commission 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 Commission, 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 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.
Investments in Lower-Rated and Unrated Instruments.
Substantially all of the Fund's assets will be invested in high
yield, high risk debt securities that are rated in the lower
rating categories (i.e., below investment grade) or which are
unrated but are of comparable quality as determined by the
Adviser. Debt securities rated below investment grade are those
rated Ba or lower by Moody's or BB or lower by S&P and are
considered by those organizations to be subject to greater risk
of loss of principal and interest than higher-rated securities
and are considered to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal,
which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. The
Fund may invest in securities having the lowest ratings for
non-subordinated debt instruments assigned by Moody's or S&P
(i.e., rated C by Moody's or CCC or lower by S&P) and in unrated
securities of comparable investment quality. These securities are
considered to have extremely poor prospects of ever attaining any
real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are considered to be
subject to greater market risk than higher-rated securities in
times of deteriorating economic conditions. In addition,
lower-rated securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions
than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities. The market for
lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the
prices at which these securities can be sold. To the extent that
there is no established secondary market for lower-rated
securities, the Adviser may experience difficulty in valuing such
securities and, in turn, the Fund's assets. In addition, adverse
publicity and investor perceptions about lower-rated securities,
whether or not based on fundamental analysis, may tend to
decrease the market value and liquidity of such lower-rated
securities. Transaction costs with respect to lower-rated
securities may be higher, and in some cases information may be
less available, than is the case with investment grade
securities.
Many fixed income securities, including certain U.S.
corporate fixed income securities in which the Fund may invest,
contain call or buy-back features that permit the issuer of the
security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such
a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security,
resulting in a decreased rate of return for the Fund.
Ratings of fixed-income securities by Moody's and S&P are a
generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The
rating of a security is heavily weighted by past developments and
does not necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in the credit risk of securities within each rating
category.
Non-rated securities will also be considered for investment
by the Fund when the Adviser believes that the financial
condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the
risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's objectives and
policies.
The Adviser will try to reduce the risk inherent in its
investment approach through credit analysis, diversification and
attention to current developments and trends in interest rates
and economic and political conditions. However, there can be no
assurance that losses will not occur. Since the risk of default
is higher for lower-quality securities, the Adviser's research
and credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would be
the case if the Fund did not invest in lower-rated securities. In
considering investments for the Fund, the Adviser will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. The Adviser's analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
In seeking to achieve the Fund's investment objectives,
there will be times, such as during periods of rising interest
rates, when depreciation and realization of capital losses on
securities in the Fund's portfolio will be unavoidable. Moreover,
medium and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain
market conditions. Such fluctuations after a security is acquired
do not affect the cash income received from that security but are
reflected in the net asset value of the Fund.
Risks of Investments In Foreign Securities. Foreign issuers
are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits
appearing on the financial statements of a foreign issuer may not
reflect its financial position or results of operations in the
way they would be reflected had the financial statement been
prepared in accordance with U.S. generally accepted accounting
principles. In addition, for an issuer that keeps accounting
records in local currency, inflation accounting rules in some of
the countries in which the Fund will invest require, for both tax
and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.
Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Fund will invest and could adversely
affect the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Fund. Certain countries in which the Fund will invest require
governmental approval prior to investments by foreign persons,
limit the amount of investment by foreign persons in a particular
issuer, limit the investment by foreign persons only to a
specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries other than those on which the Fund will
focus it investments may require governmental approval for the
repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. Investing in local
markets may require the portfolio to adopt special procedures,
seek local governmental approvals or take other actions, each of
which may involve additional costs to the Fund.
Income from certain investments held by the Fund could be
reduced by foreign income taxes, including withholding taxes. It
is impossible to determine the effective rate of foreign tax in
advance. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the
Fund or to entities in which the Fund has invested. The Adviser
generally will consider the cost of any taxes in determining
whether to acquire any particular investments, but can provide no
assurance that the tax treatment of investments held by the Fund
will not be subject to change.
Debt Securities. The net asset value of the Fund's shares
will change as the general levels of interest rates fluctuate.
When interest rates decline, the value of a portfolio primarily
invested in debt securities can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio primarily
invest in debt securities can be expected to decline. Certain
debt securities in which the Fund may invest are floating-rate
debt securities. To the extent that the Fund does not enter into
interest rate swaps with respect to such floating-rate debt
securities, the Fund may be subject to greater risk during
periods of declining interest rates.
Future Developments. The Fund may, following written notice
to its shareholders, take advantage of other investment practices
which are not at present contemplated for use by the Fund or
anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense by the Fund on
borrowing.
1940 Act Restrictions. Under the Investment Company Act of
1940, as amended ("1940 Act"), the Fund may invest not more than
10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Fund may not own
more than 3% of the total outstanding voting stock of any
investment company and not more than 5% of the value of the
Fund's total assets may be invested in the securities of any
investment company.
Certain Fundamental Investment Policies
---------------------------------------
The Fund has adopted several fundamental investment policies
listed below, which may not be changed without the approval of
its shareholders, which means the affirmative vote of the holders
of (i) 67% or more or the shares represented at a meeting at
which more than 50% of the outstanding shares are represented, or
(ii) more than 50% of the outstanding shares, whichever is less.
Whenever any investment restriction states a maximum percentage
of the Fund's assets which may be invested in any security or
other asset, it is intended that such maximum percentage
limitation be determined immediately after and as a result of the
Fund's acquisition of such securities or other assets.
Accordingly, any later increases or decreases in percentage
beyond the specified limitation resulting from a change in values
or net assets will not be considered a violation.
The Fund may not:
(1) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's
total assets;
(2) make an investment unless, when considering all its
other investments, 75% of the value of its assets would consist
of cash, cash items, U.S. Government Securities, securities of
other investment companies and other securities;
(3) underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws;
(4) make short sales of securities, except when it has, by
reason of ownership of other securities, the right to obtain
securities of equivalent kind and amount that will be held so
long as it is in a short position;
(5) issue senior securities;
(6) purchase real estate or mortgages; however, the Fund
may, as appropriate and consistent with its investment policies
and other investment restrictions (a) buy securities of issuers
which engage in real estate operations and securities which are
secured by interests in real estate (including partnership
interests and shares of real estate investment trusts) and (b)
may hold and sell real estate acquired as a result of ownership
of such securities;
(7) purchase any security on margin or borrow money, except
that this restriction shall not apply to (a) borrowing from banks
for temporary purposes, (b) the pledging of assets to banks in
order to transfer funds for various purposes as required without
interfering with the orderly liquidation of securities in the
Fund (but not for leveraging purposes), or (c) margin payments or
pledges in connection with options, futures contracts, options on
futures contracts, forward contracts or options on foreign
currencies;
(8) make loans except through (a) the purchase of debt
obligations in accordance with its investment objectives and
policies; (b) the lending of portfolio securities; or (c) the use
of repurchase agreements; or
(9) purchase or sell commodities (except that the Fund may
purchase and sell futures contracts and related options on debt
securities and on indices of debt securities).
Non-Fundamental Restrictions
----------------------------
The following investment restrictions are not fundamental.
They may be changed without a vote of the Fund's shareholders.
The Fund will not:
(1) invest more than 15% of its assets in securities
restricted as to disposition under federal securities laws, or
securities otherwise considered illiquid or not readily
marketable, including repurchase agreements having a maturity of
more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act,
so long as such securities meet liquidity guidelines to be
established by the Fund's Board of Directors;
(2) trade in foreign exchange (except transactions
incidental to the settlement of purchases or sales of securities
for the Fund) except in connection with its foreign currency
hedging strategies, provided the amount of foreign exchange
underlying such a currency hedging transactions does not exceed
10% of such Fund's net assets;
(3) acquire securities of any company that is a securities
broker or dealer, a securities underwriter, an investment adviser
of an investment company, or an investment adviser registered
under the Investment Advisers Act of 1940 (other than any such
company that derives no more than 15% of its gross revenues from
securities related activities), except the Fund may purchase
bank, trust company, and bank holding company stock, and except
that the Fund may invest, in accordance with Rule 12d3-1 under
the 1940 Act, up to 5% of its total assets in any such company
provided that it owns no more than 5% of the outstanding equity
securities of any class plus 10% of the outstanding debt
securities of such company;
(4) make an investment in order to exercise control or
management over a company; or
(5) borrow for temporary purposes (including the purposes
mentioned in the preceding sentence) in an amount exceeding 5% of
the value of the assets of the Fund.
<PAGE>
----------------------------------------------------------------
MANAGEMENT OF THE FUND
----------------------------------------------------------------
Board of Directors Information
The business and affairs of the Fund are managed under the
direction of the Board of Directors. Certain information
concerning the Fund's Directors is set forth below.
PORTFOLIOS IN OTHER
NAME, ADDRESS, AGE FUND COMPLEX DIRECTORSHIPS
OF DIRECTOR (YEARS PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR
------------------ ----------------------- ------------- -------------
INTERESTED DIRECTOR
John D. Carifa,** President, Chief Operating 114 None
57, Officer and a Director of
1345 Avenue of the Alliance Capital Management
Americas, Corporation, the general
New York, NY 10105 partner of Alliance ("ACMC"),
(5) with which he has been
associated since prior to 1997.
DISINTERESTED
DIRECTORS
Ruth Block,#+ 71, Formerly an Executive Vice 93 None
P.O. Box 4623, President and Chief Insurance
Stamford, CT 06903 Officer of The Equitable Life
(5) Assurance Society of the
United States; Chairman and
Chief Executive Officer of
Evlico. Formerly, a Director
of Avon, BP Amoco Corp.,
Ecolab, Inc., Tandem Financial
Group and Donaldson, Lufkin &
Jenrette Securities
Corporation.
David H. Dievler,#+ Independent consultant. Until 98 None
73, December 1994, Senior Vice
P.O. Box 167, President of ACMC responsible
Spring Lake, NJ for mutual fund
07762 (5) administration. Prior to
joining ACMC in 1984, Chief
Financial Officer of Eberstadt
Asset Management since 1968.
Prior to that, Senior Manager
at Price Waterhouse & Co.,
member of American Institute
of Certified Public
Accountants since 1953.
John H. Dobkin,#+ Consultant. Currently, 94 None
60, President of the Board of Save
P.O. Box 12, Venice, Inc. (preservation
Annandale, NY 12504 organization). Formerly a
(5) Senior Advisor (June 1999 -
June 2000) and President
(December 1989 - May 1999) of
Historic Hudson Valley
(historic preservation).
Previously, Director of the
National Academy of Design.
During 1988-92, Director and
Chairman of the Audit
Committee of ACMC.
William H. Foulk, Investment Adviser and an 110 None
Jr.,#+ 70, 2 independent consultant.
Sound View Drive, Formerly Senior Manager of
Suite 100, Barrett Associates, Inc., a
Greenwich, CT 06830 registered investment adviser,
(5) with which he had been
associated since prior to 1997.
Formerly Deputy Comptroller of
the State of New York and, prior
thereto, Chief Investment Officer
of the New York Bank for Savings.
Clifford L. Senior Counsel of the law firm 93 Placer Dome,
Michel,#+ 63, 15 of Cahill Gordon & Reindel Inc. (mining)
St. Bernard's Road, since February 2001 and a
Gladstone, NJ 07934 partner of that firm for more
(5) than twenty-five years prior
thereto. President and Chief
Executive Officer of Wenonah
Development Company
(investments).
Donald J. Senior Counsel of the law firm 107 None
Robinson,#+ 68, of Orrick, Herrington &
98 Hell's Peak Sutcliffe LLP since prior to
Road, Weston, VT 1997. Formerly a senior
05161 (5) partner and a member of the
Executive Committee of that firm.
He was also a member of the
Municipal Securities Rulemaking
Board and a Trustee of the Museum
of the City of New York.
----------------
* There is no stated term of office for the Fund's Directors.
** "Interested person", as defined in the 1940 Act, of the Fund
because of an affiliation with Alliance.
# Member of the Audit Committee.
+ Member of the Nominating Committee.
<PAGE>
The Fund's Board of Directors has two standing committees of
the Board -- an Audit Committee and a Nominating Committee. The
members of the Audit and Nominating Committees are identified
above. The function of the Audit Committee is to assist the Board
of Directors in its oversight of the Fund's financial reporting
process. The Audit Committee met twice during the Fund's most
recently completed fiscal year. The function of the Nominating
Committee is to nominate persons to fill any vacancies on the
Board of Directors. The Nominating Committee does not currently
consider for nomination candidates proposed by shareholders for
election as Directors. The Nominating Committee did not meet
during the Fund's most recently completed fiscal year.
In approving the most recent annual continuance of the
Fund's investment advisory agreement ("Advisory Agreement"), the
Directors considered all information they deemed reasonably
necessary to evaluate the terms of the Advisory Agreement. The
principal areas of review by the Directors were the nature and
quality of the services provided by the Adviser and the
reasonableness of the fees charged for those services. These
matters were considered by the disinterested directors meeting
separately from the full Board with experienced counsel that is
independent of the Adviser.
The Directors' evaluation of the quality of the Adviser's
services took into account their knowledge and experience gained
through meetings with and reports of the Adviser's senior
management, portfolio managers and administrative personnel over
the course of the preceding year. Both short-term and long-term
investment performance of the Fund, as well as senior
management's attention to any portfolio management issues, were
considered. The Fund's current and longer-term performance were
compared to its performance benchmark and to that of competitive
funds and other funds with similar investment objectives. The
Directors also considered an expense limitation agreement for the
Fund that sets expense caps on overall Fund expenses and provides
for waiver of fees by the Adviser or reimbursement if needed to
meet such caps, the scope and quality of the in-house research
capability of the Adviser and other resources dedicated to
performing its services. The quality of administrative and other
services, including the Adviser's role in coordinating the
activities of the Fund's other service providers, were considered
in light of on-going reports by management as to compliance with
investment policies and applicable laws and regulations and of
related reports by management and the Fund's independent auditors
in periodic meetings with the Fund's Audit Committee.
In reviewing the fees payable under the Advisory Agreement,
the Directors compared the fees and overall expense levels of the
Fund to those of competitive funds and other funds with similar
investment objectives. The information on advisory fees and
expense ratios, as well as performance data, included both
information compiled by the Adviser and information compiled by
an independent data service. The Directors also considered the
fees of the Fund as a percentage of assets at different asset
levels and possible economies of scale to the Adviser. The
Directors considered information provided by the Adviser
concerning the Adviser's profitability with respect to the Fund,
including the assumptions and methodology used in preparing the
profitability information, in light of applicable case law
relating to advisory fees. For these purposes, the Directors took
into account not only the fees paid by the Fund, but also
so-called "fallout benefits" to the Adviser, such as the
engagement of affiliates of the Adviser to provide distribution
and transfer agency services to the Fund, and that the Advisory
Agreement provides that the Fund reimburses the Adviser for the
cost of providing certain administrative services. In evaluating
the Fund's advisory fees, the Directors also took into account
the demands, complexity and quality of the investment management
of the Fund.
The Directors also considered the business reputation of the
Adviser and its financial resources. The Directors evaluated the
procedures and systems adopted by the Adviser that are designed
to fulfill the Adviser's fiduciary duty to the Fund with respect
to possible conflicts of interest, including the Adviser's code
of ethics (regulating the personal trading of its officers and
employees) and the allocation of trades among its various
investment advisory clients. The Directors also considered
information concerning policies and procedures of the Adviser
with respect to the execution of portfolio transactions.
No single factor was considered in isolation or to be
determinative to the decision of the Directors to approve
continuance of the Advisory Agreement. Rather, the Directors
concluded in light of a weighing and balancing of all factors
considered that it was in the best interests of the Fund to
continue its Advisory Agreement without modification to its
terms, including the fees charged for services thereunder.
The dollar range of the Fund's securities owned by each
Director and the aggregate dollar range of securities owned in
the Alliance Fund Complex are set forth below.
DOLLAR RANGE AGGREGATE DOLLAR
OF EQUITY RANGE OF EQUITY
SECURITIES IN SECURITIES IN THE
THE FUND AS OF ALLIANCE FUND COMPLEX
DECEMBER 31, 2001 AS OF DECEMBER 31, 2001
----------------- -----------------------
John D. Carifa None over $100,000
Ruth Block $1 - $10,000 over $100,000
David H. Dievler None over $100,000
John H. Dobkin None over $100,000
William H. Foulk, Jr. None over $100,000
Clifford L. Michel None over $100,000
Donald J. Robinson None over $100,000
Officer Information
-------------------
Certain information concerning the Fund's officers is set forth
below.
NAME AND ADDRESS,* POSITION(S) HELD PRINCIPAL OCCUPATION
AND (AGE) WITH FUND DURING PAST 5 YEARS
------------------ ---------------- --------------------
John D. Carifa, (57) Chairman and President, Chief
President Operating Officer
and Director of
ACMC,** with which
he has been
associated since
prior to 1997.
Kathleen A. Corbet, (42) Senior Vice Executive Vice President of
President ACMC,** with which she has been
associated since prior to 1997.
Michael A. Snyder, (39) Vice President Senior Vice President of ACMC,**
since May 2001. Previously, he
was Managing Director in the high
yield asset management group at
both Donaldson, Lufkin & Jenrette
Corporation from 1998 to 2001 and
Bear Stearns & Co. from 1997 to
1998.
Edmund P. Bergan, Jr., Secretary Senior Vice President and the
(52) General Counsel of Alliance Fund
Distributors, Inc. ("AFD")** and
AGIS,** with which he has been
associated since prior to 1997.
Andrew L. Gangolf, (47) Assistant Senior Vice President and
Secretary Assistant General Counsel of
AFD,** with which
he has been
associated since
prior to 1997.
Domenick Pugliese, (41) Assistant Senior Vice President and
Secretary Assistant General Counsel of
AFD,** with which
he has been
associated since
prior to 1997.
Mark D. Gersten, (52) Treasurer Senior Vice President of AGIS,**
and Chief with which he has been
Financial associated Officer since prior to
1997.
Vincent S. Noto, (37) Controller Vice President of
AGIS,** with which
he has been
associated since
prior to 1997.
-------------------
* The address for each of the Fund's officers is 1345 Avenue
of the Americas, New York, NY 10105.
** ACMC, AFD, and AGIS are affiliates of the Fund.
<PAGE>
The Fund does not pay any fees to, or reimburse expenses of,
its Directors who are considered "interested persons" of the
Fund. The aggregate compensation paid by the Fund to each of the
Directors during its fiscal year ended August 31, 2002, and the
aggregate compensation paid to each of the Directors during
calendar year 2001 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex"), and the total number
of registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
fund in the Alliance Fund Complex provides compensation in the
form of pensions or retirement benefits to any of its directors
or trustees. Each of the Directors is a director or trustee of
one or more other registered investment companies in the Alliance
Fund Complex.
Total Number
Total Number of Investment
of Investment Portfolios
Companies in within the
Total the Alliance Alliance Fund
Compensation Fund Complex, Complex,
from the Including the Including the
Alliance Fund, as to Fund, as to
Fund which the which the
Aggregate Complex, Director is a Director is a
Compensation Including Director or Director or
Name of Director from the Fund the Fund Trustee Trustee
---------------- ------------- ------------ ------------- -------------
John D. Carifa $-0- $-0- 53 114
Ruth Block $3,224 $186,050 43 93
David H. Dievler $3,224 $244,350 48 98
John H. Dobkin $3,224 $210,900 45 94
William H. Foulk, Jr. $3,224 $249,400 49 110
Clifford L. Michel $3,224 $199,088 44 93
Donald J. Robinson $3,224 $186,050 46 107
As of October 4, 2002, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
Adviser
-------
Alliance Capital Management L.P. (the "Adviser" or
"Alliance"), a Delaware limited partnership with principal
offices at 1345 Avenue of the Americas, New York, New York 10105,
has been retained under the Advisory Agreement to provide
investment advice and, in general, to conduct the management and
investment program of the Fund under the supervision of the
Fund's Board of Directors (see "Management of the Fund" in the
Prospectus).
Alliance is a leading global investment management firm
supervising client accounts with assets as of June 30, 2002,
totaling approximately $412 billion. Alliance provides management
services for many of the largest U.S. public and private employee
benefit plans, endowments, foundations, public employee
retirement funds, banks, insurance companies and high net worth
individuals worldwide. Alliance is also one of the largest mutual
fund sponsors, with a diverse family of globally distributed
mutual fund portfolios. As one of the world's leading global
investment management organizations, Alliance is able to compete
for virtually any portfolio assignment in any developed capital
market in the world.
Alliance, an investment adviser registered under the
Investment Advisers Act of 1940, as amended, is a Delaware
limited partnership, of which ACMC, a wholly-owned subsidiary of
AXA Financial, Inc., a Delaware corporation ("AXA Financial"), is
the general partner. ACMC is also the general partner of Alliance
Capital Management Holding L.P. ("Alliance Holding"), which is a
Delaware limited partnership whose equity interests are traded on
the Exchange in the form of units. As of June 30, 2002, Alliance
Holding owned approximately 30% of the outstanding units of
limited partnership interests in Alliance ("Alliance Units"). As
of June 30, 2002, AXA Financial and certain of its wholly-owned
subsidiaries and related entities owned approximately 52% of the
Alliance Units. AXA Financial is the wholly-owned subsidiary of
AXA, a company organized under the laws of France. AXA is the
holding company for an international group of companies in the
insurance, asset management and other financial services
businesses. Based on information provided by AXA, on March 1,
2002, approximately 17.8% of the issued ordinary shares
(representing 28.8% of the voting power) of AXA were owned
directly and indirectly by Finaxa, a French holding company. As
of March 1, 2002, 69.5% of the shares (representing 79.5% of the
voting power) of Finaxa were owned by four French mutual
insurance companies (the "Mutuelles AXA") and 22.2% of the shares
of Finaxa (representing 13.7% of the voting power) were owned by
Paribas, a French bank. On March 1, 2002, the Mutuelles AXA owned
directly or indirectly through intermediate holding companies
(including Finaxa) approximately 20.6% of the issued ordinary
shares (representing 33.2% of the voting power) of AXA.
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 furnish the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. The Adviser has contractually
agreed to waive its fee and bear certain expenses so that total
expenses do not exceed on an annual basis 1.70%, 2.40%, 2.40% and
1.40% of the aggregate average daily net assets, respectively,
for Class A, Class B, Class C and Advisor Class shares. This
contractual agreement automatically extends each year unless the
Adviser provides written notice 60 days prior to the Fund's
fiscal year end. For the services rendered by the Adviser under
the Advisory Agreement, the Fund pays the Adviser a fee at the
annual rate of .75 of 1% of the Fund's average daily net assets.
For the fiscal years ended August 31, 2000, 2001 and 2002, the
Adviser received advisory fees of $4,901,287, $4,002,476 and
$3,908,170, respectively, from the Fund.
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or its affiliates and, in such event, the services will
be provided to the Fund at cost and the payments will be
specifically approved by the Fund's Directors. For the Fund's
fiscal year ended August 31, 2002, the Fund paid to the Adviser
$141,000 for such services.
The Advisory Agreement is terminable without penalty by a
vote of a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act) 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 Advisory Agreement will continue in effect for
successive twelve-month periods (computed from each January 1),
provided, however, that such continuance is specifically approved
at least annually by a vote of a majority of the Fund's
outstanding voting securities or by the Fund's Board of
Directors, including in either case approval by a majority of the
Directors who are not parties to the Advisory Agreement or
interested persons of any such party as defined by the 1940 Act.
Most recently, continuance of the Advisory Agreement was approved
for an additional annual term by the Board of Directors,
including a majority of the Directors who are not "interested
persons" as defined in the 1940 Act, at their meeting held on
October 9, 2002.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: AFD Exchange Reserves, Alliance All-Asia Investment
Fund, Inc., Alliance Americas Government Income Trust, Inc.,
Alliance Balanced Shares, Inc., Alliance Bond Fund, Inc.,
Alliance Capital Reserves, Alliance Disciplined Growth Fund,
Inc., Alliance Dynamic Growth Fund, Inc., Alliance Emerging
Market Debt Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance Health Care
Fund, Inc., Alliance Institutional Funds, Inc., Alliance
Institutional Reserves, Inc., Alliance International Premier
Growth Fund, Inc., Alliance Mid-Cap Growth Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance Premier Growth
Fund, Inc., Alliance Quasar Fund, Inc., Alliance Select Investor
Series, Inc., Alliance Technology Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance Worldwide Privatization
Fund, Inc., AllianceBernstein Blended Style Series, Inc.,
AllianceBernstein Disciplined Value Fund, Inc., AllianceBernstein
Real Estate Investment Fund, Inc., AllianceBernstein Utility
Income Fund, Inc., EQ Advisors Trust, Sanford C. Bernstein Fund,
Inc., Sanford C. Bernstein Fund II, Inc., The Alliance
Portfolios, AllianceBernstein Trust and The Korean Investment
Fund, Inc., all registered open-end investment companies; and to
ACM Government Opportunity Fund, Inc., ACM Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Managed Dollar Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance All-Market
Advantage Fund, Inc., Alliance California Municipal Income Fund,
Inc., Alliance National Municipal Income Fund, Inc., Alliance New
York Municipal Income Fund, Inc., Alliance World Dollar
Government Fund, Inc., Alliance World Dollar Government Fund II,
Inc., The Spain Fund, Inc. and The Southern Africa Fund, Inc. all
registered closed-end investment companies.
----------------------------------------------------------------
EXPENSES OF THE FUND
----------------------------------------------------------------
Distribution Services Agreement
-------------------------------
The Fund has entered into a Distribution Services Agreement
(the "Agreement") with AFD the Fund's principal underwriter (the
"Principal Underwriter"), to permit the Principal Underwriter to
distribute the Fund's shares and to permit the Fund to pay
distribution services fees to defray expenses associated with the
distribution of its Class A shares, Class B shares and Class C
shares in accordance with a plan of distribution which is
included in the Agreement and has been duly adopted and approved
in accordance with Rule 12b-1 adopted by the Commission under the
1940 Act (the "Rule 12b-1 Plan").
During the Fund's fiscal year ended August 31, 2002, with
respect to Class A shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $217,150 which constituted .30%, annualized, of the
Fund's aggregate average daily net assets attributable to the
Class A shares during the period, and the Adviser made payments
from its own resources as described above, aggregating $393,551.
Of the $610,701 paid by the Fund and the Adviser under the Rule
12b-1 Plan with respect to the Class A shares, $1,007 was spent
on advertising, $13,917 on the printing and mailing of
prospectuses for persons other than current shareholders,
$320,058 for compensation to broker-dealers and other financial
intermediaries (including, $103,850 to the Fund's Principal
Underwriter), $70,101 for compensation to sales personnel and,
$205,618 was spent on printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the Fund's fiscal year ended August 31, 2002, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $3,121,167, which constituted 1.00%, annualized, of the Fund's
aggregate average daily net assets attributable to Class B shares
during the period, and the Adviser made payments from its own
resources, as described above, aggregating $0. Of the
$3,121,167 paid by the Fund under the Rule 12b-1 Plan, with
respect to Class B shares, $805 was spent on advertising, $27,751
on the printing and mailing of prospectuses for persons other
than current shareholders, $1,079,853 for compensation to
broker-dealers and other financial intermediaries (including,
$93,424 to the Fund's Principal Underwriter), $97,071 for
compensation to sales personnel, $123,133 was spent on printing
of sales literature, travel, entertainment, due diligence and
other promotional expenses, $888,931 was spent on interest on
Class B shares financing, and $903,623 was used to offset the
distribution service fees paid in prior years.
During the Fund's fiscal year ended August 31, 2002, with
respect to Class C shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $597,515 which constituted 1.00%, annualized, of the
Fund's aggregate average daily net assets attributable to Class C
shares during the period, and the Adviser made payments from its
own resources, as described above, aggregating $26,261. Of the
$623,776 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class C shares, $142 was spent on
advertising, $6,019 on the printing and mailing of prospectuses
for persons other than current shareholders, $561,216 for
compensation to broker-dealers and other financial intermediaries
(including, $23,373 to the Fund's Principal Underwriter), $24,947
for compensation to sales personnel, $28,755 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $2,697 was spent on
interest on Class C shares financing.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined respective contingent deferred sales
charges and respective distribution services fees on the Class B
shares, and the distribution services fee on the Class C shares
are the same as those of the initial sales charge and/or
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares under the Rule 12b-1 Plan is directly tied to the
expenses incurred by AFD. Actual distribution expenses for Class
B and Class C shares for any given year, however, will probably
exceed the distribution services fee payable under the Rule 12b-1
Plan with respect to the class involved and, in the case of Class
B and Class C shares, payments received from contingent deferred
sales charges ("CDSCs"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan with respect to the class involved and, in
the case of Class B and Class C shares, payments subsequently
received through CDSCs, so long as the Rule 12b-1 Plan is in
effect.
Unreimbursed distribution expenses incurred as of the end of
the Fund's most recently completed fiscal year, and carried over
for reimbursement in future years in respect of the Class B and
Class C shares of the Fund, were, respectively, $25,349,522
(9.88% of the net assets of Class B) and $1,513,567 (3.12% of the
net assets of Class C).
The Rule 12b-1 Plan is in compliance with rules of the NASD
which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate of
all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
In approving the Rule 12b-1 Plan, the Directors of the Fund
determined that there was a reasonable likelihood that the Rule
12b-1 Plan would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
The Adviser may from time to time and from its own funds or
such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1) with respect
to each class of the Fund, provided, however, that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the Act) of that
class, and in either case, by a majority of the Directors of the
Fund who are not parties to this agreement or interested persons,
as defined in the Act, of any such party (other than as trustees
of the Fund) and who have no direct or indirect financial
interest in the operation of the Rule 12b-1 Plan or any agreement
related thereto. Most recently, the continuance of the Agreement
for an additional annual term was approved by a vote, cast in
person, of Directors, including a majority of the Directors who
are not "interested persons" as defined in the 1940 Act, at their
Meeting held on October 9, 2002.
In the event that the Rule 12b-1 Plan is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
Registrar, Transfer Agent and Dividend-Disbursing Agent
-------------------------------------------------------
AGIS an indirect wholly-owned subsidiary of the Adviser,
located at 500 Plaza Drive, Secaucus, New Jersey 07094, acts as
each Fund's registrar, transfer agency and dividend-disbursing
agent for a fee based upon the number of account holders of each
of the Class A shares, Class B shares, Class C shares and Advisor
Class shares of the Fund. The transfer agency fee with respect to
the Class B shares and Class C shares is higher than the transfer
agency fee with respect to the Class A shares and Advisor Class
shares. For the fiscal year ended August 31, 2002, the Fund paid
AGIS $637,424 for transfer agency services.
Code of Ethics
--------------
The Fund, the Adviser and the Principal Underwriter have
each adopted codes of ethics pursuant to Rule 17j-1 of the 1940
Act. These codes of ethics permit personnel subject to the codes
to invest in securities, including securities that may be
purchased or held by the Fund.
----------------------------------------------------------------
PURCHASE OF SHARES
----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Buy Shares."
General
-------
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase ("Class A shares"), with a contingent
deferred sales charge ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or
more, without any contingent deferred sales charge ("Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge, in each case as described below. Shares of the Fund
that are offered subject to a sales charge are offered through
(i) investment dealers that are members of the NASD and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions
and other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents"), and (iii) the Principal
Underwriter.
Advisor Class shares of the Fund may be purchased and held
solely (i) through accounts established under fee-based programs,
sponsored and maintained by registered broker-dealers or other
financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by "qualified
State tuition programs" (within the meaning of Section 529 of the
Code) approved by AFD, (iv) by the categories of investors
described in clauses (i) through (iv) below under "--Sales at Net
Asset Value" (other than officers, directors and present and
full-time employees of selected dealers or agents, or relatives
of such person, or any trust, individual retirement account or
retirement plan account for the benefit of such relative, none of
whom is eligible on the basis solely of such status to purchase
and hold Advisor Class shares), or (v) by directors and present
or retired full-time employees of CB Richard Ellis, Inc.
Generally, a fee-based program must charge an asset-based or
other similar fee and must invest at least $250,000 in Advisor
Class shares of the Fund in order to be approved by the Principal
Underwriter for investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of shares.
The Fund reserves the right to suspend the sale of its shares to
the public in response to conditions in the securities markets or
for other reasons.
The public offering price of shares of the Fund is their net
asset value, plus, in the case of Class A shares, a sales charge
which will vary depending on the purchase alternative chosen by
the investor, as shown in the table below under "--Class A
Shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Charter and By-Laws as of
the next close of regular trading on the Exchange (currently 4:00
p.m. Eastern time) by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Fund business day is any day on which the
Exchange is open for trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset values of the Class A and
Advisor Class shares as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares to
be executed at the public offering price equal to their net asset
value next determined (plus applicable Class A sales charges), as
described below. Orders received by the Principal Underwriter
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the net asset
value computed as of the close of regular trading on the Exchange
on that day (plus applicable Class A sales charges). In the case
of orders for purchase of shares placed through selected dealers,
agents or financial representatives, as applicable, the
applicable public offering price will be the net asset value as
so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. (Certain selected
dealers, agents or financial representatives may enter into
operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. If the selected dealer,
agent or financial representative fails to do so, the investor's
right to that day's closing price must be settled between the
investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of
regular trading on the Exchange on the next day it is open for
trading.
Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if
the shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "For Literature" telephone number shown on the cover
of this SAI. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). Telephone purchase requests must be
received before 3:00 p.m. Eastern time on a Fund business day to
receive that day's public offering price. Telephone purchase
requests received after 3:00 p.m., Eastern time, are
automatically placed the following Fund business day, and the
applicable public offering price will be the public offering
price determined as of the close of business on such following
business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events, or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the contingent deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
shares do not bear such a fee, (iii) Class B and Class C shares
bear higher transfer agency costs than that borne by Class A and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A, Class B and Advisor Class
shareholders will vote separately by class, and (v) Class B and
Advisor Class shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently no
conflict of interest exists between or among the Class A, Class
B, Class C and Advisor Class shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares(1)
----------------------------------------------------------------
-----------
(1) Advisor Class shares are sold only to investors described
above in this section under "-- General."
The alternative purchase arrangements available with respect
to Class A shares, Class B shares and Class C shares permit an
investor to choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares, and other circumstances.
Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution
services fee and contingent deferred sales charge on Class B
shares prior to conversion, or the accumulated distribution
services fee and contingent deferred sales charge on Class C
shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans and certain employee benefit plans) for more
than $250,000 for Class B shares. (See Appendix C for information
concerning the eligibility of certain employee benefit plans to
purchase Class B shares at net asset value without being subject
to a contingent deferred sales charge and the ineligibility of
certain such plans to purchase Class A shares.) Class C shares
will normally not be suitable for the investor who qualifies to
purchase Class A shares at net asset value. For this reason, the
Principal Underwriter will reject any order for more than
$1,000,000 for Class C shares.
Class A shares are subject to a lower distribution services
fee and, accordingly, pay correspondingly higher dividends per
share than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase,
investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be
more advantageous to purchase Class B shares or Class C shares in
order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee, to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended August 31, 2000, 2001
and 2002 the aggregate amount of underwriting commission payable with
respect to shares of the Fund was $1,215,944, $1,168,594 and
$447,492, respectively. Of that amount, the Principal Underwriter
received $26,828, $72,974 and $287,913, respectively,
representing that portion of the sales charge paid on shares of
the Fund sold during the fiscal period which was not reallowed to
selected dealers (and was, accordingly, retained by the Principal
Underwriter). During the Fund's fiscal years ended August 31,
2000, 2001 and 2002, the Principal Underwriter received
contingent deferred sales charges of $19,831, $15,297 and $333,
respectively on Class A shares, $2,075,452, $1,092,552 and
$847,613, respectively on Class B shares and $69,731, $21,306 and
$14,968, respectively on Class C shares of the Fund.
Class A Shares
--------------
The public offering price of Class A shares is the net asset
value plus a sales charge, as set forth below.
Sales Charge
------------
Discount or
Commission
As % of to Dealers
As % of the Public or Agents
Amount of Net Amount Offering As % of
Purchase Invested Price Offering Price
--------- ---------- ---------- --------------
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . 1.78 1.75 1.50
--------------------
* There is no initial sales charge on transactions of
$1,000,000 or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers or agents for selling Class A
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Distribution Services Agreement described above, pay such
dealers or agents from its own resources a fee of up to 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares issued
(i) pursuant to the automatic reinvestment of income dividends or
capital gains distributions, (ii) in exchange for Class A shares
of other "Alliance Mutual Funds" (as that term is defined under
"Combined Purchase Privilege" below), except that an initial
sales charge will be imposed on Class A shares issued in exchange
for Class A shares of AFD Exchange Reserves ("AFDER") that were
purchased for cash without the payment of an initial sales charge
and without being subject to a contingent deferred sales charge
or (iii) upon the automatic conversion of Class B shares or
Advisor Class shares as described below under "--Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives reallowance
in excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act.
Investors choosing the initial sales charge alternative may
under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which investors may pay a reduced
initial sales charge are described below.
Combined Purchase Privilege. Certain persons may qualify for
the sales charge reductions indicated in the schedule of such
charges above by combining purchases of shares of the Fund into a
single "purchase," if the resulting "purchase" totals at least
$100,000. The term "purchase" refers to: (i) a single purchase by
an individual, or to concurrent purchases, which in the aggregate
are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years
purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Americas Government Income Trust, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Emerging Market Debt Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Premier Growth Fund, Inc.
Alliance Mid-Cap Growth Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Select Investor Series, Inc.
-Biotechnology Portfolio
-Premier Portfolio
-Small Cap Growth Portfolio
-Technology Portfolio
Alliance Technology Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
AllianceBernstein Blended Style Series, Inc.
-U.S. Large Cap Portfolio
AllianceBernstein Disciplined Value Fund, Inc.
AllianceBernstein Real Estate Investment Fund, Inc.
AllianceBernstein Utility Income Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
AllianceBernstein Trust
-AllianceBernstein Global Value Fund
-AllianceBernstein International Value Fund
-AllianceBernstein Small Cap Value Fund
-AllianceBernstein Value Fund
The Korean Investment Fund, Inc.
Sanford C. Bernstein Fund, Inc.
-U.S. Government Short Duration Portfolio
-Short Duration Plus Portfolio
-Intermediate Duration Portfolio
-Short Duration New York Municipal Portfolio
-Short Duration California Municipal Portfolio
-Short Duration Diversified Municipal Portfolio
-New York Municipal Portfolio
-California Municipal Portfolio
-Diversified Municipal Portfolio
-Tax-Managed International Value Portfolio
-International Value II Portfolio
-Emerging Markets Value Portfolio
Sanford C. Bernstein Fund II, Inc.
-Bernstein Intermediate Duration Institutional Portfolio
Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting AGIS at the address or the "For
Literature" telephone number shown on the front cover of this
SAI.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through a selected
dealer or agent, the investor or selected dealer or agent must
provide the Principal Underwriter with sufficient information to
verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also obtain
the reduced sales charges shown in the table above by means of a
written Statement of Intention, which expresses the investor's
intention to invest not less than $100,000 within a period of 13
months in Class A shares (or Class A, Class B, Class C and/or
Advisor Class shares) of the Fund or any other Alliance Mutual
Fund. Each purchase of shares under a Statement of Intention will
be made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the investor's
option, a Statement of Intention may include purchases of shares
of the Fund or any other Alliance Mutual Fund made not more than
90 days prior to the date that the investor signs the Statement
of Intention; however, the 13-month period during which the
Statement of Intention is in effect will begin on the date of the
earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a only a total of $60,000 during the following 13 months
in shares of the Fund or any other Alliance Mutual Fund, to
qualify for the 3.25% sales charge on the total amount being
invested (the sales charge applicable to an investment of
$100,000).
The Statement of Intention is not a binding obligation upon
the investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount. Shares purchased with the first 5% of such amount will be
held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable
to the shares actually purchased if the full amount indicated is
not purchased, and such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed shares, whether paid in cash or reinvested
in additional Fund shares, are not subject to escrow. When the
full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the
dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in the sales charge will be
used to purchase additional shares of the Fund subject to the
rate of the sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention in
conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting AGIS at the address or
telephone numbers shown on the cover of this SAI.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of the sales charges set forth in this SAI, to
an investment 13 times larger than such initial purchase. The
sales charge applicable to each succeeding monthly purchase will
be that normally applicable, under such schedule, to an
investment equal to the sum of (i) the total purchase previously
made during the 13-month period and (ii) the current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period. Sales charges
previously paid during such period will not be retroactively
adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused any or
all of his or her Class A or Class B shares of the Fund to be
redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that (i)
such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this SAI.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser (other than the Adviser's Bernstein Unit)
or its affiliates; (ii) officers and present or former Directors
of the Fund; present or former directors and trustees of other
investment companies managed by the Adviser; present or retired
full-time employees and former employees (for subsequent
investment in accounts established during the course of their
employment) of the Adviser, the Principal Underwriter, AGIS and
their affiliates; officers and directors of ACMC, the Principal
Underwriter, AGIS and their affiliates; officers, directors and
present full-time employees of selected dealers or agents; or the
spouse, sibling, direct ancestor or direct descendant
(collectively "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the
benefit of any such person or relative; or the estate of any such
person or relative, if such shares are purchased for investment
purposes (such shares may not be resold except to the Fund);
(iii) the Adviser, the Principal Underwriter, AGIS and their
affiliates, certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AGIS and their affiliates;
(iv) registered investment advisers or financial intermediaries
who charge a management, consulting or other fee for their
services and who purchase shares through a broker or agent
approved by the Principal Underwriter and clients of such
registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based
program, sponsored and maintained by a registered broker-dealer
or other financial intermediary and approved by the Principal
Underwriter, pursuant to which such persons pay an asset-based
fee to such broker-dealer or financial intermediary, or its
affiliate or agent, for service in the nature of investment
advisory or administrative services; and (vi) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), employer-sponsored nonqualified deferred
compensation plans, custodial accounts maintained pursuant to
Section 403(b)(7) retirement plans and individual retirement
accounts (including individual retirement accounts to which
simplified employee pension (SEP) contributions are made), if
such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
Class B Shares
--------------
Investors may purchase Class B shares at the public offering
price equal to the net asset value per share of the Class B
shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on the
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that are
redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100 Class B
shares at $10 per share (at a cost of $1,000) and in the second
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional Class B
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to the charge
because of dividend reinvestment. With respect to the remaining
40 Class B shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 2.0% (the applicable rate in the
second year after purchase, as set forth below).
The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as
Year Since Purchase a % of Dollar Amount Subject to Charge
------------------- --------------------------------------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services-Systematic Withdrawal Plan" below).
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long
enough for the Principal Underwriter to have been compensated for
distribution expenses incurred in the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time any
Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class
A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
--------------
Investors may purchase Class C shares at the public offering
price equal to the net asset value per share of the Class C
shares on the date of purchase without the imposition of a sales
charge either at the time of purchase or, as long as the shares
are held for one year or more, upon redemption. Class C shares
are sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment and,
as long as the shares are held for one year or more, without a
contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of purchase
will be subject to a contingent deferred sales charge of 1%,
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class C shares will be waived
on certain redemptions, as described above under "--Class B
Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are paid
to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Code, of a shareholder, (ii) to the extent that
the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2, (iii) that had
been purchased by present or former Directors of the Fund, by the
relative of any such person, by any trust, individual retirement
account or retirement plan account for the benefit of any such
person or relative, or by the estate of any such person or
relative, (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services - Systematic Withdrawal Plan" below), or
(v) sold through programs offered by financial intermediaries and
approved by AFD where such programs offer only shares which are
not subject to a contingent deferred sales charge and where the
financial intermediary establishes a single omnibus account for
each Fund.
Conversion of Advisor Class Shares to Class A Shares
----------------------------------------------------
Advisor Class shares may be held solely through the
fee-based program accounts, employee benefit plans, qualified
State tuition programs and registered investment advisory or
other financial intermediary relationships described above under
"Purchase of Shares--General," and by investment advisory clients
of, and by certain other persons associated with, the Adviser and
its affiliates or the Fund. If (i) a holder of Advisor Class
shares ceases to participate in the fee-based program or plan, or
to be associated with the investment adviser or financial
intermediary that satisfies the requirements to purchase shares
set forth under "Purchase of Shares--General" or (ii) the holder
is otherwise no longer eligible to purchase Advisor Class shares
as described in the Advisor Class Prospectus and this SAI (each,
a "Conversion Event"), then all Advisor Class shares held by the
shareholder will convert automatically to Class A shares of the
Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The
Fund will provide the shareholder with at least 30 days notice of
the conversion. The failure of a shareholder or a fee-based
program to satisfy the minimum investment requirements to
purchase Advisor Class shares will not constitute a Conversion
Event. The conversion would occur on the basis of the relative
net asset values of the two classes and without the imposition of
any sales load, fee or other charge. Class A shares currently
bear a .30% distribution services fee. Advisor Class shares do
not have any distribution services fees. As a result, Class A
shares have a higher expense ratio and may pay correspondingly
lower dividends and have a lower net asset value than Advisor
Class shares.
The conversion of Advisor Class shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to
Class A shares does not constitute a taxable event under federal
income tax law. The conversion of Advisor Class shares to Class A
shares may be suspended if such an opinion is no longer available
at the time such conversion is to occur. In that event, the
Advisor Class shareholder would be required to redeem his Advisor
Class shares, which would constitute a taxable event under
federal income tax law.
----------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
----------
Subject only to the limitations described below, the Fund's
Articles of Incorporation require that the Fund redeem the shares
tendered to it, as described below, at a redemption price equal
to their net asset value as next computed following the receipt
of shares tendered for redemption in proper form. Except for any
contingent deferred sales charge which may be applicable to Class
A shares, Class B shares or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents are
required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the Exchange is closed (other than customary weekend and
holiday closings) or during which the Commission determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the Commission) exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price normally will be made in
cash. No interest will accrue on uncashed redemption checks. The
value of a shareholder's shares on redemption or repurchase may
be more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio
securities at the time of such redemption or repurchase.
Redemption proceeds on Class A, Class B and Class C shares will
reflect the deduction of the contingent deferred sales charge, if
any. Payment received by a shareholder upon redemption or
repurchase of his or her shares, assuming the shares constitute
capital assets in his or her hands, will result in long-term or
short-term capital gain (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
"eligible guarantor institution" as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each Fund
shareholder is entitled to request redemption by electronic funds
transfer (of shares for which no share certificates have been
issued) by telephone at (800) 221-5672 if the shareholder has
completed the appropriate portion of the Subscription Application
or if an existing shareholder has not completed such portion, by
an "Autosell" application obtained from AGIS. A telephone
redemption by electronic funds transfer may not exceed $100,000
(except for certain omnibus accounts), and must be made by 4:00
p.m. Eastern time on a Fund business day as defined above.
Proceeds of telephone redemptions will be sent by electronic
funds transfer to a shareholder's designated bank account at a
bank selected by the shareholder that is a member of the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check, once in any 30-day
period, of Fund shares for which no stock certificates have been
issued by telephone at (800) 221-5672 before 4:00 p.m. Eastern
time on a Fund business day in an amount not exceeding $50,000.
Proceeds of such redemptions are remitted by check to the
shareholder's address of record. A shareholder otherwise eligible
for telephone redemption by check may cancel the privilege by
written instruction to AGIS, or by checking the appropriate box
on the Subscription Application found in the Prospectus.
Telephone Redemptions - General. During periods of drastic
economic or market developments, such as the terrorist attacks of
September 11, 2001, it is possible that shareholders would have
difficulty in reaching AGIS by telephone (although no such
difficulty was apparent at any time in connection with the
attacks). If a shareholder were to experience such difficulty,
the shareholder should issue written instructions to AGIS at the
address shown on the cover of this SAI. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Telephone redemption by check is not
available with respect to shares (i) for which certificates have
been issued, (ii) held in nominee or "street name" accounts,
(iii) held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iv) held in any
retirement plan account. Neither the Fund nor the Adviser, the
Principal Underwriter or AGIS will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
Repurchase
----------
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
-------
The Fund reserves the right to close out an account that,
through redemption, has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
----------------------------------------------------------------
SHAREHOLDER SERVICES
----------------------------------------------------------------
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of
Shares." The shareholder services set forth below are applicable
to Class A, Class B, Class C and Advisor Class shares unless
otherwise indicated. If you are an Advisor Class shareholder
through an account established under a fee-based program, your
fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of the Fund
that are different from those described herein. A transaction fee
may be charged by your financial representative with respect to
the purchase, sale or exchange of Advisor Class shares made
through such financial representative.
Automatic Investment Program
----------------------------
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form, drafts
can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact AGIS at the address or telephone numbers shown on the
cover of this SAI to establish an automatic investment program.
Exchange Privilege
------------------
You may exchange your investment in the Fund for shares of
the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by Alliance). In
addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, AGIS and
their affiliates may, on a tax-free basis, exchange Class A
shares of the Fund for Advisor Class shares of the Fund.
Exchanges of shares are made at the net asset value next
determined and without sales or service charges. Exchanges may be
made by telephone or written request. Telephone exchange requests
must be received by AGIS by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges for
purposes of determining the CDSC, if any, upon redemption and, in
the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund into
which you are exchanging before submitting the request. Call AGIS
at (800) 221-5672 to exchange uncertificated shares. Except with
respect to exchanges of Class A shares of the Fund for Advisor
Class shares of the Fund, exchanges of shares as described above
in this section are taxable transactions for federal income tax
purposes. The exchange service may be changed, suspended, or
terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless AGIS
receives written instruction to the contrary from the
shareholder, or the shareholder declines the privilege by
checking the appropriate box on the Subscription Application
found in the Prospectus. Such telephone requests cannot be
accepted with respect to shares then represented by stock
certificates. Shares acquired pursuant to a telephone request for
exchange will be held under the same account registration as the
shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should
telephone AGIS with their account number and other details of the
exchange, at (800) 221-5672 before 4:00 p.m., Eastern time, on a
Fund business day as defined above. Telephone requests for
exchange received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the terrorist attacks of September 11,
2001, it is possible that shareholders would have difficulty in
reaching AGIS by telephone (although no such difficulty was
apparent at any time in connection with the attacks). If a
shareholder were to experience such difficulty, the shareholder
should issue written instructions to AGIS at the address shown on
the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AGIS will be responsible for the
authenticity of telephone requests for exchanges that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers, agents or financial
representatives, as applicable, may charge a commission for
handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
----------------
The Fund may be a suitable investment vehicle for part or
all of the assets held in various types of retirement plans, such
as those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact AGIS at the "For Literature" telephone
number on the cover of this SAI, or write to:
Alliance Global Investor Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual
tax-deductible contributions are made within prescribed limits
based on compensation paid to participating individuals. The
minimum initial investment requirement may be waived with respect
to certain of these qualified plans.
If the aggregate net asset value of shares of the Alliance
Mutual Funds held by a qualified plan reaches $1 million on or
before December 15 in any year, all Class B or Class C shares of
the Fund held by the plan can be exchanged at the plan's request,
without any sales charge, for Class A shares of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole proprietors,
partnerships and corporations may sponsor a SEP under which they
make annual tax-deductible contributions to an IRA established by
each eligible employee within prescribed limits based on employee
compensation.
403(b)(7) Retirement Plan. Certain tax-exempt organizations
and public educational institutions may sponsor retirement 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 ("Equitable"), which serves as custodian or trustee under
the retirement plan prototype forms available from the Fund,
charges certain nominal fees for establishing an account and for
annual maintenance. A portion of these fees is remitted to AGIS
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 AGIS.
Dividend Reinvestment Program
-----------------------------
Shareholders may elect to have all income and capital gains
distributions from their account be paid to them in the form of
additional shares of the same class of the Fund pursuant to the
Fund's Dividend Reinvestment Program. No initial or contingent
deferred sales charge will be imposed on shares issued pursuant
to the Dividend Reinvestment Program. Shares issued under this
program will have an aggregate net asset value as of the close of
business on the declaration date of the dividend or distribution
equal to the cash amount of the distribution. Investors wishing
to participate in the Dividend Reinvestment Program should
complete the appropriate section of the Subscription Application.
Current shareholders should contact AGIS to participate in the
Dividend Reinvestment Program.
In certain circumstances where a shareholder has elected to
receive dividends and/or capital gain distributions in cash but
the account has been determined to be lost due to mail being
returned to us by the Postal Service as undeliverable, such
shareholder's distributions option will automatically be placed
within the Dividend Reinvestment Program for future
distributions. No interest will accrue on amounts represented by
uncashed distribution checks.
Dividend Direction Plan
-----------------------
A shareholder who already maintains, in addition to the
shareholder's Class A, Class B, Class C or Advisor Class Fund
account, a Class A, Class B, Class C or Advisor Class account
with one or more other Alliance Mutual Funds may direct that
income dividends and/or capital gains paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting AGIS at the address or the "For
Literature" telephone number shown on the cover of this SAI.
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 AGIS to establish
a dividend direction plan.
Systematic Withdrawal Plan
--------------------------
General. Any shareholder who owns or purchases shares of the
Fund having a current net asset value of at least $4,000 (for
quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by
check or electronically via the Automated Clearing House ("ACH")
network. Investors wishing to establish a systematic withdrawal
plan in conjunction with their initial investment in shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting AGIS at the address or the "For Literature"
telephone number shown on the cover of this SAI.
CDSC Waiver for Class B Shares and Class C Shares.
--------------------------------------------------
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
Class B shares that are not subject to a contingent deferred
sales charge (such as shares acquired with reinvested dividends
or distributions) will be redeemed first and will count toward
the foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest will
be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
----------------------
Each shareholder of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AGIS a shareholder can arrange for copies of his
or her account statements to be sent to another person.
Checkwriting
------------
A new Class A or Class C investor may fill out the Signature
Card which is included in the Prospectus to authorize the Fund to
arrange for a checkwriting service through State Street Bank and
Trust Company (the "Bank") to draw against Class A or Class C
shares of the Fund redeemed from the investor's account. Under
this service, checks may be made payable to any payee in any
amount not less than $500 and not more than 90% of the net asset
value of the Class A or Class C shares in the investor's account
(excluding for this purpose the current month's accumulated
dividends and shares for which certificates have been issued). A
Class A or Class C shareholder wishing to establish this
checkwriting service subsequent to the opening of his or her Fund
account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge to
the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the Bank,
as the shareholder's agent, causes the Fund to redeem, at the net
asset value next determined, a sufficient number of full and
fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented
to the Bank for payment.
----------------------------------------------------------------
NET ASSET VALUE
----------------------------------------------------------------
The per share net asset value is computed in accordance with
the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange following receipt of a
purchase or redemption order (and on such other days as the
Directors of the Fund deem necessary in order to comply with Rule
22c-1 under the 1940 Act). The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. The net asset value is calculated at the close of
business on each Fund business day.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are quoted
on such day, then the security is valued at the mean of the bid
and asked prices at the close of the Exchange on such day as
obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the
over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to those of the
United States over-the-counter market, and debt securities listed
on a U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are valued
at the last sale price. If there has been no sale on that day,
such securities will be valued at the closing bid prices on that
day.
Open futures contracts and options thereon will be valued
using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments having
60 days or less remaining until maturity are valued at amortized
cost if their original maturity was 60 days or less, or by
amortizing their fair value as of the 61st day prior to maturity
if their original term to maturity exceeded 60 days (unless in
either case the Board of Directors determines that this method
does not represent fair value).
Fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to
reflect the fair market value of such securities. The prices
provided by a pricing service take into account many factors,
including institutional size trading in similar groups of
securities and any developments related to specific securities.
Mortgage-backed and asset-backed securities may be valued at
prices obtained from a bond pricing service or at a price
obtained from one or more of the major broker/dealers in such
securities. In cases where broker/dealer quotes are obtained, the
Adviser may establish procedures whereby changes in market yields
or spreads are used to adjust, on a daily basis, a recently
obtained quoted bid price on a security.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European securities
exchanges and over-the-counter markets is normally completed well
before the close of business of each Fund business day. In
addition, trading in foreign markets may not take place on all
Fund business days. Furthermore, trading may take place in
various foreign markets on days that are not Fund business days.
The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of the
Fund's net asset value (and the offering and sales of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class
in conformance with the provisions of a plan adopted by the Fund
in accordance with Rule 18f-3 under the 1940 Act.
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------------------------------------
Until the Directors of the Fund otherwise determine, each
income dividend and capital gains distribution, if any, declared
by the Fund on its outstanding shares will, at the election of
each shareholder, be paid in cash or reinvested in additional
full or fractional shares of the Fund. Election to receive
dividends and distributions in cash or full or fractional shares
is made at the time the shares are initially purchased and may be
changed at any time prior to the record date for a particular
dividend or distribution. Cash dividends can be paid by check or,
if the shareholder so elects, electronically via the ACH network.
There is no sales or other charge in connection with the
reinvestment of dividends and capital gains distributions.
Dividends paid by the Fund, if any, with respect to Class A,
Class B, Class C and Advisor Class shares will be calculated in
the same manner, at the same time, on the same day and will be in
the same amount, except as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes.
General
-------
The Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the
Fund must, among other things, (i) derive at least 90% of its
gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currency, or
certain other income (including, but not limited to, gains from
options, futures and forward contracts) derived with respect to
its business of investing in stock, securities or currency; and
(ii) diversify its holdings so that, at the end of each quarter
of its taxable year, the following two conditions are met: (a) at
least 50% of the value of the Fund's assets is represented by
cash, cash items, U.S. Government Securities, securities of other
regulated investment companies and other securities with respect
to which the Fund's investment is limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such
issuer and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government Securities or securities of other regulated
investment companies).
If the Fund qualifies as a regulated investment company for
any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net
short-term capital loss) it will not be subject to federal income
tax on the portion of its taxable income for the year (including
any net capital gain) that it distributes to shareholders.
The Fund will also avoid the 4% federal excise tax that
would otherwise apply to certain undistributed income for a given
calendar year if it makes timely distributions to shareholders
equal to the sum of (i) 98% of its ordinary income for such year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve-month period ending on October 31 of such
year, and (iii) any ordinary income or capital gain net income
from the preceding calendar year that was not distributed during
such year. For this purpose, income or gain retained by the Fund
that is subject to corporate income tax will be considered to
have been distributed by the Fund by year-end. For federal income
and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or
December but actually paid during the following January will be
treated as if paid by the Fund on December 31 of such calendar
year, and will be taxable to these shareholders for the year
declared, and not for the year in which the shareholders actually
receive the dividend.
The Fund intends to make timely distributions of the Fund's
income so that the Fund will not be subject to federal income or
excise taxes.
The information set forth in the following discussion
relates solely to the significant United States federal income
tax consequences of dividends and distributions by the Fund and
of sales or redemptions of Fund shares, and assumes that the Fund
qualifies to be taxed as a regulated investment company.
Investors should consult their own tax counsel with respect to
the specific tax consequences of their being shareholders of the
Fund, including the effect and applicability of federal, state
and local tax laws to their own particular situation and the
possible effects of changes therein.
Dividends and Distributions. Dividends of the Fund's net
ordinary income and distributions of any net realized short-term
capital gain are taxable to shareholders as ordinary income.
Distributions of net capital gain are taxable as long-term
capital gain, regardless of how long a shareholder has held
shares in the Fund. Any dividend or distribution received by a
shareholder on shares of the Fund will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him as described above.
Dividends are taxable in the manner discussed regardless of
whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund. The investment
objective of the Fund is such that only a small portion, if any,
of the Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
After the end of the calendar year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a sale
or redemption of Fund shares generally will be capital gain or
loss except in the case of a dealer or a financial institution,
and will be long-term capital gain or loss if the shareholder has
held such shares for more than one year at the time of the sale
or redemption; otherwise it will be short-term capital gain or
loss. If a shareholder has held shares in the Fund for six months
or less and during that period has received a distribution of net
capital gain, any loss recognized by the shareholder on the sale
of those shares during the six-month period will be treated as a
long-term capital loss to the extent of the distribution. In
determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by
means of options, short sales or similar transactions is not
counted.
Any loss realized by a shareholder on a sale or exchange of
shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Qualified Plans. A dividend or capital gains distribution
with respect to shares of the Fund held by a tax-deferred or
qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing
plan, generally will not be taxable to the plan. Distributions
from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the
income earned by the qualified plan.
Backup Withholding. The Fund may be required to withhold
United States federal income tax at the rate of 30% of all
distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other types of
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
Foreign Taxes. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. The United States has entered into tax treaties with many
foreign countries which entitle the Fund to a reduced rate of
such taxes or exemption from taxes on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries is not known.
United States Federal Income Taxation of the Fund
-------------------------------------------------
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
the Code, the Fund may be subject to United States federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its shareholders. The Fund may also be subject to
additional interest charges in respect of deferred taxes arising
from such distributions or gains. Any tax paid by the Fund as a
result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A PFIC
means any foreign corporation if, for the taxable year involved,
either (i) it derives at least 75 percent 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 percent of the value (or adjusted tax basis, if
elected) of the assets held by the corporation produce "passive
income." The Fund could elect to "mark-to market" stock in a
PFIC. Under such an election, the Fund would include in income
each year an amount equal to the excess, if any, of the fair
market value of the PFIC stock as of the close of the taxable
year over the Fund's adjusted basis in the PFIC stock. The Fund
would be allowed a deduction for the excess, if any, of the
adjusted basis of the PFIC stock over the fair market value of
the PFIC stock as of the close of the taxable year, but only to
the extent of any net mark-to-market gains included by the Fund
for prior taxable years. The Fund's adjusted basis in the PFIC
stock would be adjusted to reflect the amounts included in, or
deducted from, income under this election. Amounts included in
income pursuant to this election, as well as gain realized on the
sale or other disposition of the PFIC stock, would be treated as
ordinary income. The deductible portion of any mark-to-market
loss, as well as loss realized on the sale or other disposition
of the PFIC stock to the extent that such loss does not exceed
the net mark-to-market gains previously included by the Fund,
would be treated as ordinary loss. The Fund generally would not
be subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a
mark-to-market election has been made. If the Fund purchases
shares in a PFIC and the Fund does elect to treat the foreign
corporation as a "qualified electing fund" under the Code, the
Fund may be required to include in its income each year a portion
of the ordinary income and net capital gains of the foreign
corporation, even if this income is not distributed to the Fund.
Any such income would be subject to the 90 percent and calendar
year distribution requirements described above.
Discount Obligations. Under current federal tax law, the
Fund will include in income as interest each year, in addition to
stated interest received on obligations held by the Fund, amounts
attributable to the Fund from holding (i) securities which were
initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a
price less than their stated face amount or, in the case of
Discount Obligations, at a price less than their issue price plus
the portion of "original issue discount" previously accrued
thereon, i.e., purchased at a "market discount." Current federal
tax law requires that a holder (such as the Fund) of a Discount
Obligation accrue as income each year a portion of the discount
at which the obligation was purchased by the Fund even though the
Fund does not receive interest payments in cash on the security
during the year which reflect the accrued discount. The Fund will
elect to likewise accrue and include in income each year a
portion of the market discount with respect to a Discount
Obligation or other obligation even though the Fund does not
receive interest payments in cash on the securities which reflect
that accrued discount.
As a result of the applicable rules, in order to make the
distributions necessary for the Fund not to be subject to federal
income or excise taxes, the Fund may be required to pay out as an
income distribution each year an amount significantly greater
than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be
made from the cash assets of the Fund, from borrowings or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such sales, its shareholders
may receive a larger capital gain distribution, if any, than they
would have in the absence of such sales.
Currency Fluctuations-"Section 988" Gains or Losses. Under
the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains
or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency,
or from the disposition of a forward contract denominated in a
foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of
the asset and the date of disposition also are treated as
ordinary income or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, increase or decrease
the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of the
Fund's net capital gain. Because section 988 losses reduce the
amount of ordinary dividends the Fund will be allowed to
distribute for a taxable year, such section 988 losses may 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. If such distributions
exceed such shareholder's basis, such excess will be treated as a
gain from the sale of shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each taxable year will be "marked to market"
and treated for federal income tax purposes as though sold for
fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts
generally will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded
over-the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
closing out of such options that are written by the Fund will be
treated as short-term capital gain or loss. In general, if the
Fund exercises an option, or an option that the Fund has written
is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by the Fund on the lapse or sale of
put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward foreign
currency contract, currency swap, or other position entered into
or held by the Fund in conjunction with any other position held
by the Fund may constitute a "straddle" for federal income tax
purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules
that may affect the character and timing of the Fund's gains and
losses with respect to straddle positions by requiring, among
other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
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.
Other Taxation
--------------
The Fund may be subject to other state and local taxes.
Taxation of Foreign Shareholders
--------------------------------
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their own counsel for further information as to the
United States federal income tax consequences of receipt of
income from the Fund.
----------------------------------------------------------------
PORTFOLIO TRANSACTIONS
----------------------------------------------------------------
Subject to the general supervision of the Board of Directors
of the Fund, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio
transactions of the Fund. The Fund's portfolio transactions occur
primarily with the issuers, underwriters or major dealers acting
as principals. Such transactions are normally on a net basis
which do not involve payment of brokerage commissions. The cost
of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and ask
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Consistent with the
Conduct Rules of the NASD, and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor
in the selection at dealers to enter into portfolio transactions
with the Fund.
Portfolio securities will not be purchased from or sold to
Sanford C. Bernstein & Co., LLC, an affiliate of the Adviser or
any other subsidiary or affiliate of Equitable.
----------------------------------------------------------------
GENERAL INFORMATION
----------------------------------------------------------------
Capitalization
--------------
The Fund is a Maryland corporation organized in 1986. The
authorized capital stock of the Fund consists of 3,000,000,000
shares of Class A Common Stock, $.001 par value, 3,000,000,000
shares of Class B Common Stock, $.001 par value, 3,000,000,000
shares of Class C Common Stock, $.001 par value and 3,000,000,000
shares of Advisor Class Common Stock, $.001 par value. All shares
of the Fund, when issued, are fully paid and non-assessable. Any
issuance of shares of another class or series would be governed
by the 1940 Act and the law of the State of Maryland. A
shareholder will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions
arising from the Fund's assets and, upon redeeming shares, will
receive the then current net asset value of the Fund represented
by the redeemed shares less any applicable CDSC. The Fund is
empowered to establish, without shareholder approval, additional
portfolios, which may have different investment objectives and
policies than those of the Fund, and additional classes of shares
within the Fund. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class
would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together
as a single class on matters, such as the election of Directors,
that affect each portfolio and class in substantially the same
manner. As to matters affecting each portfolio differently, such
as approval of the Advisory Agreement and changes in investment
policy, shares of each portfolio would vote as a separate series.
Class A, Class B, Class C and Advisor Class shares of the Fund
have identical voting, dividend, liquidation and other rights,
except that each class bears its own distribution and transfer
agency expenses. Each class of shares of the Fund votes
separately with respect to the Fund's Rule 12b-1 distribution
plan and other matters for which separate class voting is
appropriate under applicable law. Shares are freely transferable,
are entitled to dividends as determined by the Directors and, in
liquidation of the Fund, are entitled to receive the net assets
of the Fund. Certain additional matters relating to the Fund's
organization are discussed in this SAI.
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.
As of the close of business on October 7, 2002 there were
85,568,228 shares of common stock of the Fund outstanding,
including 11,179,568 Class A shares, 47,138,486 Class B shares,
8,808,580 Class C shares and 18,441,594 Advisor Class shares. To
the knowledge of the Fund, the following persons owned of record
or beneficially 5% or more of the outstanding shares of the Fund
as of October 7, 2002:
No. of % of
Name and Address Shares Class
---------------- ------ ------
Class A Shares
--------------
Salomon Smith Barney
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2483 801,450 7.17%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B13)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,359,959 12.16%
Class B Shares
--------------
Salomon Smith Barney
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2483 4,311,256 9.15%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B14)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 11,563,083 24.53%
Class C Shares
--------------
Salomon Smith Barney
House Account
Attn: Cindy Tempesta
333 W. 34th St. - FL. 3
New York, NY 10001-2483 1,108,223 12.58%
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B15)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 2,133,274 24.22%
Advisor Class Shares
--------------------
Collegebound Fund
CBF-Balanced Portfolio
529 Plan
500 Plaza Drive
Secaucus, NJ 07094-3619 1,932,050 10.48%
Collegebound Fund
Agressive Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Drive
Secaucus, NJ 07094-3619 1,718,490 9.32%
Collegebound Fund
Agressive Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Drive
Secaucus, NJ 07094-3619 1,081,190 5.86%
Collegebound Fund
Agressive Growth Emphasis
Age Based Portfolio 1993-1995
500 Plaza Drive
Secaucus, NJ 07094-3619 1,018,112 5.52%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1984-1986
500 Plaza Drive
Secaucus, NJ 07094-3619 2,087,873 11.21%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1987-1989
500 Plaza Drive
Secaucus, NJ 07094-3619 3,622,808 19.64%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1990-1992
500 Plaza Drive
Secaucus, NJ 07094-3619 3,628,527 19.68%
Collegebound Fund
Growth Emphasis
Age Based Portfolio 1993-1995
500 Plaza Drive
Secaucus, NJ 07094-3619 1,448,006 8.07%
Custodian
---------
The Bank of New York, 48 Wall Street, New York, NY 10286,
acts as custodian for the assets of the Fund but plays no part in
deciding the purchase or sale of portfolio securities. Subject to
the supervision of the Fund's Directors, Bank of New York may
enter into sub-custodial agreement for the holding of the Fund's
foreign securities.
Principal Underwriter
---------------------
AFD, an indirect wholly-owned subsidiary of the Adviser,
located at 1345 Avenue of the Americas, New York, New York 10105,
the principal underwriter of shares of the Fund and as such may
solicit orders from the public to purchase shares of the Fund.
Under the Distribution Services Agreement, the Fund has agreed to
indemnify the Principal Underwriter, in the absence of its
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil
liabilities, including liabilities under the Securities Act.
Counsel
-------
Legal matters in connection with the issuance of the shares
offered hereby are passed upon by Seward & Kissel LLP, New York,
New York.
Independent Auditors
--------------------
Ernst & Young LLP, 5 Times Square, New York, New York 10036,
has been appointed as independent auditor for the Fund.
Yield and Total Return Quotations
---------------------------------
From time to time, the Fund advertises its "yield" average
annual total return ("total return"), average annual total return
(after taxes on distributions) and average annual total return
(after taxes on distributions and redemptions) ("after-tax
returns"), which are computed separately for Class A, Class B,
Class C and Advisor Class shares. The Fund's yield for any 30-day
(or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Fund may also state in
sales literature an "actual distribution rate" for each class
which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question
are substituted for net investment income per share. The actual
distribution rate is computed separately for Class A, Class B,
Class C and Advisor Class shares. Quotations of yield do not
include any provision for the effect of individual income taxes.
The Fund's total return and after-tax returns are the
average annual compounded rate of return for its most recently
completed one, five and ten-year periods (or the period since the
Fund's inception). Total return and after-tax returns are
computed by finding, through the use of formulae prescribed by
the Commission, the rate of return over the periods that would
equate an assumed initial amount invested to the value of the
investment at the end of the period. For the purposes of
computing total return and after-tax returns, 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. After-tax returns are an estimate that is based on the
highest historical individual federal marginal income tax rates
and do not reflect the effect of state and local taxes.
The Fund's yield for the month ended August 31, 2002 was
9.59% for Class A shares, 9.31% for Class B shares, 9.32% for
Class C shares and 10.31% for Advisor Class shares. The Fund's
actual distribution rates for such period for Class A, Class B,
Class C and Advisor Class shares were 10.15%, 9.82%, 9.82% and
10.94%, respectively.
Returns shown in the table, for the one-, five- and ten-year
periods ended August 31, 2002 (or since inception through that
date, as noted), reflect imposition of the maximum front-end or
contingent deferred sales charges as well as conversion of Class
B shares to Class A shares after the applicable period.
12 Months Five Years Ten Years
ended ended ended
08/31/02 08/31/02 08/31/02
-------- -------- --------
Class A Return
Before Taxes (13.03)% (4.31)% (1.42)%*
Return After Taxes
on Distributions (16.35)% (8.33)% (5.51)%*
Return After Taxes
on Distributions
and Sale of
Fund Shares (7.89)% (4.94)% (2.76)%*
Class B Return
Before Taxes (13.22)% (4.14)% (1.32)%*
Class C Return
Before Taxes (10.76)% (4.14)% (1.32)%*
Advisor Return
Class Before Taxes (8.82)% (3.13)% (0.29)%*
* Inception Dates: Class A - April 22, 1997
Class B - April 22, 1997 Class C - April
22, 1997 Advisor Class - April 22, 1997
Yield, total return and after-tax returns are not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities in the
Fund's portfolio, its average portfolio maturity and its
expenses. An investor's principal invested in the Fund is not
fixed and will fluctuate in response to prevailing market
conditions.
The Fund's advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent
organizations such as Lipper Inc. and Morningstar, Inc. or
compare the Fund's performance to various indices. Advertisements
quoting performance rankings of the Fund as measured by financial
publications or by independent organizations such as Lipper Inc.
and Morningstar, Inc. and advertisements presenting the
historical record of payments of income dividends by the Fund may
also from time to time be sent to investors or placed in
newspapers, magazines such as Barrons, Business Week, Changing
Times, Forbes, Investor's Daily, Money Magazine, The New York
Times and The Wall Street Journal or other media on behalf of the
Fund.
Additional Information
----------------------
Shareholder inquiries may be directed to the shareholder's
broker or to AGIS at the address or telephone numbers shown on
the front cover of this SAI. This SAI does not contain all the
information set forth in the Registration Statement filed by the
Fund with the Commission under the Securities Act. Copies of the
Registration Statement may be obtained at a reasonable charge
from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
<PAGE>
----------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
----------------------------------------------------------------
The financial statements of Alliance High Yield Fund, Inc.
and the report of Ernst & Young LLP are incorporated herein by
reference to the Fund's annual report filing made with the SEC
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. The annual report for the year ended August 31, 2002,
was filed on October 28, 2002. The annual report is available without
charge upon request by calling AGIS at (800) 227-4618.
<PAGE>
----------------------------------------------------------------
APPENDIX A: OPTIONS
----------------------------------------------------------------
Options
-------
The Fund will only write "covered" put and call options,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the heading "Investment
Objective and Policies -- Investment Practices -- Options."
The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option,
or purchased, in the case of a put option, since with regard to
certain options, the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains the amount
of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the
writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an
investor who is the holder of a listed option may liquidate its
position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will
permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
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 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.
<PAGE>
----------------------------------------------------------------
APPENDIX B
BOND RATINGS
----------------------------------------------------------------
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. Debt rated "AA" has a very strong
capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has
a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than a debt of a higher
rated category.
The ratings from "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
MOODY'S
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
FITCH
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than 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 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 through
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.
<PAGE>
----------------------------------------------------------------
APPENDIX C:
CERTAIN EMPLOYEE BENEFIT PLANS
----------------------------------------------------------------
Employee benefit plans described below which are intended to
be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this SAI, the
following Merrill Lynch Plans are not eligible to purchase Class
A shares and are eligible to purchase Class B shares of the Fund
at net asset value without being subject to a contingent deferred
sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a daily
valuation basis, if when the plan is established as an
active plan on Merrill Lynch's recordkeeping system:
(a) the plan is one which is not already investing in
shares of mutual funds or interests in other
commingled investment vehicles of which Merrill
Lynch Asset Management, L.P. is investment adviser
or manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than $3
million or (B) the total of the sum of (x) the
employees eligible to participate in the plan and
(y) those persons, not including any such
employees, for whom a plan account having a
balance therein is maintained, is less than 500,
each of (A) and (B) to be determined by Merrill
Lynch in the normal course prior to the date the
plan is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active Plan");
or
(b) the plan is one which is already investing in
shares of or interests in MLAM Funds and the
assets of the plan have an aggregate value of less
than $5 million, as determined by Merrill Lynch as
of the date the plan becomes an Active Plan.
For purposes of applying (a) and (b), there are to
be aggregated all assets of any Tax-Qualified Plan
maintained by the sponsor of the Merrill Lynch
Plan (or any of the sponsor's affiliates)
(determined to be such by Merrill Lynch) which are
being invested in shares of or interests in MLAM
Funds, Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement between
Merrill Lynch and the principal underwriter
thereof (or one of its affiliates) and which are
being held in a Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch, but
which are recordkept on a daily valuation basis by a
recordkeeper with which Merrill Lynch has a subcontracting
or other alliance arrangement for the performance of
recordkeeping services, if the plan is determined by Merrill
Lynch to be so eligible and the assets of the plan are less
than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch Plan,
which does not purchase Class B shares of the Fund without being
subject to a contingent deferred sales charge under the above
criteria is eligible to purchase Class B shares subject to a
contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Incorporation of the Registrant -
Incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on December 20,
1996.
(b) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to the Registrant's
Registration Statement on Form N-1A (File Nos.
333-18505 and 811-09160) filed with the Securities
and Exchange Commission on December 20, 1996.
(c) Not applicable.
(d) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference to Exhibit 5 to Post-Effective Amendment
No. 1 of Registrant's Registration Statement on
Form N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange Commission
on October 31, 1997.
(e) (1) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 1 of
Registrant's Registration Statement on Form
N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange
Commission on October 31, 1997.
(2) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected
dealers offering shares of Registrant -
Incorporated by reference to Exhibit (e)(2)
to Post-Effective Amendment No. 11 of
Registrant's Registration Statement on Form
N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange
Commission on October 25, 2002.
(3) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected
agents making available shares of Registrant -
Incorporated by reference to Exhibit (e)(2)
to Post-Effective Amendment No. 11 of
Registrant's Registration Statement on Form
N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange
Commission on October 25, 2002.
(f) Not applicable.
(g) Custody Agreement between the Registrant and The
Bank of New York - Incorporated by reference to
Exhibit 8 to Post-Effective Amendment No. 1 of
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on October 31,
1997.
(h) Transfer Agency Agreement between the Registrant
and Alliance Global Investor Services, Inc. -
Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 1 of Registrant's
Registration Statement on Form N-1A (File Nos.
333-18505 and 811-09160) filed with the Securities
and Exchange Commission on October 31, 1997.
(i) Opinion and Consent of Seward & Kissel LLP -
Incorporated by reference to Exhibit (i) to
Post-Effective Amendment No. 11 of Registrant's
Registration Statement on Form N-1A (File Nos.
333-18505 and 811-09160) filed with the
Securities and Exchange Commission on October
25, 2002.
(j) Consent of Independent Auditors - Incorporated by
reference to Exhibit (j) to Post-Effective
Amendment No. 11 of Registrant's Registration
Statement on Form N-1A (File Nos. 333-18505 and
811-09160) filed with the Securities and Exchange
Commission on October 25, 2002.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1) hereto.
(n) Rule 18f-3 Plan - Incorporated by reference to
Exhibit 18 to Pre-Effective Amendment No. 1 of the
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on April 3,
1997.
(p) (1) Code of Ethics for the Fund, incorporated by
reference to Exhibit (p)(1) to Post-Effective
Amendment No. 74 of the Registration
Statement on Form N-1A of Alliance Bond Fund,
Inc. (File Nos. 2-48227 and 811-2383), filed
with the Securities and Exchange Commission
on October 6, 2000, which is substantially
identical in all material respects except as
to the party which is the Registrant.
(2) Code of Ethics for the Alliance Capital
Management L.P. and Alliance Fund
Distributors, Inc. incorporated by reference
to Exhibit (p)(2) to Post-Effective Amendment
No. 31 of the Registration Statement on Form
N-1A of Alliance Variable Products Series
Fund, Inc. (File Nos. 33-18647 and 811-5398),
filed with the Securities and Exchange
Commission on April 27, 2001.
OTHER EXHIBITS:
Powers of Attorney of John D. Carifa, Ruth Block,
David H. Dievler, John H. Dobkin, William H.
Foulk, Clifford L. Michel, and Donald J. Robinson
- Incorporated by reference to Other Exhibits to
Post-Effective Amendment No. 76 of the
Registration Statement on Form N-1A of Alliance
Bond Fund, Inc. (File Nos. 333-41375 and
811-08527) filed with the Securities and Exchange
Commission on February 27, 2001.
ITEM 24. Persons Controlled by or under Common Control with the
Fund.
None.
ITEM 25. 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 (a) in response to Item
23, Article VII and Article VIII of Registrant's
By-Laws, filed as Exhibit (b) in response to Item 23,
and Section 10 of the proposed Distribution Services
Agreement, filed as Exhibit (e)(1) in response to Item
23, 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 (d) in
response to Item 23, 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
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 [5~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.
(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.
(4) A corporation may not indemnify a director or
advance expenses under this section for a
proceeding brought by that director against
the corporation, except:
(i) For a proceeding brought to enforce
indemnification under this seciton; or
(ii) If the charter or bylaws of the
corporation, a resolution of the board of
directors of the corporation, or an agreement
approved by the board of directors of the
corporation to which the corporation is a party
expressly provide otherwise.
(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. 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
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 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 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.
(1) 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 money
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 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 or she 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 or her 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
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 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
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 proposed 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 proposed 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 proposed Advisory Agreement between
Registrant and Alliance Capital Management L.P. and the
proposed Distribution Services Agreement between
Registrant and Alliance Fund Distributors, Inc. which
are filed herewith as Exhibits (a), (b), (d) and
(e)(1), respectively, in response to Item 23 and each
of which are incorporated by reference herein.
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 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 26. 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 27. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale
of shares of the Registrant. Alliance Fund
Distributors, Inc. also acts as Principal
Underwriter or Distributor for the following
investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Americas Government Income Trust
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Disciplined Growth Fund, Inc.
Alliance Dynamic Growth Fund, Inc.
Alliance Emerging Market Debt Fund, Inc.
Alliance Global Growth Trends Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Premier Growth Fund, Inc.
Alliance Mid-Cap Growth Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
AllianceBernstein Blended Style Series, Inc.
AllianceBernstein Disciplined Value Fund, Inc.
AllianceBernstein Real Estate Investment Fund, Inc.
AllianceBernstein Trust
AllianceBernstein Utility Income Fund, Inc.
Sanford C. Bernstein Fund, Inc.
The Alliance Portfolios
The Korean Investment Fund, Inc.
(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.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa Director President,
Director
Richard K. Saccullo Director
Robert L. Errico Director and President
David Conine Executive Vice President
Richard A. Davies Executive Vice President
and Managing Director
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Benji A. Baer Senior Vice President
Amy I. Belew Senior Vice President
John R. Bonczek Senior Vice President
John R. Carl Senior Vice President
William W. Collins, Jr. Senior Vice President
Richard W. Dabney Senior Vice President
Mark J. Dunbar Senior Vice President
John C. Endahl Senior Vice President
John Edward English Senior Vice President
John A. Gagliano Senior Vice President
Andrew L. Gangolf Senior Vice President Assistant
and Assistant General Secretary
Counsel
John Grambone Senior Vice President
William B. Hanigan Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President
George H. Keith Senior Vice President
Richard D. Keppler Senior Vice President
Richard E. Khaleel Senior Vice President
Henry Michael Lesmeister Senior Vice President
Susan L. Matteson-King Senior Vice President
Shawn P. McClain Senior Vice President
Daniel D. McGinley Senior Vice President
Patrick J. Mullen Senior Vice President
Joanna D. Murray Senior Vice President
Daniel A. Notto Senior Vice President
John J. O'Connor Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Domenick Pugliese Senior Vice President Assistant
and Assistant General Secretary
Counsel
John P. Schmidt Senior Vice President
Kurt H. Schoknecht Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Scott C. Sipple Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Michael J. Tobin Senior Vice President
Joseph T. Tocyloski Senior Vice President
David R. Turnbough Senior Vice President
Craig E. Welch Senior Vice President
Richard A. Winge Senior Vice President
Emilie D. Wrapp Senior Vice President
and Assistant General
Counsel
Keith A. Yoho Senior Vice President
Patrick E. Ryan Vice President and
Chief Financial Officer
Gerard J. Friscia Vice President &
Controller
Michael W. Alexander Vice President
Ricardo Arreola Vice President
Peter J. Barber Vice President
Kenneth F. Barkoff Vice President
Charles M. Barrett Vice President
Matthew F. Beaudry Vice President
Gregory P. Best Vice President
Dale E. Boyd Vice President
Robert F. Brendli Vice President
Thomas C. Callahan Vice President
Kevin T. Cannon Vice President
John M. Capeci Vice President
John P. Chase Vice President
Doris T. Ciliberti Vice President
Leo H. Cook Vice President
Russell R. Corby Vice President
Dwight P. Cornell Vice President
Michael R. Crimmins Vice President
John W. Cronin Vice President
Robert J. Cruz Vice President
Daniel J. Deckman Vice President
Sherry V. Delaney Vice President
Faith C. Deutsch Vice President
Janet B. DiBrita Vice President
Richard P. Dyson Vice President
Adam E. Engelhardt Vice President
Sohaila S. Farsheed Vice President
John J. Fennessy Vice President
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Hyman Glasman Vice President
Thomas R. Graffeo Vice President
Timothy J. Greeley Vice President
Alan Halfenger Vice President
Michael S. Hart Vice President
Jean-Francois Y. Hautemulle Vice President
Timothy A. Hill Vice President
George R. Hrabovsky Vice President
Dinah J. Huntoon Vice President
Scott Hutton Vice President
Anthony D. Ialeggio Vice President
Theresa Iosca Vice President
Oscar J. Isoba Vice President
Danielle M. Klaskow Vice President
Victor Kopelakis Vice President
Richard D. Kozlowski Vice President
Daniel W. Krause Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
Joseph R. Laspina Vice President
Eric L. Levinson Vice President
Laurel E. Lindner Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Michael F. Mahoney Vice President
Scott T. Malatesta Vice President
Kathryn Austin Masters Vice President
Jeffrey P. Mellas Vice President
Michael V. Miller Vice President
Marcia L. Mohler Vice President
Thomas F. Monnerat Vice President
Charles B. Nanick Vice President
Michael F. Nash, Jr. Vice President
Timothy H. Nasworthy Vice President
Jamie A. Nieradka Vice President
Nicole Nolan-Koester Vice President
Peter J. O'Brien Vice President
Richard J. Olszewski Vice President
Albert Orokos Vice President
Todd P. Patton Vice President
Jeffrey R. Petersen Vice President
Catherine N. Peterson Vice President
Mark A. Pletts Vice President
James J. Posch Vice President
Carol H. Rappa Vice President
John D. Raring Vice President
Arlene L. Reddington Vice President
Bruce W. Reitz Vice President
James A. Rie Vice President
Karen C. Satterberg Vice President
Eileen B. Sebold Vice President
Stephanie Seminara Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Rayandra E. Slonina Vice President
Bryant B. Smith Vice President
Jeffrey C. Smith Vice President
William J. Spector Vice President
Eileen Stauber Vice President
Gordon Telfer Vice President
Elizabeth K. Tramo Vice President
Benjamin H. Travers Vice President
Michael D. Underhill Vice President
Marie R. Vogel Vice President
Wayne W. Wagner Vice President
Jesse L. Weissberger Vice President
Mark E. Westmoreland Vice President
Paul C. Wharf Vice President
Scott Whitehouse Vice President
Matthew Witschel Vice President
Michael A. Wolfsmith Vice President
Stephen P. Wood Vice President
Richard J. Appaluccio Assistant Vice President
Omar J. Aridi Assistant Vice President
Joseph D. Asselta Assistant Vice President
Andrew Berger Assistant Vice President
Susan Bieber Assistant Vice President
Paul G. Bishop Assistant Vice President
Daniel U. Brakewood Assistant Vice President
Henry Brennan Assistant Vice President
Alan T. Brum Assistant Vice President
Mark S. Burns Assistant Vice President
Maria L. Carreras Assistant Vice President
Judith A. Chin Assistant Vice President
Jorge Ciprian Assistant Vice President
Jeffrey T. Coghan Assistant Vice President
Kenneth J. Connors Assistant Vice President
Shawn M. Conroy Assistant Vice President
Jean A. Coomber Assistant Vice President
Jennifer M. DeLong Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Timothy J. Donegan Assistant Vice President
Bernard J. Eng Assistant Vice President
Jeffrey M. Eschert Assistant Vice President
Michael J. Eustic Assistant Vice President
Marci Green Assistant Vice President
Arthur F. Hoyt, Jr. Assistant Vice President
Mark W. Hubbard Assistant Vice President
David A. Hunt Assistant Vice President
Kumar Jagdeo II Assistant Vice President
Michael J. Kawula Assistant Vice President
Elizabeth E. Keefe Assistant Vice President
Edward W. Kelly Assistant Vice President
Thomas J. Khoury Assistant Vice President
Jeffrey M. Kusterer Assistant Vice President
Evamarie C. Lombardo Assistant Vice President
Gary D. McConnel Assistant Vice President
Daniel K. McGouran Assistant Vice President
Richard F. Meier Assistant Vice President
Steven M. Miller Assistant Vice President
Jeffrey D. Mosco Assistant Vice President
Alex E. Pady Assistant Vice President
Wandra M. Perry-Hartsfield Assistant Vice President
Rizwan A. Raja Assistant Vice President
Brendan J. Reynolds Assistant Vice President
Patricia Ridella Assistant Vice President
Lauryn A. Rivello Assistant Vice President
Christopher P. Rodney Assistant Vice President
Peter V. Romeo Assistant Vice President
Jessica M. Rozman Assistant Vice President
Christina Santiago Assistant Vice
President and Counsel
Matthew J. Scarlata Assistant Vice President
John Scialabba Assistant Vice President
Orlando Soler Assistant Vice President
Nancy D. Testa Assistant Vice President
Elsia M. Vasquez Assistant Vice President
Tracianne Williams Assistant Vice President
Nina C. Wilkinson Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 28. 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
Global Investor Services, Inc., 500 Plaza Drive,
Secaucus, New Jersey, 07094 and at the offices of The
Bank of New York, 48 Wall Street, New York, New York
10286. All other records so required to be maintained
are maintained at the offices of Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York,
New York, 10105.
ITEM 29. Management Services.
Not applicable.
ITEM 30. Undertakings.
Not applicable.
<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 the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 29th day of October, 2002.
ALLIANCE HIGH YIELD FUND, INC.
By: /s/ John D. Carifa
------------------
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the 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:
By: /s/ John D. Carifa Chairman and October 29, 2002
------------------- President
John D. Carifa
2. Principal Financial and
Accounting Officer:
By: /s/ Mark D. Gersten Treasurer and October 29, 2002
-------------------- Chief Financial
Mark D. Gersten Officer
3. All of the Directors:
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Clifford L. Michel
Donald J. Robinson
By: /s/ Edmund P. Bergan, Jr. October 29, 2002
-------------------------
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
<PAGE>
Index to Exhibits
Exhibit No. Description of Exhibits
00250.0233 #335964v2
</TEXT>
</DOCUMENT>